Investors are urged to periodically ask themselves, “If I did not already own this stock, would I buy it now?” If the answer is no, perhaps it’s time to sell. In the past, I’ve asked that same question of things I own or do besides stocks. It occurs to me to ask the same question of the new administration in Washington, DC.
Donald Trump is certainly the public face of the new administration. He said before the election that he would leave the hard work to the Vice President. Who’s minding the store? Trump reminds me of Oz, the Great and Powerful, in the Wizard of Oz movie: demanding, bombastic, flaming something or other, bigger than life . The question is: who is behind the curtain pulling the levers of power? Steve Bannon is on my shortlist. There are others in the administration and out of it, back in the shadows, behind the curtain. What is their agenda? What should we consider their forward guidance and mission statement, if they would make it public? The Cabinet members, advisors, etc. have pasts, much of it public. Trump has already issued many Executive Orders and some legislation has already been introduced.
Their agenda looks like rolling back the clock: repeal the Affordable Care Act (2010), parts of the Dodd-Frank Act (also 2010), the Clear Water (1972) and Clean Air (1963) Acts, the Civil Rights Act (1964), abolish the Department of Education (1980) and the Department of Energy (1977), overturn Roe v. Wade (1973) and Brown v. Board of Education (1954). So the forward guidance is backwards to the early 50s, the McCarthy era, though with some key differences (see below).
The United States, like most countries in the free world, is in a constant struggle between the champions of aristocracy and the champions of economic and social mobility for everyone. In the US, originally only white property owners could vote. Officially, the US had no aristocracy or nobility, but land owners looked and acted remarkably like the nobility, just without “titles”. We have moved towards universal suffrage, i.e., every mentally competent adult can vote. One quarter of the adult population voted for Trump, slightly more for Clinton, plus the various third parties. Who didn’t vote? A sizable portion of minority populations are in prison and cannot vote. Voter suppression measures also keep sizable portions of the population from voting. This administration seems inclined to increase those portions. There are now more African-American adult males in prison than were enslaved in 1860.
Up until the Civil War, the aristocracy in the South was more obvious, owners of the large plantations with slaves. The slave’s “free labor” kept poor whites in poverty, they couldn’t compete with free. Upward social or economic mobility was almost nil.
The North was largely small craftsmen, farmers, and manufacturers. There was more social and economic mobility in the North, though income and wealth inequality were present everywhere. It is ironic that to win the Civil War, Lincoln industrialized much of the North. That industrialization would lead to the huge increase in wealth inequality and urban poverty of the Gilded Age.
Starting in the 50s, opportunities open to the poor and middle class were expanding. Recent studies have found that this stalled in the 1970s. The aristocracy was halting earlier gains. It is probably the reversing of the mobility trend in the last decade or two that has lead to the vanishing middle class and increase in the poor and unemployed. Their jobs are vanishing to other countries (often temporarily) and more importantly to automation. Silicon Valley and Amazon may have taken more jobs away than China and the Third World.
Trump seems to jump this way and that, showing little consistency, except where the power and wealth of his family is concerned (e.g. repeal of the estate tax), deflecting criticism (usually as “fake news”) and blaming others for mistakes. However, glimpses behind the scenes suggest an agenda with years, perhaps decades, of planning behind it, most of it not Trump’s.
This attempted return to 1952 has a few key differences. In 1960, top executives rarely made more than 40 times the lowest paid employee. That figure is now often 400 times or more. It is unlikely this Washington will do anything to reduce that.
In 1960, the US had an enemy that could seriously seriously challenge it in conventional warfare. Now, there are none except possibly in defense of their own homeland, but there as elsewhere the real threat is guerrilla and unconventional warfare. No country has figured out how to win a counter-insurgency.
In 1960, the US had an effective system of checks and balances so no branch or person could dominate. That system is under serious attack.
Returning to the original question, would I “buy” stock in America or keep what I have, based on I what know and expect from the new administration? If not a buy, is my current holding a sell or a hold? To what extent should I divest, or become an activist investor, or even a short seller? What does that mean in practical terms, actions?
Past performance is no guarantee of future returns. All investments are subject to risk.