Campaign Economic Promises... Big Sigh

July 2024

It’s four months until the election, so let’s get in front of the breathless campaign soundbites. This is not The Most Important Election in our Lifetime. You should not act on any temptation to sell everything in your portfolio because the other candidate might win.

At some point in the last twenty years - is it six in a row that have been Most Important? - your preferred candidate lost. The world didn’t end. Bonds still made their payments. Stocks went up. A lot.

It is that simple. We can make it more complicated, if we let It’s Different This Time get inside our heads. Of course each election is a little different. Which makes 2024 unremarkable.

The partys’ policy platforms mean well, but will expand the budget deficit materially. Overspending is a function of lack of accountability. Debt ceiling standoffs don’t count, in my opinion. But who wants to inherit a country where the biggest budget item is paying interest? It’s a no-win setup: the next administration either continues feeding the habit, or makes unpopular cuts.

We voters and politicians will end up tolerating the habit, because we’re hooked. We can’t stop ourselves.

Why should we? We’re the best, most vibrant economy in the world, and no other country is going to interrupt that. Not China and not India. But taking on new debt today is like eating candy instead of a balanced meal. Sweets are stimulating but can lead to weight gain. We’d be much healthier in the long run if we had better habits. Someday - and we won’t know when - it will catch up with us. If only there were fiscal Ozempic!

It’s a bit inaccurate to say the S&P 500 has had a good first half of 2024. It has - up about 15% - but about seven stocks have rocketed higher. The other 493 are about flat. The seven are exceptionally expensive tech stocks, tied in large part to the AI revolution.

This table shows how rarely the stock market is concentrated into such extended success for so few names. There hasn't been this degree of imbalance in the performance of the largest S&P 500 companies for sixty years. I am excited for the prospect of AI and how it will improve our quality of life, but I also believe in diversification for when the rest of the investment world starts to outperform those largest stocks.

Sincerely,

Chip