Long time readers know we are fairly neutral about the impact of politics on investing. Our American system of checks and balances has served us well through the decades. The worst fears of those who let politics govern their investments may have not come about.
At the root, however, politics can affect policy that has an impact on the economy and markets. We prefer public policy that enables the greatest number of people to engage in the greatest amount of productive endeavor and enjoy prosperity. This is not always what we get.
There are two things being talked about in Washington that are problematic, in our view. Checks and balances may see us through, or we may end up with policies that hurt our economy.
In theory, trade lets us get more for things we produce and pay less for things we use. America and the rest of the world are potentially better off for it. But there is a political desire to put tariffs in place against major trading partners, we believe primarily for the sake of putting tariffs in place. A narrow slice of people and companies might benefit, but the economy may be hurt overall.
If trade volumes are materially restricted, average family incomes and corporate earnings are likely to decline, and the economy and the stock market may not do as well as they could.
Another thing: if you have ancestors that came from Germany, Ireland, England, Italy, Poland, France, India, Scotland, Norway, or anywhere else, some people that were already here were opposed to those immigrant ancestors of yours. But we believe that America is more prosperous today, with higher average incomes, because of the legacy your ancestors and others left.
But on top of the desire to fix our immigration laws so they make sense and are enforced, there is a desire to cut the volume of legal immigration, possibly up to one half from recent levels1. In our mind there is little doubt that our future wealth, prosperity, and standing in the world will be impaired if this comes to pass. We’ve been enriched by the immigrant scientists, doctors, entrepreneurs and others who have come to America in accordance with immigration rules.
You can etch this in stone: we are firmly against cutting our nose off to spite our face. Those who advocate for less trade and less legal immigration are doing just that, in our opinion. We are optimistic that sooner or later, we will end up with good policy—we always have. But there could be some unnecessary turmoil before we get there.
We aren’t suggesting that big changes need to be made in portfolios to reflect the political threats. But we are looking for opportunities that are less sensitive to how these policies work out. Clients, if you would like to discuss these or any other pertinent issues, please email us or call.
1New York Times, https://www.nytimes.com/2017/08/02/us/politics/trump-immigration.html
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.
The opinions expressed in this material do not necessarily reflect the views of LPL Financial.
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