immigration

Political Risk Rising

© Can Stock Photo / razihusin

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.

All investing involves risk, including possible loss of principal.

No strategy assures success or protects against loss.

The Melting Pot Matures

canstockphoto4480931

A few weeks ago the Nobel Prize Committee announced the latest round of Nobel laureates for 2016. Seven Americans were named to this high honor—and six of the seven were immigrants, born outside of this country.

Immigration is frequently a hot topic during an election year, this one perhaps more than most. On the one side, we are told that immigration is costing us jobs, lowering our wages, and causing more crime. On the other side we are given a moral argument, that we are a nation of immigrants who should welcome others into our melting-pot culture as we have welcomed those who came before.

We set aside the moral side of this debate; while we occasionally dip into moral philosophy, this blog concerns itself chiefly with practical matters of economics. And as a practical matter, there are very good reasons why we should appreciate the value that immigrants bring to our country, above and beyond whatever Nobel prizes they may win.

As a country we are facing a demographic crisis. Since the 1970s, we have been having noticeably fewer children per family than we did previously. As our generation reaches retirement age, record numbers of Americans are leaving the workforce. I still plan on working until I’m 92—but many of my contemporaries have other plans. As we leave, there are more openings left behind than we have children and grandchildren to fill.

This demographic wall creates a major drag on the economy: we want to grow our economy faster, but we simply don’t have enough workers to do it. For the past year we’ve seen the unemployment rate hovering at 5% and below. Even as the economy recovers and we start to add jobs, there’s going to be a very real question as to who will be filling them. The workers simply aren’t there. To some extent this is a regional issue—some of our employment woes could be fixed by having job-seekers move from economically depressed areas to thriving areas where jobs are being created too quickly to fill. But not everyone can uproot their lives for work, and where people cannot or will not relocate, the only alternative is to import workers from elsewhere.

Ours is not the only country facing this demographic crisis. We need only look at Japan, Europe, and other parts of the developed world to see what happens when an aging population is not replaced. Many first world countries have a lower birth rate and lower immigration rate—and, not coincidentally, lower GDP growth. We would do well to learn from their example what not to do.

This is not to say that we endorse open borders or encourage illegal immigration. We are a nation of law. We should have sensible laws that are enforced in a fair and even-handed manner. But to suggest that we should slam the door shut on immigrants is to ignore the economic reality we face. One of the best and surest ways to expand our economy is to add new people to it—and we will need to, if we wish to continue growing at a reasonable rate.


The opinions voiced in this material are for general information only.