November 21, 2024
The election came and went, and life moves on. I am not going to try and convince you that the election outcome was positive or negative. However, if you’re feeling overly pessimistic, it’s probably less bad than you think. Why?
“I have observed that not the man who hopes when others despair, but the man who despairs when others hope, is admired by a large class of persons as a sage”
John Stuart Mill
As I suggested in my pre-election piece. The selling in the media of negativity and pessimism works well on the human brain. It works because humans through evolution built up a survival instinct. Our instinct is to pay more attention to threat than opportunity; this increases the probability of survival as a species.
The trouble is that most of the time, and particularly for those of us with wealth and security in the United States, many of our perceived threats are not actually putting us in acute danger. Most of us (certainly not all) have food, clothing, shelter, and security in our daily lives. However, because our brains are still conditioned for our survival, we are more likely to react when we sense fear compared to when we sense opportunity.
There were many lies told during the election to stoke fear. What is also true, is that the democratic process went more smoothly than many previous US Elections. And despite the Republican sweep, we now have a lame duck (he cannot run again) president that will only have two years before the political environment shifts again. One of the greatest aspects of the United States is its ability to change. It can look chaotic, it’s certainly not perfect, but it is more adaptable and accountable than any other system of government that I know of.
The bottom line is that your personal life, in my opinion, is unlikely to be disrupted as negatively as you think. It’s even possible that you will be positively surprised. My only advice is my usual advice:
Focus on improving your life and the lives of others where you can be impactful.
Examine the opportunities in front of you and make the most of them (play the hand you’re dealt).
An Optimist:
My life has had its share of pain and suffering, but because I decided to continue moving forward, my perspective has grown immensely. Many people that have had a life altering trauma (physical, mental, grief), but make the decision to soldier on, probably understand the following:
The expectations they held previously for their life have been shattered.
Positive and joyful events become a bonus and an unanticipated gift.
Gifts bestowed on them are appreciated and utilized to the fullest.
Optimism from people that have worked through this type of debilitation does not stem from naivete; it stems from an expansion in their perspective. Sometimes when people speak to me about an event they perceive as disastrous, I may seem apathetic or sanguine about the topic. But that’s not the case; it’s just that in relation to other events in my life, this issue doesn’t register as a priority. My priorities are determined based on where my energy can be the most impactful.
Here’s another way to frame it: Do you think someone trying to survive a war zone, or fighting for their life in a hospital bed cares that much about most issues discussed in this election cycle in the USA? Of course not, their perspective and priorities are completely different. Their energy must be focused on what matters most to them.
It’s not that the election issues don’t matter; it’s just that:
It may not be quite as important as you believe it to be.
The solutions to issues may be solved with a novel or different method compared to the solution that you believe is best.
Assess the environment:
As I have described previously in these commentaries, I think in probabilities. I weigh risks and rewards in an unemotional way. But I am also empathetic, and I am particularly interested in human psychology. I gather new information, listen to viewpoints from multiple perspectives, I weigh sentiment (fear and greed) of societal trends. With that process, I believe it’s possible to develop an edge when investing. When pessimism reigns, I assess to see if things are actually as bad as the masses believe, and when there is excessive optimism, I consider how a situation can change for the worse.
Current Thoughts:
We did not materially change our investment outlook into the election because of the rising probability toward republican candidates and more stock market friendly policies.
The market, as usual, is adjusting to the post-election event and making bets as to what might happen in the future with policy. These bets may or may not work over the long run, but our focus on the long term leads us to believe that the following is likely:
The United States will experience continued economic growth over time, and we want to participate in that growth.
The United States is likely to navigate rapid technological change better than any other country because of our system of government, education, entrepreneurship, and legal system.
Global partners of the United States (countries with strong legal protections, and/or moving towards this) will participate in growth and innovation.
Stocks and interest rates will fluctuate in the short run as they always do.
We believe the following points to be somewhat likely:
Inflation was a Covid phenomenon, and although we recognize the potential for tariffs to increase prices, we think inflation will continue to remain subdued.
The Republican sweep of Congress and the White House will result in somewhat smaller government and less regulation (change on the margin is important).
This new administration will be disruptive to the status quo in its approach to running government, healthcare, and diplomacy.
Technological innovation sparked by artificial intelligence will continue to grow and at an increasing rate.
Power demand will continue to outstrip current supply.
The adoption of technology, deregulation, and disruptive change is likely to provide new opportunities in a range of industries.
What we believe might happen:
• Workers and companies that embrace change and opportunity are likely to thrive in a world where market share can be gained.
• The green energy transition will continue. For example, Texas is a far less regulated state than California, but Texas produces twice as much renewable power (from wind and solar). *See table below sourced from data from the US Energy Information Administration.
US Diplomacy will be used to promote behaviors of partners and adversaries that will benefit United States ideals. Hopefully, this will end up mutually beneficial such as what occurred with NATO strengthening in the previous Trump administration. As former NATO secretary-general from 2014-2024 said in the Financial Times on November 9, 2024: “During his time in the White House, we established a good and reliable working relationship. Sometimes we had turbulent meetings in NATO, but we got things done. When Trump left office, NATO had become stronger.” The NATO target for allies to spend 2% of GDP on defense spending has now largely been achieved by most European countries.
The USA will continue to become more powerful economically, technologically, and militarily. It will hold more (not less) global power by the end of the decade in comparison to China. The world will be shaped by a more US centric vision; liberal democratic powers (and those countries moving towards this) will increase and autocratic powers will decrease.
Although the US Government debt is an important issue; on its current trajectory, it seems unsustainable. According to my friend Chase Taylor at Pinecone Macro, the US government added about $13 Trillion in debt since 2019; that’s a big number! However, US Households have added about $59 trillion in net worth over the same period. Additionally, in his acceptance speech, Trump mentioned this issue of the deficit. It surprised me that this was top of mind during another rambling speech. Maybe this trajectory will change, and maybe the amount of wealth held in the USA makes this debt more manageable than feared.
Other companies and countries might become better investment opportunities compared to the top 10 US stocks. The top 10 US companies (Nvidia, Apple, Microsoft, Amazon, etc.) in the world now make up 21% and the top 5 US companies make up 15% (see chart below) of the entire value of the global equity index. These companies could continue to become bigger, but there is no certainty of that.
Technology will change many parts of our domestic and international economy. Previous economic relationships may break down and be less relevant going forward. The possibility of Federal Reserve policy error is higher, and volatility might also end up being higher.
Labor is likely going to be impacted by technological changes. The ability to deliver higher value add services with less labor and capital is likely to impact hiring trends. People that can problem solve independently and communicate effectively will have more machines and tools (instead of humans) supporting their businesses.
The Bottom Line:
I strongly suspect the world is going to change dramatically in the next few years because of changes in technology, domestic politics, geopolitics, and economics. With change comes opportunities and risks. I believe the more open minded you are to new ideas and change, the more you will be able to adapt. I have never been more excited about the possibilities to navigate this change.
As usual the approach is to:
Invest and have faith in those countries that provide the best opportunities for growth, innovation, and legal protection of ownership.
Diversify to reflect the changes that are coming; we do not always know whom will benefit the most, but diversification picks the winners for you.
Have some cash and liquid fixed income available to purchase companies at lower prices if and when that occurs.
Stay invested; time in the market beats timing the market.
Stay open minded to new opportunities wherever they might come from. Be open to the views of those with different viewpoints. Reduce bias; stay off social media that self-reinforces one’s own personal views and judgements.
Minimize downside by purchasing companies and sectors that will protect and grow purchasing power over the long term at attractive prices in the near term.
As always, thank you to our clients for allowing us to serve you; we are humbled and grateful for the opportunity. Thank you also to all our strategic partners and collaborators that help us with insights and expertise that benefit the entire August Wealth Family.
Joe Cardello
i Investment advice offered through Stratos Wealth Advisors, LLC, a registered investment advisor. Stratos Wealth Advisors, LLC and August Wealth Advisors are separate entities.
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