Perspective - Political Edition

Perspective – Political Edition

We tend to avoid political discussions in our regular missives.  Since we don’t even agree on politics internally, the odds of alienating one of you with our opinions is pretty high.  If there is one thing we have learned over time, alienating partners, clients and other interested parties is not a great way to sustain a business.

What we are pretty good at, though, is providing a degree of perspective, and it seems to us that perspective is sorely missing at the moment.

Where to start…

This is the most important election…since the last one.

How many times over the last year have you heard someone claim that this is the most important election of our lifetimes?  It seems that every election is “the most important” – at least every election I recall (and many that I don’t).

Back in 1952, when Harry Truman was campaigning for Adlai Stevenson, he proclaimed that was the most important election:

“The choice the people make this year may decide whether we have prosperity or depression, war or peace,” Truman said in North Haven, Conn. “This is, my friends, the most important election in your lifetime,” he said in Gary, Ind. “We can’t afford to lose it”

Source: Washington Post 8/29/2019

In fact, we can go back to 1868, when the Atlantic magazine proclaimed of that election:

It would, indeed, be no exaggeration to say that it will be the most important election that Americans ever have known.

Source: Washington Post 8/29/2019

Sure, this election is important.  They all are – we are putting in place the most powerful person in the world.  However, only time will tell if this is actually the most important in our lifetimes.

Our politicians have never been so divided…or have they?

The advent of 24/7/365 cable news lets us know what is happening every second of every day.  So, we get to see how the proverbial sausage is made, in all its glory.  For many, it creates the impression that our politicians have never been more divided.

But is that really the case?

According to the U.S. Senate Historical Highlights, in 1850 Vice President Fillmore ruled Missouri senator Thomas Hart Benton out of order.  Kentucky's Henry Clay, who was no friend of Benton, claimed that the vice president's action was an attack on the power and dignity of the Senate. The ensuing debate sparked a bitter exchange between Benton and Mississippi senator Henry Foote. As Benton pushed aside his chair and moved up the center aisle toward the much smaller Foote, Foote pulled a pistol. Pandemonium ensued and Benton exclaimed, "I have no pistols! Let him fire! Stand out of the way and let the assassin fire!"

Of course, the House of Representatives had its own drama. Per the History, Art & Archives of the United States House of Representatives, in 1856 Galusha Glow (R-PA) and Laurence Keitt (D-SC) exchanged insults and then blows, which resulted in more than 30 members of the House joining a melee on the floor of the House.

So, it seems that things can get much worse than the petty name calling, tweets and accusations we are dealing with today.

But our people have never been more divided…oh wait.

Did you know that social media algorithms have been shown to drive people apart?

From a report on Facebook in the Wall Street Journal (March 26, 2020):

“Our algorithms exploit the human brain’s attraction to divisiveness,” read a slide from a 2018 presentation. “If left unchecked,” it warned, Facebook would feed users “more and more divisive content in an effort to gain user attention & increase time on the platform.”

While it seems as if things are bad, there are two things to consider:

1)      Things have been far worse – just think back to the Civil War when we were actually killing one another.

2)      While social media tends to accentuate the extremes, they are just that – the extremes.  Amazingly, when people speak in person – as opposed to the safety of online posts – they find that their divisions are not quite as extreme and that there is really a high degree of common ground.

Like him or not, the Vice President made an extremely important point at the end of the recent debate:

“In America, we believe in a free and open exchange of debate, and we celebrate that. It’s how we’ve created the freest and most prosperous country in the world.”

He continued with the example of late Supreme Court justices Ruth Bader Ginsburg and Antonin Scalia who were ideologically opposed.  Despite that fact, they and their families were the very closest of friends.

He closed:

“When the debate is over, we come together as Americans.”

The market will fall if _____ is elected.

So, this all brings us back to today.  It seems that people on both sides are worried that the market will fall if the opposing candidate is elected.  One glimpse at the following chart, however, should convince you that the “market” doesn’t really care who is President or which party they represent:

You may recall that as we headed into the 2016 election, the fear was that a Trump victory would lead to a recession and a stock market crash.  In fact, once the results were known, the futures dropped by some 5% overnight.  However, by the open the next day, prices had largely recovered, the market was up 1% at the close, and the overall market returns since that time were quite robust until Covid-19 impacted the economy.

Just a few more tidbits.  These are courtesy of Forbes (8/18/2020) who sourced the data from Strategas Research Partners:

• Since 1933, the highest returning partisan control combination for the S&P 500 has been a Democratic Senate, Republican House, and Democratic President where returns averaged 13.6% per year. In 2020, this would require a reversal for all three.

• Our current mix of Republican Senate, Democratic House, and Republican President averages a 10.8% return. This combination is likely if President Trump wins reelection.

• Under a Biden victory, a probable scenario is a Republican Senate, Democratic House and (of course) a Democratic President. Interestingly, this combination has not occurred since Grover Cleveland in the election of 1886!

The important thing to remember is the stock market is simply a measure of the profitability and future opportunities of various companies – 30 in the Dow Industrials, 500 in the S&P 500, etc.  The person – or party – in power can change the rules and provide headwinds or tailwinds to certain companies or industries, but when the prospects for one company – or one industry – fade, the prospects for another tend to brighten, so there are always winners and losers. As the prior chart shows, companies in aggregate have shown an enduring ability to adapt and succeed, which has resulted in tremendous wealth creation for the owners of those companies – you as their shareholders.

So, where does that leave us?

It is easy to get wrapped up in current events and lose the ability to contextualize things.  The here and now always feels more acute than times past; however, those feelings are not always accurate.  Hopefully you had as much fun with this trip down memory lane as we did in sharing it with you. 

Perspective is important in all things.  With luck, we have helped you take a step back from the ledge – at least until you turn on the TV or take another look at social media.

We will all have a say in a couple weeks about where we are headed, so it is important to vote; however, while the outcome of that vote certainly has consequences, the impact on your investments may be far less than you fear (or hope).

If you would like additional perspective, please call…we have plenty more to share.