Market Trends

Politicians Too Eager To ‘Help’

Well, I gave Biden some credit back in December for the nice bump that we had seen in the stock market in 2021. I felt obligated to, given how well the market had performed … +27% last year.

Still, I noted then that I was worried that Biden wanted to be too helpful and that significant inflation was a real worry. He literally said “help is on the way” and released trillions in spending on top of what Trump had already spent.

Now I have to say that the ‘Biden Bump’ has gone ‘Bust’. Here’s a list of all the headline troubles we’re seeing …

⁃ Q1 GDP down: -1.5%

⁃ Consumer Inflation: +8.6%

⁃ Fuel Prices: 2.1x

⁃ Producer Prices: +11.2%

⁃ S&P 500: -18% YTD

⁃ 10 Year Treasury: +160bps

⁃ 1 million less employed vs 2019

⁃ Mortgage Rate: 6.5%, 2x year ago

⁃ National Debt: $30T, +$4T vs 2020, 129% of GDP

My list of positive signs has many fewer bullets:

⁃ Unemployment Rate: 3.6%

⁃ Real Home Values: +25% vs 2020

⁃ Consumer Confidence Index: 106

In my mind, our overall economic issues are caused by the explosive government spending throughout the pandemic. The debt-backed stimulus didn’t create any new value, it just resulted in more dollars chasing the same products & services. Governments locked people out of work and then threw money at the problem they created.

I don’t doubt that some stimulus, particularly early in the pandemic, would have been useful in the right places. Still, what was handed out dramatically overshot the need or ended up in the wrong hands.

Importantly, the hand outs started under Trump and continued with Biden. Like most spectacular government failures, the relief bills were passed by both parties. We can only be happy that the GOP & a few Democrat Senators prevented further spending as the dubiously named ‘Build Back Better’ proposal was blocked.

Since the money is already gone and it’s an election year, no government “course correction” will be coming our way soon. I’m afraid that almost all of last year’s ‘Biden Bump’ stock market good fortune in our portfolio has already disappeared in 2022.

As we face the second half of the year, my only hope is that some of these economic trends – especially inflation – reach their peak and start heading back down. It may take a few years for them to get back to pre-CV19 levels.

Hopefully after the midterm elections, political gridlock will have been restored to Washington and they can stop being as “helpful” as they have been the last 18 months.

How long do you think it will take to “right the ship” economically?

Image Credit: ProfessorBuzzKill.com

17 thoughts on “Politicians Too Eager To ‘Help’”

  1. We are hearing rumblings that Newt Gingrich is working with expected Republican Leadership (after the next election cycle) to develop a New Contract with America, which would reduce government spending and balance the US budget for the first time in over two decades. We are not yet hearing Republicans running for office messaging around a New Contract with America.

    If 2022 brings us a Red Tsunami with a strong mandate to end the inflationary spending that we have had since George Bush the Lesser let the deficit spending genie out of the bottle, adult supervision will lower inflation.

    I ran some comparison’s on gasoline prices between 1977 to 1981 which is the start of Carter’s four years and Biden’s Inauguration Day 2021 to today. During Carter’s four years in office, national average gasoline increased from $.62 to $1.31 per gallon for a 111% increase. Biden has almost matched Carter’s entire four years in a year and a half with gasoline increasing from $2.39 to $5.014 for a 110% increase.

    One type of government “help” to be feared right now would be government trying to tackle gasoline inflation through price controls. If a producer cannot make or grow their product that has to be sold at a fixed price and make a profit or even break even, they will stop producing. This is where shortages such as the 70s gasoline lines came from and was repeated recently in Venezuela.

    Liked by 1 person

    Reply

    1. Yes, thankfully we haven’t heard about price controls at a Federal level. However, our metro city of St Paul MN, just passed the nations strictest rent control policy. The mayor & city council supported it and the referendum passed. Now 85% of the building permits disappeared as no developer wanted to invest in the city. Mayor & city council are now asking the State Legislature to retroactively forbid the referendum from happening – even though it already did! Crazy. https://fee.org/articles/the-results-of-st-paul-s-rent-control-experiment-are-in-and-they-re-disastrous/

      Liked by 1 person

      Reply

      1. Sounds like St. Paul is going to have a bigger housing shortage than they have now. I was in St. Paul 25 years ago and visiting with to be relatives of my college roommate who was getting married. The couple were rehabilitating a big, old house in an area that had gone down hill and was being repopulated by urban pioneers. I remember sitting on the porch and whenever they saw someone dealing drugs on the corner, the husband called the police.

        Since the area now has people calling for rent control, it sounds like the area gentrified. St. Paul will likely end up back where it was 30 years ago.

        Like

      2. Here are a couple random thoughts I have about St. Paul rent control.

        I bet the local government does not have a property tax control in place (similar to CA Proposition 13) which limits property tax increases to 3% without consideration of inflation.

        The rent control sounds like a violation of the the 5th Amendment Government Takings clause.

        If this doesn’t get overturned, landlords will start walking away from money losing properties, which leads to blight.

        Liked by 1 person

  2. Chief, I looked at the statistics you cited just now on my laptop instead of on my mobile device and they really slapped me across the face. The numbers you posted are really bad, but I think the two key numbers are being gamed to avoid telling voters the real financial condition we are in. Government has been low balling the American public with inflation and unemployment numbers for at least four decades.

    Add up fuel at 2.1X, housing up 25% with more 2X mortgage percentage, along with food inflation, and tax brackets not being indexed to inflation, and you can see where people are losing more purchasing power than the 8.5% inflation that the government admits to.

    The other number that is being gamed is unemployment. 3.6% unemployment seems to be as inaccurate as the 8.5% inflation rate. Chris Kuehl is an economist I have heard speak on this topic and he has presented that unemployment numbers that are cited are very low.

    Basing unemployment numbers on calling landlines is flawed, because people do not answer their landlines any more. The current unemployment numbers also do not measure people have run out of benefits and have given up looking for work. The people who are in the worst situation, are not being counted as unemployed. During the early 2010s, US unemployment would have been in the teens if we measured unemployment the same way Germany does.

    Liked by 1 person

    Reply

    1. Agree on the CPI being lowballed by the government. As I’ve written before, I’m guessing we are into double-digits, depending on what equation they use to calculate.

      The unemployment rate seems suspicious too. That’s why I included that there are 1 million less people employed now than before the pandemic. If people aren’t filling the jobs, it’s hard to say we are at ‘full employment’.

      Liked by 1 person

      Reply

  3. I hate to say it Chief, but I think our foundering ship is in uncharted waters. My lifetime is more than a few years longer than yours. I remember the 51-years-ago inflation highs. All the factors impacting us this time, and disastrous missteps by government during this administration and the last, plus world turmoil everywhere, lead to little hope of righting the ship anytime soon. In addition to the federal failures you point out, I add this one: We threw away energy independence (to chase pipe dreams) at the worst time. Fuel inflation alone is a blow to all of us at the pump. Fuel costs inflate all others. The only message I’m looking to hear from anyone in the next elections is: Restore Energy Independence Now. Have I heard it so far? Nope. Has anybody??

    Liked by 2 people

    Reply

      1. Can’t wait for President Biden to become Citizen Biden again. But the whole Trump fiascos leave Republicans chasing their tails in circles. Some say that Americans get the Presidents they deserve. Long ago, we deserved better than idiots and scoundrels.

        Liked by 1 person

      2. It looks like we will get gridlock this November, then hopefully the two parties can come up with some better candidates for 2024. They probably won’t, but here’s hoping.

        Like

    2. Chris Kuehl, the economist who taught me about how the US unemployment numbers are understated by the bad sampling methodology of calling people’s landlines and not including those who are without benefits and have given up, also taught me about the impact of being energy independent on our trade deficits.

      In the mid 2010s, fracking for natural gas and oil was rapidly diminishing our trade deficits and carbon dioxide production. We were the only country that met the Kyoto Treaty despite never signing it. And, it wasn’t because of solar. It was because fracking made the US, the Saudi Arabia of Natural Gas switch electricity generation from coal to natural gas.

      Energy independence is also good for our national defense. With energy independence we don’t care about what is going on in the Middle East, as long as the keep their conflicts over there. It also prevents countries that don’t like us, from blackmailing us.

      Energy independence also is attractive to Hispanic voters in South Texas. They are smart enough to know their jobs and livelihoods are tied to drilling holes in the ground that power America.

      I am thinking about changing my legal name to “Anybody other than Biden” and running for President under the new “Drill Baby, Drill Party”.

      Liked by 1 person

      Reply

      1. Last night, Republican Mayra Flores Flipped Texas’s Blue Seat in Special Election. Her district is in the Rio Grande Valley and is 84% Hispanic. Her constituents want good paying jobs drilling holes in the ground for American Oil.

        Liked by 1 person

      3. Yikes – they only call landlines in 2022? That seems like a strange approach given the obvious demographic differences in who still has a landline. Compared with the overall population.

        Liked by 1 person

    1. also … I definitely remember the late 1970s/early 1980s malaise & inflation. Our family got caught in the recession – having to move in Fall 1981 for my Dads job. The best they could do was a 16% mortgage on a house that had to be completely renovated (by us). I was a news & economics geek. It was a terrible time. This situation reminds me of that.

      Liked by 1 person

      Reply

Leave a comment