seemingly endless campaign, we now know who will be in charge for the next four
years. I believe that keeping the money you earn and investing it successfully will
be more difficult than ever.
In the 26
years that I have managed money I have never seen government affect the free
market in the negative way that it does now.
Unfortunately, every investment decision we make is affected by politics,
government policies and regulations.
forward, what does this mean for investors?
problem is the uncontrolled spending in Washington that shows no signs of
slowing. Obama ran up the national debt
from 9.6 Trillion to over 16 Trillion dollars, a 66% increase, in just four
years. His rate of spending is incomprehensible
To put this
in context, $16,000,000,000,000, with one dollar bills stacked flat would go
out of the stratosphere, around the moon and back, twice. That is almost a million miles of bills. Put
another way, to pay back just the 6.4 Trillion dollars that Obama spent during
the past four years, at a dollar a second, would take over 202,000 years.
concern is that interest rates are temporarily forced to all time lows. Low rates have kept the interest on the debt
manageable. If rates increase only one
percent then the interest cost on $16 Trillion will increase by $160 Billion
per year. If rates go up two percent
then the increased cost is $320 Billion.
A three percent increase would be $480 Billion, and so on. When rates go up our debt will become more
unsustainable than it is now.
investment perspective, these are troublesome and potentially hazardous
problems. Maybe this is why several polls show 80%+ of financial advisors were
not in favor of Obama.
#3: Obama seems to believe that the only
way to balance the budget is to tax the “rich” more. Never mind that the top 5% of taxpayers already pay 60% of the income taxes. He demonizes “millionaires and billionaires”
but in reality there is a target on the back of anyone who makes over
$250,000. This continues to be his
focus, even though taxing job creators (the rich) more will only bring in about
FIVE PERCENT of the revenue needed
to balance the budget over the next decade.
So what is an investor to do?
investors must be aware and take advantage of every legal method available to
reduce their taxes. In order to fund their
out of control spending, the government will be raising taxes any way they can.
In order to make forward progress you
need to avoid unnecessary taxes, so that you can keep and grow your money.
must be aware of our nation’s fiscal mess and monitor it going forward. If
spending continues at the current rate, then we may arrive at a tipping point
sometime in the future. If we cross that
tipping point the government will have to take action to deal with the debt.
we are watching for signs of inflation, hyper-inflation or currency
devaluation. Traditional buy and hold, diversified
investing will not work in this scenario. Also, conservative areas such as bank CD’s and
bonds provides no protection from the ravages of inflation.
You or your
advisor must be aware of what is going on so that you can monitor and adjust
your investments accordingly. If the
inflation scenario plays out then investors need to reallocate their
investments into areas that will be protected from or even benefit from
next four years, these are scenarios that any serious investor needs to be
aware of and have a plan to deal with. Watching
passively and hoping – is not a plan.