photo by mrsrichardson823
A couple days ago I heard President Obama say that he wanted input on how to create more jobs. Here is my input.
I’ve mentioned in previous posts that I do my best to look at things from a neutral perspective. I really don’t care who is in charge as long as they do not complicate my wealth management practice too much.
The Obama administration has made that difficult.
In my past 23 years of money management, politicians haven’t had much effect on our investment strategies. As a general rule, the less they do, the better the free market functions and that is usually positive for the stock market.
On the other hand, the more they do, the worse the free market functions, and that is usually negative for the market. The offset this time is that the stock markets were so extraordinarily undervalued that they really had nowhere to go but up.
Now that unemployment has skyrocketed, our politicians have decided that jobs are important.
Unfortunately, they did not decide that before they allocated $787 billion towards their “stimulus” program that we bought for them earlier this year.
Last week they held a job summit, also know as a “PR stunt”, to show how much they care about jobs. Then on Tuesday, five days later, they announced their plans to “save and create” more jobs. It’s amazing to me that you can go from the information gathering summit stage to the implementation stage in five days. Aside from that anomaly, let me explain.
Businesses create jobs. Politicians do not.
On a national level, some studies claim that it cost the government, which is code for the taxpayers (since the government does not actually have any money), $242,000 for each job they created with their stimulus bill. In Utah County, they claim it cost $147,000 for each job created by bill. Contrast that with business that spends nothing to create a job. In business a job is created when it adds value to and helps a company make more money. Any way you cut it, it is silly for government to spend billions of our money artificially creating temporary jobs.
So what can government do to help create jobs?
It is simple. First, create an environment where business can prosper. Second, let businesses keep more of the money they earn so they can use it to expand and hire additional employees.
The pot of money that businesses have to work with is limited in size. So when government takes the business owner’s money for extended unemployment coverage, which originally started at 16 weeks, and is now up to 99 weeks. Then you asses them with workman’s comp, social security and then another 40% cut of their income for state and federal taxes. It does not leave a lot to work with.
But, that is not enough. Then you propose punitive taxes on “the rich” ie. business owners (since they do not pay their fair share) followed by additional significant taxes on business for health care and cap and trade.
Since they do not have unlimited resources (like the government thinks they do) businesses cut back on hiring. Because they are afraid they are going to be taxed into oblivion and there is no real benefit for them to take risks (since they do not get to keep the money they earn) they stop expanding.
It really is simple. Get government out of the way of the free market. Reduce the ineffective and burdensome regulatory bureaucracy. Provide an infrastructure that allow businesses to prosper. Let businesses keep what they earn.
This is basic economics and a lot more effective than spending $242,000 to create a $45,000 temporary job. This is the way to see employment expand and create millions of jobs. Just like it did throughout the 80’s and 90’s.
President of Paragon Wealth Management
What do you think? Feel free to leave comments.
Paragon Wealth Management
is a provider of managed portfolios for individuals and institutions.
Although the information included in this report has been obtained from
sources Paragon believes to be reliable, we do not guarantee its
accuracy. All opinions and estimates included in this report
constitute the judgment as of the dates indicated and are subject to
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Written by Dave Young, President of Paragon Wealth Management
photo by Seansie
Smoke and Mirrors…
Politics and religion are two subjects we try not to discuss on this blog because we realize they are often more emotional than fact based and can be offensive to some of our readers.
Avoiding politics has been difficult this year because it seems that the center of the financial universe has recently moved from Wall Street to Washington. The continuous daily news updates from Washington have had much more impact on our financial markets than ever before.
I find it interesting that while 60% of Americans approve of how Obama is doing, a recently released poll of financial advisors showed that only 36% of them approve of his performance so far. Even worse, 68% said they have no confidence in his ability to “fix” the ailing economy.
Why is there such a difference between the ways that most citizens see the new president versus most financial advisors? In part, I believe, because financial advisors base their perception more on “the numbers” than “the personality”.
For example, last week President Obama held a press conference on the U.S. budget that was recently passed by Congress.
The budget was 3.6 trillion dollars.
Since one trillion (1,000,000,000,000) equals one million times one million — 3.6 trillion is beyond the grasp of most people’s understanding. So they ignore it.
As last week’s budget press conference, President Obama’s entire focus was that he is taking us into a NEW ERA OF RESPONSIBILITY. That is what they have named this massive spending bill. To make his point, he spent the entire press conference focused on the 17 billion dollars he was going to save through his new polices. No mention was made of the 3.6 trillion dollar budget or the 1.2 trillion dollar deficit that it would create.
The 17 billion dollars in savings that was the focus of the press conference is equal to one half of one percent of the entire budget. That would be like buying a car for $100,000 and then getting excited about saving $500. Never mind that the car cost $33,000 more than you had available to pay for it.
This is why financial advisors, (people that work with numbers) don’t have a lot of confidence in what the President is doing. What he does compared to what he says just doesn’t add up.
Sources: May 8, 2009 Investment News, and www.whitehouse.gov.
Written by Dave Young, president
When Barack Obama began his race for the White House his rally cry was to get us out of Iraq as soon as possible. That morphed into a call for change from the Bush policies of the previous eight years. Finally, right before the election it moved towards fixing our economy.
If the President Elect does what he originally campaigned on, then some of his pro-regulation, pro-tax policies could damage our economy over the long-term.
During his campaign he spoke about how important it was to tax those deemed rich, while slightly lowering taxes for everyone else.
Editorials in the Wall Street Journal claim his plan would have a marginal tax bracket of 62%, with all taxes taken into account, on income over $250,000.
Increased taxes translate into government removing money from the marketplace and then deciding where to reallocate it. This diminishes savings, investments and job creation.
Historically, government reallocation of those funds benefit certain interest groups, but doesn’t benefit the broad economy. This negative wealth transfer effectively mutes economic growth.
Historically, when democrats take the white house, the market usually does better than under republicans.
Usually going into an election, if a democrat is winning, Wall Street expects the worst, and the market sells off in advance. After the democrat gets into office, then Wall Street realizes they aren’t going to do what they promised, breathes a sigh of relief, and then the market rallies. The wild card is whether or not Obama will implement what he campaigned.
His most recent statements about the economy give the impression he will promote clean energy, infrastructure and education. If so, stocks in those sectors should benefit.
We know health care is going to be impacted. It’s too early to tell if it will be a positive or negative impact. Previous attempts to socialize medicine were met with health care stocks declining.
So far, the markets have followed their historical election pattern.
The difference this time was the magnitude of the decline. This year’s decline was the worst ever to precede an election. If the market continues to follow historical patterns, then 2009 should be a strong year for the market.
After a decline this severe, I believe it is most important to select those sectors that usually generate the highest returns during a recovery. It is easier and more predictable to pick those sectors than to guess what Obama is actually going to do.
The average recession lasts 11 months with the shortest being 6 months and the longest being 16.
This current recession is now 12 months long. The stock market tends to recover three to four months before the recession ends.
Following previous recessions, the strongest sectors (in order of strength) were Consumer Discretionary, Information Technology, Financials, Industrials, Materials and Consumer Staples. The weakest sectors (in order of weakness) were Utilities, Telecomm, Energy and Health Care. For many, the critical decision is between being conservative or growth oriented over the next eight years.
Looking forward investors can:
–Invest in money market funds; bank CD’s, fixed annuities or treasury bonds. These will guarantee returns in the 2-4% range. Depending on the product, your money is locked up at historically low rates for three to seven years.
–Invest in a well diversified, strategic portfolio made up of beaten down bonds, stocks and real estate. This portfolio should be positioned in the sectors mentioned above to capitalize on areas of the market that historically recover the fastest. This panic has pushed stocks down to the same levels they were 11 years ago.
We do know that returns after previous bear markets have been exceptional.
Most importantly, investors should reallocate their portfolios based on opportunities going forward. Looking backwards or following a “rear view mirror” investing strategy usually causes an investor to invest at the wrong place at the wrong time.
Feel free to leave comments or contact us if you have questions or concerns. We can be reached at 801-375-2500.
Written by Nathan White, CFA
photo by Anzman
I’ve never been so glad to have an election over.
The constant political bombardment seems to leave me shellshocked. My view on politics is dour.
I just plead with whoever is in power not to screw things up too much. Is that really too much to ask?
I want politicians to get out of the way, but since that will never happen the best I can hope for is minimum damage.
Overall, I consider myself a “cynical optimist” with the view that hard work and a good attitude along with a realistic view of things can get us through anything in life. However, when it comes to politics I find myself becoming ever more pessimistic (I guess that is the cynical side of me winning outright). I try to be optimistic, but it is becoming increasingly difficult as I get older.
Pleas for President-elect Obama: the damage to the markets has been done. Please don’t make it worse.
We don’t need a movie entitled “Hoover/FDR II- the sequel.” Just get out of the way!
photo by Seansie
Written by Dave Young, President of Paragon
How will the presidential election effect you?
2008 has been a rough year for investors.
Whether you have been invested in real estate or the stock market, both have gone down more than up. The credit crisis and high energy prices have been blamed for most of the damage.
Talking to investors, I get the sense that many are worried about the election.
The data that we track from Intrade, a futures based election trading system, show Obama with a clear 64% to 37% lead over McCain. Unless Obama makes some unbelievably bad mistakes over the next couple of months it is likely he will be our next president. Historically, this tracking service has been much more accurate than traditional polling.
Investors are justifiably concerned because many of Obama’s policies are potentially damaging to our economy.
Under the premise that the government knows how to better spend your money than you do, Obama wants to raise taxes significantly. And any economist will tell you that raising taxes is not the way to help a weak economy.
Obama’s platform proposes major tax increases.
He is focused on raising more taxes from those taxpayers who already pay 90% of the U.S. tax bill. The bottom line with his program is that if you already pay a lot of taxes then you will pay significantly more. If you don’t pay very much in taxes then you shouldn’t see much change, you may even pay less. According to a recent Wall Street Journal editorial, Obama would raise the top tax rates from their current 40% to over 60%, including the state and federal taxes.
This is a calculated political bet that there is a majority of Americans that want the more affluent minority to pay all of America’s bills. Throw in some anti war rhetoric and a promise of undefined “change” and you have a recipe for a successful presidential campaign.
There is really no benefit to arguing the merits of Obama’s platform. We can’t control the outcome of the election. But we can control the investment strategies we follow in these uncertain times.
Historically, when democrats take the white house, the market usually does better than under republicans. That was no typo. It’s a little confusing though.
Usually going into an election, if a democrat is winning, Wall Street expects the worst, and the market sells off in advance. After the democrat gets in office, then Wall Street realizes they aren’t going to do what they promised, breathes a sigh of relief and then the market rallies.
On the other hand, if a republican is winning, the market has positive expectations and rallies in anticipation. But then after the republican gets in, and doesn’t keep their promises, then the market sells off in disappointment.
So far this year the market has followed a pattern similar to previous election years when the incumbent party has lost.
If McCain is able to miraculously turn things around then we will likely see a significant rally into the end of the year. If Obama keeps his lead then the market will likely be flat to only slightly up between now and the end of the year, but then next year the market should perform better.
While market forecasts make interesting conversation, I don’t put a lot of stock in them, including my own. At Paragon Wealth Management, our investment decisions are all based on quantitative models. We process market data on a daily basis and make our decisions accordingly. Human emotion is removed from the decision process.
Paragon’s investment models measure what is actually happening in the market, day by day.
They are designed to react to what the markets are actually doing rather than what we think will happen in the future. For example, whether a democrat or republican wins will affect how health care stocks, energy stocks, tech stocks, financial stocks, defense stocks, etc. all react.
The bottom line is that this election WILL affect the market.
Certain markets and sectors will perform much better than others, depending on the election outcome. It is important to have an investment strategy in place that will adapt to whatever changes take place. In the stock market, change is the only constant that you can plan on.
Visit our website for more information at www.paragonwealth.com.