By: David N. Hale, From the Ground Up
Warning: This is an opinion piece. And it discusses the election. You may disagree with some or all of it. If so, I’d love to hear from you. Not to try and convince you I’m right or you’re wrong, but to listen and understand what I may be missing.
“Improving the outlook for U.S. workers isn’t about creating millions of minimum-wage jobs. It is about creating sustainable, skilled employment that allows Americans to earn a fair wage with benefits that allows them to pay for housing and food on the table and sustain a middle-class lifestyle.”
To paraphrase Jimmy, a job is only considered a “real job” if it offers current security and lets you chase the American Dream. For what it’s worth, I generally agree. As would the researchers at AonHewitt, who in a 2015 study1 concluded the top three drivers of employee engagement are:
- Career opportunities
In other words, the things most workers want are timeless. Security, esteem, and a brighter future. Is that a shocker? Hopefully not.
However, it needs to be borne in mind when thinking about our election results. It also has direct, short and long-term implications for investors. How? Please read on.
Despite his electoral-college landslide, Donald Trump was elected to the white house by a fairly narrow margin2, 3, 4. His slogan was “Make America Great Again.” Among other things, he declared he would renegotiate trade deals, stop the outsourcing of American jobs, and get aggressive on immigration5. According to Pew Research, people who supported Trump overwhelmingly agreed with the following statements6:
- That life for people like you is worse than it was 50 years ago
- That free trade agreements have definitely/probably hurt you or your family
- That government is almost always wasteful and inefficient
Many people living in big cities on the coasts cannot relate. In the San Francisco Bay Area, where I practice, many Clinton supporters thought that Trump’s supporters were uneducated, prejudiced, etc. Yet, when we drive through the rural areas that most strongly supported Trump7, we see a more nuanced picture. Business is not booming. Unemployment rates are significantly higher than the national average8. So are drug overdoses9, alcoholism, general mental health problems, obesity, and suicide10. The desperation is almost palpable.
Why does this matter? Confidence plays a vital role in our economy11. However, in too many parts of our country, that confidence is absent. Why?
Other than the reasons mentioned above, consider the following:
- Many core beliefs on trade, technology, and the power of the Fed held by National policy makers have been strongly challenged, or disproved, over the past 16 years12.
- Manufacturing as a percentage of GDP is lower than it was during the Great Recession13.
- Since January 2000, national manufacturing employment has declined by -28% while total employment has increased +10.5%14.
- The comparative data is even worse in Michigan, Wisconsin, and Pennsylvania; the three swing states that most narrowly swung the election to Trump15.
Jimmy Hoffa’s vision of “sustainable, skilled employment” appears out of reach to many Americans. And they’re not happy about it.
In my view, the danger is that this economic situation gets worse, not better. Why? It will be virtually impossible to reverse the course of globalization and outsourcing. Carrier Corp. – the current flashpoint of the outsourcing debate, said as much in their response to Trump’s attempt to fulfill a campaign promise and prevent their Indiana plant from closing16. So the problem of lost manufacturing jobs in “middle America” will probably continue.
I believe this is serious because it has been shown that scarcity promotes discrimination16. The other side to this coin, in my view, is that economic abundance promotes greater understanding of cultural and lifestyle choices. The downside is that if this isn’t addressed, what happens given our already-high levels of polarization if we have another recession in the next few years?
It is hard for me to say, but Matthew Gentzkow, Economics Professor at Stanford certainly has a view worth noting18. He writes that:
“Perhaps the most disturbing fact is that politics has become increasingly personal. We don’t see those on the other side as well-meaning people who happen to hold different opinions or to weight conflicting goals differently. We see them as unintelligent and selfish, with views so perverse that they can be explained only by unimaginable cluelessness, or a dark ulterior motive. Either way, they pose a grave threat to our nation.”
It is possible this view is a touch hyperbolic. And it is possible that it is not.
Regardless, here’s why all of this matters for investors:
The examples of polarization above are probably analogous to how the winning and losing sides are feeling right now. Those who supported our President-elect are now more likely to be overconfident and aggressive with their portfolios and those who did not support him are more likely to be overly conservative. We discussed this phenomenon a few months ago. It is worth remembering now.
Carl Icahn reportedly left Donald Trump’s victory party early to buy S&P Futures because they were cratering in response to Trump’s victory19. This is the mentality everyone needs to have. While the crowd was distracted, he was focused on his bottom line. It is easier said than done, but very profitable for those who can do it right.
If you want to address the growing polarization in this country, that is all well and good. However, as an investor, you cannot let your personal politics get in the way of your bottom line. Remember that our country’s system of checks and balances will probably prevent a good number of campaign promises from being delivered. Cooler heads tend to prevail. As investors, we would do well not to forget that.
- Ken Oehler, Ph.D., Global Engagement Practice Leader, AonHewitt, 2015 Trends in Global Employee Engagement: Making Engagement Happen
- Real Clear Politics Election Results – Michigan
- Real Clear Politics Election Results – Wisconsin
- Real Clear Politics Election Results – Pennsylvania
- Linda Qiu, Donald Trump’s top 10 Campaign Promises, Politifact, July 15th, 2016
- Samantha Smith, 6 Charts That Show Where Clinton and Trump Supporters Differ, Pew Research, FactTank: News in Numbers; October 20, 2016
- Real Clear Politics Election Results – California
- Bureau of Labor Statistics, California Unemployment Statistics Map, by County
- Phillip Reese, See Where California’s Heroin, Opioid Problems are Worst, Sacramento Bee, August 17, 2015
- Rural Health – Health Status and Health Behaviors, Stanford University Medicine 2010
- Sylvain Leduc; Confidence and the Business Cycle; Federal Reserve Board of San Francisco Economic Letter; November 22, 2010
- Jon Hilsenrath & Bob Davis; Election 2016 is Propelled by the American Economy’s Failed Promises; Wall Street Journal; July 7, 2016
- St. Louis Fed Economic Database; Value Added by Private Industries: Manufacturing; Updated November 3, 2016
- St. Louis Fed Economic Database – All Jobs & Manufacturing Jobs; updated November 4, 2016
- St. Louis Fed Economic Database – All Employees, Manufacturing: Pennsylvania; Wisconsin; & Michigan
- Carrier Statement Regarding Indianapolis Operations
- Amy R. Krosch & David M. Amodio; Economic Scarcity Alters the Perception of Race; Department of Psychology, New York University; May 2014
- Gentzkow, Matthew; Polarization in 2016; Stanford University
- Beth Jinks & Erik Schatzker; Icahn Left Trump Victory Party to Bet $1 Billion on Stocks; Bloomberg; November 9, 2016