Stocks are hot for illiberal democracy
Stocks moved significantly higher since last night's vote, painting a picture of the world that’s to come. Technology companies, banks, and the rest of corporate America can expect a deregulated environment, and lower tax and borrowing rates. These are a few of the significant windfalls they will receive at the expense of losing a liberal democracy. The coming administration’s objective has been clearly outlined over the last four years, including retribution against political opponents, and a new trade war with foreign countries and companies, to name a few. The world changed entirely last night, benefiting wealthy investors at the expense of the working class (even though they voted for it.) Here are a few of my expectations.
Stocks to remain strong
Interest rates may be forced lower, allowing companies to leverage up and boost their returns. Companies will be deregulated and have new political access to design a legal system that’s favorable to them.
Taxes to go lower
Tariffs could replace income tax^1 which means significantly greater costs to consumers while investors can expect an increase in after-tax profits.
US dollar to see strength, for now
Authoritarian regimes are famous for spending and thus devaluing their currency to the point of collapse; Argentina, China, and Russia come to mind. The US is a bit unique as it’s the world’s reserve currency, but a much higher national debt may trigger a lower US dollar in the long term.
Social Security at risk
Eliminating tax on Social Security benefits^2 could default it sooner than 2036^3. Retirees should anticipate a decline in benefits in the intermediate term unless obvious government corrective action takes place (unlikely).
America has changed its course in history for the worse. More sadly, this is a loss for the environment and global health and puts at risk Europe’s fight against aggressors. The American priority is now its corporate health, and therefore investor health, at least for now. Those who haven’t saved and invested will face higher import costs, losses in health care affordability and the risk of not receiving Social Security and Medicare in retirement.
It’s crucial to stay invested at this point but consider diversifying into real assets, such as gold and energy stocks as these typically fare well under dictatorships and uncertain times. “Drill Baby Drill” comes to mind; another example of handing the energy sector a win.
I can’t know what lies ahead but have some confidence in the bureaucracy that makes up the American legal system and that all efforts by another Trump administration to derail progress will be fought.
At Eureka Wealth Management, I help manage investments and will provide retirement options while knowing Social Security may be at risk. I also do insurance and tax strategy. Call for a free, initial consultation at (760) 537-0791 or online at eurekawealthmanagement.com.