investment – Sheila Kennedy

Very Interesting…

I am aware of a number of upper-income folks who justify their continuing support of Donald Trump by asserting that–“like most Republicans”– he has been better for their portfolios. That has always struck me as a poor excuse for ignoring what another Trump Presidency would do to the country (and for that matter, the world), but I’ve chalked it up to selfishness and (misunderstood/shortsighted) self-interest.

Evidently, I should have attributed it to ignorance, because it turns out that–when it comes to investment returns– Democratic administrations have greatly out-performed Republican ones.

As I was reading a recent issue of the Indianapolis Business Journal–a publication that covers local government far more thoroughly than the Indianapolis Star, by the way–I came across the regular column by Mickey Kim devoted to giving investment advice. This particular column was titled “Keep Calm and Don’t Mix Politics with your Portfolio,” and it was an effort to persuade people not to base their investment strategies on partisanship rather than performance, not to suggest that one party was better than the other for investment.

But the data was eye-opening, at least for me. (I readily admit to chosen ignorance about all things investment.)

My friend Sam Stovall, chief investment strategist for Wall Street research firm CFRA, dissected price changes for the S&P 500 going back to 1945 based on election results.

Republican administrations are generally viewed as “pro-business,” and conventional wisdom is that stocks do better with a Republican in the White House. There has, indeed, been a huge difference in returns during Democratic versus Republican administrations. However, as is often the case, conventional wisdom is wrong. Past performance is no guarantee of future results, but Stovall calculated from Harry Truman’s inauguration on April 12, 1945, through March 15, 2024, the average annual return for the S&P 500 was 44% higher with Democrats in the White House (9.5% vs. 6.6% during Republican administrations).

Further, according to Invesco and Haver Analytics, hypothetically speaking, the best-performing portfolio from 1900 to 2023 was the “bipartisan” one that stayed fully invested in the Dow Jones industrial average (a price-weighted index—cannot be invested in directly—of the 30 largest, most widely held stocks traded on the New York Stock Exchange) during both Democratic and Republican administrations. Again, past performance is no guarantee of future results, but starting with $10,000, this portfolio grew to almost $9.9 million.

Conversely, a “partisan” portfolio, invested only during Democratic or Republican administrations, underperformed by millions of dollars. The same $10,000 invested only during Democratic administrations grew to about $528,000. Invested only during Republican administrations, the initial $10,000 grew to a bit less than $181,000.

Kim concluded this analysis by reiterating his intended message, that “there can be a huge cost to letting a partisan political storm crash your portfolio.” His sound advice: “Develop an investment plan based on your long-term goals and stick to it. Your financial future will depend far more on how much you save and invest, not who wins the election.”

I am in no position to quibble with that advice, which strikes me as quite sound, but it certainly does raise a question about those upper-income Trump apologists. I suppose it’s possible that their portfolios grew under Trump, but given the truly excellent performance of the economy during the Biden Administration, it’s quite likely they’ve done as well or better with a Democrat in the White House. Is their purported reliance on portfolio performance an evasion intended to mask the actual reasons they support Trump (racism, misogyny, isolationism…)? Or do they actually not understand the significance of the data I’ve cited above?

Perhaps they’ve simply and unthinkingly accepted the old “country club Republican” belief that the GOP is the party looking out for the interests of the business community, while Democrats are “giving away” tax dollars via welfare and government spending. If so, someone needs to explain to them that both the short and long-term interests of the business community include such things as social stability, a well-maintained infrastructure, an educated and adequate workforce, and a population with enough disposable income to support robust consumer demand.

As investors are often admonished, past performance is no guarantee of future results. But the odds would certainly seem to be in the Democrats’ –and Biden’s–favor.

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The Rest Of The Story

When I was much younger, a radio personality named Paul Harvey had a feature on his newscast (or whatever it was) called “The Rest of the Story.” He would begin with a report of some sort, there would be a commercial break, and he would then return and conclude with “The Rest of the Story.” Usually, it was something that shone a rather different light on what had gone before.

So what is the Rest of the Story behind Trump’s incessant hawking of hydroxychloroquine–his insistence that it represents a “cure,” and that people “have nothing to lose” by trying it?

The Guardian recently published a well-resourced explanation of the multiple flaws in the French study that Trump and others latched onto. Dr. Fauci–one of the few remaining competent persons in this bizarre administration–has repeatedly said there is no probative evidence that it works.

Worse, people ingesting it based on Trump’s representations have died, and people who do need it for auto-immune diseases are increasingly unable to get their prescriptions filled. For them, it’s lifesaving, so this is a huge problem.

It’s easy enough to chalk up Trump’s embrace of this fantasy to the mental illness that has characterized his performance for the past three years– his need to believe (and have others believe) that he is all-knowing, his need to convince his cult that he is in control and doing a good job–coupled with his abysmal ignorance.

But the rest of the story is in a report first published in the New York Times, and picked up by other outlets.

President Donald Trump has a “small financial interest” in the maker of an anti-malarial drug that he has been touting as a “game changer” in treating coronavirus, according to The New York Times. Over the past two weeks, Trump and his Fox News allies have aggressively promoted hydroxychloroquine as a potential cure, despite top infectious-disease expert Dr. Anthony Fauci and others urging caution and noting that there was not enough evidence of the drug’s efficacy.

The Times reports the president’s family trusts all have investments in a mutual fund whose largest holding is Sanofi, the manufacturer of Plaquenil, the brand-name version of hydroxychloroquine. Associates of the president, including Commerce Secretary Wilbur Ross, have also run funds that hold investments in the pharmaceutical firm.

Other reports have reminded us that right after the 2016 election, Novartis, another major manufacturer of the drug, paid Trump’s now-incarcerated former personal attorney Michael Cohen more than $1 million for “access” to Trump.

The Times article noted that Trump has hyped hydroxychloroquine “with all of the enthusiasm of a real estate developer,” repeatedly asking “What do you have to lose?”

Apologists for the administration have excused the enthusiastic promotion as an effort to “provide hope” at a difficult time; others have suggested that more scientifically-valid studies might yet show the drug’s usefulness. But as the Times reported,

The professional organization that published a positive French study cited by Mr. Trump’s allies changed its mind in recent days. The International Society of Antimicrobial Chemotherapy said, “The article does not meet the society’s expected standard.” Some hospitals in Sweden stopped providing hydroxychloroquine to treat the coronavirus after reports of adverse side effects, according to Swedish news media.

According to the Times, the Administration is continuing to push hydroxychloroquine, and to order large quantities of it, despite the absence of properly-conducted studies suggesting its effectiveness. Trump has been quoted as saying it would be wrong to wait for the kind of study Dr. Fauci wanted. “We don’t have time,” the president said. “We don’t have two hours because there are people dying right now.”

Evidently, the people dying as a result of the President’s misinformation are unimportant.

It would be bad enough if this misinformation was just added evidence of Trump’s manifest stupidity, but it certainly looks like the financial incentive is “the rest of the story.”

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Return on Investment

Although I rarely have time to participate in the conversations (I have what is quaintly called a “day job”), I do read most of the comments posted to this blog. A few days ago, one commenter, in an aside to the point being made, suggested that the US should stop “wasting” money on space exploration.

I disagree, because I think the evidence is overwhelming that money spent on exploration and research is invested, not wasted. And the return on that investment has been impressive, as articles from Investopedia and elsewhere have documented.

Leaving aside the benefits that cannot be monetized– satisfaction of our human urge to explore, to understand, to seek out new life and new civilizations (okay, I’m a Star Trek fan)–here are just some of the very concrete returns on America’s investment in NASA:

Aircraft collision-avoidance systems
Cordless power tools
Corrosion resistant coatings for bridges
Digital imaging
Ear thermometers
GPS (global positioning satellites)
Household water filters
Hydroponic plant-growing systems
Implantable pacemakers
Infrared handheld cameras
Kidney dialysis machines
LASIK corrective eye surgery
Memory foam mattresses
Scratch-resistant sunglasses
Safety grooving on pavement
Shoe insoles
Virtual reality
Weather forecasting

Space exploration has also expanded human knowledge and contributed to research in education, healthcare, pollution control, rain forest protection and transportation. These and many other NASA-inspired advancements have a profound effect on life on Earth by improving health, safety, comfort and convenience. Entire industries have been built on space technology, including personal computers and natural resource mapping. As one of the nation’s strongest industries and an employer of nearly one million Americans, the aeronautics industry uses NASA-developed technology on nearly all aircrafts.

These benefits have been produced by an agency with the smallest budget of any of the major agencies in the federal government. NASA’s share of total U.S. Federal outlay has consistently remained below 1%, and during the past five years, closer to 0.5%.I think we get our money’s worth. We surely get more value per dollar than we get from our extravagant defense spending.

And unlike money spent on weapons, we are enhancing rather than degrading our humanity.

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When Debt is Investment

I recently ran across a very interesting report from the Brookings Institution, arguing for a “balance sheet” approach to fiscal policy. The basic argument, in “economic-ese” was

For a long-term balance-sheet approach to gain traction, politicians will have to drop the ideological biases that are distorting fiscal policy. Proponents of austerity currently use nominal debt figures to scare voters, even in countries with record-low interest rates and large private-sector profits that are not being channeled toward investment. To counter their arguments, opinion-makers should emphasize the expected long-term returns on incremental public investment, not with ideological arguments, but with concrete examples from various sectors in the recent past that have had reasonably good rate of returns.

In everyday English, author Kermal Dervis was arguing–among other things– that we need to distinguish between kinds of debt.

The mortgage on your house is debt. So is the credit-card balance from that shopping spree you indulged in. But the house is a long-term asset–the clothes you bought probably aren’t.

When we look at the books of a business, the purchase of more modern tools and machinery are an investment that will allow the business to earn more in the future (hence the saying “you have to spend money to make money”), while the CEO’s acquisition of a spiffy and expensive corporate jet is unlikely to improve the bottom line.

When we invest tax dollars in improved infrastructure or education, those investments generate future productivity and economic growth.

When we play games with the tax code to subsidize profitable businesses (with influential lobbyists), not so much.

All debt is not equal.

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Spending? Or Investing?

What happens when we fail to recognize the difference between spending and investing?

That question was triggered by a recent column by New York Times columnist Joe Nocera. Nocera was writing about corporate activists and a pending proxy battle between one such group and the DuPont Company, and most of his column dealt with the specifics of that situation. What struck me, however, was the following paragraph, in which he quotes an observation by a corporate lawyer named Martin Lipton. Lipton’s observations have implications that go well beyond a single corporate proxy dispute.

“Activism has caused companies to cut R & D, capital investment, and most significantly, employment,” he said. “It forces companies to lay off employees to meet quarterly earnings.”

“It is,” he concluded, “a disaster for the country.”

Lipton’s focus on employment is important, and has obvious implications for the health of the economy. But even more important, in my view, is the equally undeniable fact that the current fixation on generating an immediate shareholder return has resulted in corporate management diverting monies from investments that will pay dividends in the future in order to satisfy shareholder demands in the present.

Nor is it only corporate America that has become so shortsighted. The U.S. Congress is dominated by slash-and-burn “conservatives” who refuse to invest in critical infrastructure, preferring instead to indulge ideology and/or reward donors by reducing taxes on the wealthy (already at historic lows) still further. The recent slashing of Amtrak’s budget–even in the wake of a horrific derailment–is but one recent example.

I put quotation marks around conservative in the preceding paragraph, because I am old enough to remember when “fiscally conservative” described policymakers who believed in paying for programs—and wars—when they were authorized, rather than financing them “off budget” or putting them on the national credit card. ( We may criticize “tax and spend,” but it’s surely preferable to “borrow and spend.”)

Genuine fiscal conservatives also understood the difference between capital and operating expenditures and the importance of investing in the nation’s future.

Drawing parallels between individual households and the federal budget can be misleading, because there are significant differences between behaviors that are personally prudent and those appropriate to government. Nevertheless, to use a household example, your home mortgage is an investment; your new suit isn’t. Most of us would have very different opinions of two families carrying the same level of debt—in one case a mortgage and in the other a credit card balance from a shopping spree. And most of us would be very critical of a homeowner who chose not to repair the leaky roof so that he could use the money for a vacation instead.

Allowing assets to deteriorate while we indulge more immediate political appetites is hardly “fiscally conservative.”

When businesses fail to invest in necessary equipment, when they cut back on research and development, they risk obsolescence and loss of market share. They lose their competitive edge. That’s bad news for them.

When government fails to invest in infrastructure—bridges, roads, railroads, the electrical grid, new energy technologies, basic medical and scientific research—that’s bad news for us. We all suffer the consequences, because the whole nation’s economic performance is dependent upon the adequacy and accessibility of that infrastructure.

I believe it was Eric Hoffer, the longshoreman-philosopher, who said a nation should ultimately be judged not by what it builds, but by its ability to maintain what it has built.

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