Will History Repeat Itself Full Webinar Clip

get things started looking at the upcoming election, what that could mean for the markets. And anytime you're wondering how an event could impact the market, it's a good idea to look at what's happened historically. And that's what we'll do on the next slide here. So what we're looking at is the average return during an election year going all the way back to 1950. And a few things jump out to me about this chart. For one thing, it's nicely positive, close to 8% on an average election. That's more or less what you might expect from the market long term. So not a bad time to be an investor. You can also see in an election year, the first half of the year tends to be pretty dull. Not a lot happens on average. Now, that's not what happened this year. We're off to a really strong start. But what I really want to draw your attention to is the time period that we're at right now. So starting in September and then heading into October and November, as we get closer and closer to the election, historically, we've seen more downside volatility. Now, there's no guarantee that that will happen this year. But I think there's a strong possibility that it will. And I say that for two reasons. Number one, like I said, we're already off to a very strong start to the year, it would be perfectly natural and normal to have a correction to follow that up. And the second reason is like this time of year in an election year, this is when mainstream media makes their money through advertising, and they are strongly incentivized to do everything they can to keep eyeballs glued on the television screen. How do they do that? They say extreme things, they bring on extreme guests, they constantly flash breaking news alerts on the screen. And in general, they create an atmosphere of fear to keep people engaged to keep them hooked on the screen. And as people are fed that diet of fear, they get concerned, they get worried, they think, well, maybe I should sit things out until after there's more certainty and after the election. So that can absolutely trickle into the market. But look at what happens afterwards. Starting in November, starting in November, right after the election, we get a pretty, pretty strong rally historically. Now, why is that? A lot of you will have heard the saying that the market hates uncertainty. When we get past the election, that uncertainty is removed. And yeah, we have half the country is happy about it. And half the country is not. But at least we know what we're dealing with. And the market can start to process it. And it moves on and moves forward. And that's historically what's happened. Now that's assuming that we have uncertainty. in the run up to the election. Do we have that now? Let's take a look and see how things are shaping up. So starting with the presidential race, we're going to look at what the odds are. These are actually betting odds on the next slide. And we prefer to use that instead of polls because they've proven to be more accurate over time. So you can see they're about as even as you can get. It's pretty much a coin flip right now. According to the betting odds whether Trump or Harris will win. Not much more to say about this. It's a coin flip right now. That's not the case with the Senate though. So we'll take a look at that. And there's 34 seats up for grabs for the Senate this year. Most of those are Democrat seats. And you'll see on the next slide that the Republicans are favored to win. Now it's not a huge. Austin, can we move to the next slide, please? Moving on to the Senate race. The Republicans are favored to win the Senate, not by a huge majority, but pretty strong, strong percentage chance that they come away with the Senate. So right now, Senate race is favoring Republicans. As far as the House race goes, you know, I've termed it a toss up the model that we're showing you right here has Republicans with a 54% chance of winning the House, but there's a lot of undecided elections. elections out there that could go either way. So, you know, we likely won't know until election night or shortly thereafter how the House goes. So based on all this, what can we take away besides that there's a lot of uncertainty about how things are going to go? Well, we can say that as of right now, the likelihood is that we'll either have a Republican sweep or we'll have gridlock, which means that neither party is in control of everything. Politics aside, I'll share with you that my preference as an investor, it tends to be to see gridlock. And I'll tell you why. When we have gridlock in the government, it usually prevents extreme legislation from getting passed, the kind of legislation that can impact the market. Now, when you have gridlock, you have more compromise, those radical promises that you hear during the campaign trail, they tend to get watered down. At the end of the day, I just don't want the government meddling in the market. that much. And we tend to achieve that through gridlock. However, if I don't get what I want, Austin, and we end up with one party controlling everything, history says we're going to be okay. Because when you look at when we've had unified governments, in other words, the Republicans are controlling everything, or the Democrats are controlling everything. Two things to say, one returns have been pretty darn good. These are average annual returns during those periods. Two, this is one of those kind of head scratching things where you do a double take, the returns have actually been identical, whether we've had a unified Republican government, or unified Democrat government going all the way back to 1926. So small sample size, but yeah, it's an interesting point, for sure. It is. And I think the takeaway here is, you know, no matter who's in power, the market tends to do just fine. And I certainly don't think that's because we always have wonderful politicians that are in power. But I think that speaks more to the idea that politicians do not control the stock market as much as they'd like you to believe. Now, maybe you accept that and you're okay with that. And you say to yourself, well, okay, I'm not going to make any wholesale changes based on what happens. But surely there must be some adjustments that should be made depending on who wins. And in hindsight, you're sure to be right about that. But the problem when it comes to politics, and what seems obvious and logical is they don't always add up. And a good example of that comes from the Biden campaign trail back in 2019, when he told the world, I guarantee you, we're going to end fossil fuel. Now, if you're a logic, logical investor, you see that it's perfectly reasonable to say to yourself, well, if Biden wins the presidency, which of course he did, there's no way that I'm going to invest in fossil fuel companies, he's saying that we're going to end them. But there's what politicians say, and then there's what happens. And what happened is that under Biden, US energy production has reached an all time high, we're producing more than Russia, we're producing more than Saudi Arabia, we're producing more than any country has ever produced. So, you know, maybe fossil fuels will see an end someday, but it certainly hasn't been under the Biden administration. What does that mean for investing? Yeah, I remember when Biden was elected, there was a lot of call for investing in things like solar panels and electric vehicle companies. And I'm hearing the same thing now. That's what you should do if Harris wins. But the reality is that while the S&P did pretty good under Biden, that 45% orange line that you see down there, the energy sector has more than doubled the S&P returns under the Biden administration. Again, not what you would think heading into that administration, but it just goes to show you the obvious, you know, in quotes, obvious picks based on who wins don't always work out how you might expect. And Michael, I think the flip side of that is, yeah, solar and EV stocks did better, have did better under Trump, and they've done under Biden, isn't that right? Massively, they did massively. And you wouldn't have expected that either. Not at all. That's not what the pundits were calling for. And it, it just isn't, isn't logically what you might expect. But it's, it's absolutely what happened. So there's plenty that we aren't sure about. We don't know who's going to win the election. And even if we did, as I mentioned, it's not clear how you should invest, even the obvious things don't always work out. But there are some things that we have a high certainty about. And those are the type of things that we want to base our thinking on and make investment decisions on. And so what do we know for sure? Well, unfortunately, we're quite sure that the national debt is going to continue to increase, as we see it happens under every administration. Right now, we're at $35 trillion of debt. And Austin, you wrote a digest last week, you had a terrifying statistic in there, which is that it took our government 200 years to rack up their first trillion dollars of debt. Now we add a trillion dollars of debt, roughly every 100 days. This is mind boggling. And you know, this is a large number, but we do have a large economy. And if there was some sort of plan in place to address this debt, that would be one thing, but there really isn't, we don't think anything's going to change. We think that politicians will continue to kick the can down the road, and that this will be a problem that is not dealt with. We can see that in the deficit spending that we have today. Last year, we had $1.7 trillion deficit. This graphic that you see breaks down how that works out, we had $4.4 trillion in revenues, a big number to be sure, but $3.8 of that was wiped away in mandatory spending. That's things like Social Security and Medicare. By the time you get to discretionary spending, we're in deep deficit territory. And the biggest part of that discretionary spending is in our defense, which you could argue how discretionary that really is. It's pretty important. The takeaway is there's not an easy way around this with all the entitlements that are out there. This is projected to keep increasing. The projection for this year is a $2 trillion deficit or almost 7% of GDP. When you look at the times that we've had that much of a deficit relative to GDP in the past, there's not many times, and they tend to stick out as pretty unique times. It happened during World War II. It happened during the Great Financial Crisis, and it happened briefly during the COVID pandemic when all the helicopter money was released. But we're not in a pandemic right now. We're not in a financial crisis, and we're not in a world war. Having this level of deficit during what's a relatively strong economy is concerning is concerning, relatively strong economy is concerning, and it's projected to continue. You can see that going forward, this is courtesy of the Congressional Budget Office. They are projecting the deficit to increase as a percentage of GDP. They have the primary deficit there flat, which I think is maybe generous. You can look historically and see it's never been flat, but we'll allow them that. What I think they hit spot on is the increase in net interest outlays. It makes sense. We're leaving a zero interest rate environment when some of that debt was funded. As it matures, we're going to have to refinance it at higher rates, and that interest is going to be a larger and larger percent of the deficit. It's not going to happen overnight, but we are confident it's gradually going to happen, and that's a concern. What else do we know with certainty? We're pretty sure that the yield you've been enjoying on your short-term cash is going away. The Fed is meeting next week, and the big debate among financial types is whether they're going to cut 25 or 50 basis points. We think much more important than that is the trajectory for rates going forward. We are entering a timeframe when rates are going to be more accommodative. You can see that that orange dot there, that's the Fed's estimate of the neutral rate. In other words, where can the Fed funds rate be where it's not stimulating the economy, that it's not restrictive either? That's pretty much where they have license to cut to, and so that's a long ways from here. Whether it's 25 or 50 basis points of cut next week, we expect their rates will continue to go down. In the short-term, that makes cash less and less appealing. What about in the long-term? This is a chart going back over 100 years looking at the purchasing power of a dollar, and you can see that with few exceptions, the dollar tends to lose value. We think that's going to continue to happen. Think back to that debt chart that I showed you with debt skyrocketing. The easiest way for politicians to ease that burden is, a lot of you already know, it's to go to the printing presses and print more money. The more they do that, the more the dollar is devalued. Thinking about what we know for sure, what can you do? For most of you, if you're looking to achieve financial liberty, you can't hang out in cash. It's the charts right there for you, and we don't think it's going to get better. Cash loses purchasing power over time. Unfortunately, you can't rely on the government to do what's going to be best for you. I hate to say it, but look at what they've done to our own national finances. $35 trillion in debt, adding a trillion dollars every 100 days. You have to take matters into your own hands. You have to have a proactive plan to address this. We believe that that starts with the five steps that we've been mentioning. Austin, I'm sure that folks by now are ready to hear what the heck are those steps that we keep alluding to. So I'll invite you to come back and share with folks what we're talking about. Fantastic. Thanks, Michael. That was great. Even with the technical difficulties, you nailed it. So thank you. So let's jump to that next slide. Look, our view is these are the five steps that every investor ought to take, no matter your current financial situation. Some you'll have to do immediately and then can get into the others. So let's jump to that next slide. And then we'll have to do a few steps that we can't do. But we believe that these are what you need to do no matter who's elected, no matter where you're in life, and no matter what the market throws at us. So let's start with step one. Spend less, save more. The only true guaranteed way to grow your wealth long term is to spend less.