Partisan hacks are now claiming Donald Trump is responsible for a terrific economy. Novice investors are investing based on this idea. They believe the following:
A successful businessman is now running the country.
He will run the country like a profitable company.
Therefore, I should buy stocks.
Let us start with some facts. The economy has been booming since 2010. I present a few charts to convince you I am correct about this view.
Way before Donald Trump took office the economy was already taking off. We heard from partisan hacks on the right that there was no recovery when Obama was in office. In other words, seeing is not believing.
We heard from partisan hacks on the left that if Donald Trump was elected president, there would be a stock market crash. An entire year has passed. There has been no stock market crash.
Let me dissect each one of these claims.
A successful businessman is now running the country.
A successful businessman is the President of the US (POTUS), but he is not running the country. Presidents are powerless. What did Barack Obama accomplish that anyone remembers? Obamacare. It is falling apart as I write. Health care prices go up, up and away since the promise of the affordable health care act. Congress and the president can not get any thing done. This is a good thing. Governments can not do anything without hurting some one first. Governments have no resources. They only have what they take from others. Governments can not help group A unless they first take from group B. The only thing good the POTUS can do is undo things. This is not happening. The CFR grows by leaps and bounds each year.
He will run the country like a profitable company.
Countries can not be ran like a business. In the business world there is something called profit and loss. A business man starts a company. If he operates at a profit he is making the consumer happy. The market tells him he is allocating resources correctly. If he incurs a loss he is not allocating resources effectively. The market tells him he must change his ways. If not, he will be faced with financial ruin. Governments do not operate on profit and loss. They have no idea if they are allocating resources effectively. If governments could allocate resources effectively, the Soviet Union would have been a wonderful place to live.
Therefore, I should buy stocks.
After making two false statements they now come to a conclusion. Not surprisingly, when your conclusion is based on two false statements you risk coming to a false conclusion. Lets assume Trump is going to win the next election for the sake of argument. Do you believe a recession is not going to happen between now and seven years? If your only indicator is “Donald Trump is president”, plan to suffer a loss in your investments.
Conclusion
Buying stocks based on who is president is not wise. As demonstrated above, the president does not have much power when it comes to the economy. The Federal Reserve has always been the driving force of booms and bust.