Ignorance Is Bliss

Are the financial markets not paying attention? Or is that a good thing?

I keep asking myself those questions while I watch the major U.S. stock market indexes soar to new heights on a regular basis, while bond prices retreat – and yields rise – after hitting crisis levels early in the year.

The markets are saying: everything is just fine. The economy is humming along, consumers are spending, everyone who wants one can get a job, but just in case, the Federal Reserve is keeping interest rates low and monetary policy accommodative. How can things possibly get any better?

But are we getting a little too comfortable?

Stock prices are rising, and bond prices are falling even as the main Democrat presidential hopefuls try to top one another with the most profligate government giveaways they can think up – Medicare for All, free college tuition, student loan forgiveness, free health care for illegal aliens, reparations for slavery, you name it – while their peers in the House are trying desperately to drive President Trump from the White House, so they don’t have to face him on Election Day next year.

To say that there is a huge disconnect between the political world and the financial world is a huge understatement.

At some point, will investors look over this depressing – and rather scary – landscape and take their chips off the table? Or do they really believe that all of this silliness will eventually blow over and Trump – whom the financial markets seem to like, or at least are comfortable with – will arise victorious after the impeachment witch hunt plays itself out and the current field of Democrat presidential wannabes thins out?

Or, perhaps, do they believe that a supposedly more “serious” (read electable) Democrat candidate like Joe Biden or Michael Bloomberg – or even someone else waiting in the wings? – will come riding to the rescue and save the day?

Or do investors simply believe it really doesn’t matter who’s president or which party is in power?

It’s heartening to know that at least some people are paying attention and pushing back a little. Unfortunately, they’re not people that garner a lot of sympathy.

Billionaires like Leon Cooperman, Bill Gates, Jamie Dimon, and Lloyd Blankfein have reproached the presumed Democrat frontrunner Elizabeth Warren for her proposed “wealth tax” that’s targeted straight at them, something she doesn’t try to hide or apologize for.

Blankfein, speaking on CNBC, went so far as to say that Warren’s singling out people like himself made him worry about the “political process in the United States.”

“I’m used to Wall Street getting pelted,” he said. “But going after specific individuals ... is that really good? I’m not so sure.” In an earlier Twitter comment, he made a thinly-veiled reference to her previous claims to be a Native American. “Maybe tribalism is just in her DNA,” he said.

While so far the super-wealthy are the only ones who are the targets of Warren’s proposed levy, we should know by now that “tax the rich” schemes never seem to stop at the wealthy, for the simple reason that the rich have the best lawyers and financial advisors to avoid these taxes and shield their assets, while those in the middle class don’t, and will thus have to make up the difference.

Too many people, I think, are brushing off this proposal and Medicare for All as just too unrealistic to take seriously, and that if Warren – or someone else who also favors these ideas – gets the nomination, they’ll drop them once the primary season is over and the general election campaign begins.

It’s never going to happen, so goes the argument, so why worry about it?

I’m not so sanguine.

Maybe I’ve gotten too cynical about American politics and politicians over the years, but those two ideas sound like winning campaign issues. Get free medical care from birth? Count me in. How will we pay for it all? Why the billionaires will finally pay “their fair share.” And if they don’t? No worries. Just add the cost to the already gigantic federal debt, now $23 trillion and counting. A few more trillion dollars isn’t going to matter. And if things do get out of control, the Fed will be right there to buy up all that debt.

Maybe the financial markets are right not to worry. Next November is so far away. A lot can happen between now and then. Let’s just relax and let our chips ride.

I sure hope they’re right. We’ll all have a lot to lose if they’re wrong.

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George Yacik
INO.com Contributor - Fed & Interest Rates

Disclosure: This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.