By Tom Konrad, Ph.D., CFA
The risks of playing politics
The American news media often tries too hard to be “balanced” when talking about politics.
Depending on which news sources you rely on, you may be hearing that “congress” is having trouble passing bills to fund the government and raise the debt ceiling. More partisan sources will be blaming it on the Democrats or the Republicans, depending on their political bent.
I generally consider myself an independent who cares deeply about the environment and competent government. Since the rise of Donald Trump, the Republicans have shifted from being the party of big business (often anti-environment) to the party of big fossil fuels and corruption. Where I used to be mostly aligned with Democrats because of their pro-environmental stance, the recent shift from conservative political positions to the disinformation fueled corruption and pursuit of power for its own sake of Trump and those who follow his lead, I (now) have no choice but to take the opposing position. And because I feel that much of the mainstream media is focused on trying to be “balanced” at the expense of telling it like it is, I’m going to tell it like I believe it is:
Because Republican leaders (especially Mitch McConnell in the Senate) are more interested in scoring political points than making sure that America avoids financial disaster by raising the debt ceiling, the market is starting to look wobbly. Using the filibuster, Senate Republicans are even blocking a simple up or down vote on raising the debt ceiling- one which would need no Republican votes to pass- and are instead trying to force the Democrats to raise the debt ceiling through reconciliation. Even if the Democrats manage to avoid the filibuster by raising the debt ceiling through reconciliation, the delay is already doing damage to investor confidence and the economy.
Not raising the debt ceiling would be like me refusing to make the minimum payment on a credit card balance that I had run up because I suddenly decided I didn’t like credit card debt. It’s fine not to like credit card debt but the way to avoid credit card debt is to pay it off or avoid spending the money in the first place- not by refusing to pay the bill when it comes due. Even if I can pay and eventually do, my credit score and ability to get loans would be damaged for years.
McConnell and other Republicans in the Senate have decided that they want to be able to score political points by blaming Democrats for raising the debt ceiling, rather than voting to do the responsible thing for the country. They certainly did not have any problem adding to the credit card bill by passing giant tax cuts when they controlled the government, while Senate Democrats did the responsible thing by supporting Republican efforts to raise the debt ceiling the last time it came up for a vote. But Republicans would rather score political points than vote to pay the debt that they ran up – or even allow the Democrats to have that vote on the Senate floor.
Stock market consequences
We can see the harm caused so far in the 5% declines of my 10 Clean Energy Stocks model portfolio and its benchmarks in September:
A real bear market will look much worse.
The political standoff over the debt ceiling could easily be the event that ends the current bull market. With the Federal Reserve reducing its stimulus to the economy, and the Delta variant rampant in more rural parts of the country due to low vaccination rates, I find it surprising that the market remains as strong as it does.
The Democrats will almost certainly eventually raise the debt ceiling, but only after considerable economic damage has been done. This is a certainty, since that damage has already started, and barring a reversal by McConnell, it is likely to continue for weeks if not months.
I’ve been cautioning my readers to be prepared for a market downturn for almost a year now, so if we enter a bear market, my readers and I will probably be fine. Those of us who are prepared may even scoop up some stock market bargains at discounted prices.
This potential opportunity to shop a stock market sale and the Republicans scoring a few political points is simply not worth creating a crisis that simply did not need to happen.
If the Democrats are forced to raise the debt limit by reconciliation, I hope they take the process one step further and remove the debt ceiling altogether. These periodic artificial debt ceiling crises are bad for the economy, and one more barrier to the ineffectual congress actually getting something useful done for a change.
DISCLOSURE: Long all stocks in the 10 Clean Energy Stocks for 2021 portfolio.
DISCLAIMER: Past performance is not a guarantee or a reliable indicator of future results. This article contains the current opinions of the author and such opinions are subject to change without notice. This article has been distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.
Very disappointed to see an article filled with vague generalizations concerning BOTH political parties. YOU PRESENT ZERO FACTS TO SUPPORT THESE vague GENERALIZATIONS.
This is an opinion piece. If you feel there are any factual errors, please be specific point them out instead of doing the same thing you accuse me of: making vague generalizations. If you have a different opinion, write your own opinion piece.
Seeing political opinion is disappointing, especially if it is only vague generalizations about political parties that are unsupported by objective facts. (If we want that we can go to Fox News or MSNBC). We come here for your insightful and objective views of green energy and not for cable TV style politics.
In short, you presented no objective facts or logical arguments to support your claims about McConnell, Trump, and the GOP. (Contributions by ideology https://www.opensecrets.org/elections-overview/business-labor-ideology-split)
You seem to have ignored that the several GOP Senators broke ranks to help write and pass an Infrastructure Bill (the bill features many ‘green’ initiatives in the bill) This type of ‘investment’ has been needed for at least twenty years. The bill is now being held as a political hostage by the Democrats. Are they looking out for America’s future green economy or just scoring political points?
Fire at one party, but do not ignore the intransigence and hypocrisy of the other. A close look at political contributions will show that Both Parties are the parties of Big Corporations (https://www.opensecrets.org/elections-overview/sectors) and both promote governmental gridlock for scoring political points all the while claiming they represent the true will of the American Public. (https://www.opensecrets.org/elections-overview/top-organizations) [Open Secrets consolidates FEC Data]
IN my opinion over the past twenty years there has been only ‘toe line’ on both sides of the aisle. Until Members of Congress start thinking and voting on their own and not just following the party leadership there will be governmental grid lock. That is why I have found it refreshing over the past several months to see Senators on both sides of the aisle standing up for their voters and not just following Schumer and McConnell like sheep. Now let’s hope we see the House members quit being sheep.
As I said in the article, I took one side because I believe that the R’s had stepped over the line to being pure obstructionists. I’m no more interested in being “balanced” about political parties than I am about stocks.
But you’re right that my article would have been better if I had referenced objective sources. But there is a limit to how much time I have to write.
Yes, a few Republicans in the senate tried to do something useful a few months ago, but if Republicans had really wanted the infrastructure bill passed on its own, they could ally with centrist Democrats in the House and pass it right now- and Biden would sign it. The only thing keeping that bill from passing right now is that Dem progressives in the House won’t vote for it unless it passes along with the reconciliation bill, and Republicans won’t vote of it at all. (Reference per your request: https://www.realclearpolitics.com/articles/2021/09/20/why_republicans_should_vote_for_the_bipartisan_i)nfrastructure_bill_146433.html). So even in your example, the Republicans, as a party, are obstructionists. The Dems are simply incapable of getting much of anything done because of razor-thin majorities and unified obstruction from the Republicans.
Some stocks are buys, others are sells. Same goes for political parties.
In my opinion, the Republican Party is currently a “sell and run for the hills” or a short sell if your investment/political objective is a well run country. The Democrats are merely a “hold to underweight.” I think we agree that we lack a party of “good” politicians to overweight. But given how bad the Republicans are currently, I have to invest my political portfolio entirely in the Democrats.
“The only thing necessary for the triumph of evil is for good men to do nothing.” At some point what is being done has to be acknowledged. Our enemies are happy that we are not united in support of our country over political gain.