The Capitalist Investor - Episode 7

Here’s the deal: A Joe Biden presidency will impact the economy and your portfolio—likely not in a good way. Literally. I’m serious. That’s not Hyperbole. Anyway, ‘Bidenisms’ aside, he has taken the lead and is expected to win the Democratic nomination. In this episode, we’ll talk about Biden’s policies, the impact of his presidency, and how it will affect investors.

Outline of This Episode

  • [0:25] The impact of a Joe Biden presidency
  • [1:20] The best and worst democratic debaters
  • [4:38] Creepy Joe now taking a resounding lead
  • [6:21] What caused the rise of Biden?
  • [9:10] Joe Biden’s policies and narrative
  • [15:18] How a Biden presidency impacts your portfolio
  • [18:48] What the S&P 500 tells us

Statistics about ‘Creepy Joe’s’ resounding lead

Before Super Tuesday, Biden was a sinking ship. At the time of this recording, Bernie had a 60% chance of winning the nomination, prior to Super Tuesday. Biden only had a 10% change. Following super Tuesday, Biden went up to 74% and Bernie went to 17%. Why such a massive shift?

Now, suddenly, Biden has taken a resounding lead. What happened? Pete Buttigieg, Klobuchar, Beto O’Rourke, and many others dropped out of the race—and endorsed Biden before Super Tuesday. Every single moderate dropped out. Perhaps that made an impact.

Maybe the millennials who were infatuated with the potential of student loans being written off finally came to their senses. Keep listening as we debate what contributed to the fall of Bernie and the rise of Biden.

Joe vows to increase taxes on the wealthy—and corporations

Biden’s campaign essentially promises another 4 years of the Obama administration. But is that what we need for the economy? We agree that the answer is a resoundingno. Under the Obama administration—while promising to narrow the gap—the wealth gap became even wider. This wasn’t Trump’s fault—it happened well before his administration was in office.

People see Biden as a moderate compared to Bernie Sanders, but he will still be significantly increasing taxes if elected. He plans on restoring the individual top tax rate to 39.6% (from 37%) and increasing the corporate tax rate from 21% to a whopping 28%.

How Joe Biden’s policies will impact your portfolio

The hike in tax rates would negatively impact the stocks in our client’s portfolios. It would also reduce after-tax earnings—they’d take a significant hit. Earnings growth was phenomenal following Trump’s tax cuts. In the last 3 years, companies have earned an additional (approximate) 20% net income directly related to that tax cut. We are up approximately 40% right now, so the other 20% might be due to reinvestment into human capital and creating jobs (dropping the unemployment rate). If companies have less money to engage in growth plans and hire, unemployment rates are going to climb back up. There will likely be a negative impact on bonds. It will be interesting to see how Biden’s first 100 days—if elected—would impact the economy.

The S&P 500 predicts the outcome of the election

You’ll know who’s going to win the election based on the S&P 500. If it goes up the 90 days before the election, it’s likely that the incumbent will stay in office. If the S&P is down over the course of those 90 days, the incumbent will be replaced by a new regime. I believe this has occurred in 23 of the 25 of the most recent elections.

The S&P 500 was hovering around 3,000 at the time of the recording of this episode. In January 2016 the S&P was around 2,000. Since Trump took office, it has grown from 2,000 to 3,000—a 50% increase. Roughly 20% has come from tax benefits. The remaining 30% is likely from investor optimism and earnings growth projections.

Listen to the whole episode for our whole discussion around the impact of a Biden Presidency. The bottom line is—how can someone who can’t even complete a full sentence get elected? 

Resources & People Mentioned

Connect with Derek Gabrielsen

Connect With Mark Tepper

Send your questions and comments to us at info@SWPConnect.com

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Keep Listening to The Capitalist Investor:
Episode 15:
Spending Strategies in a Bear Market, Ep #15
Episode 2:
Is the Stock Market Overvalued?
Episode 3:
Impact of a Bernie Sanders Presidency
Episode 4:
Coronavirus, Pandemics, and Your Money
Episode 5:
What We Consider A Smart Investment Strategy, Ep #5
Episode 6:
Why Investing In IPOs Is Not A Good Idea, Ep #6
Episode 8:
Special – Coronavirus and the Economic Shutdown, Ep #8