Should we really be going up right now? Does it make any sense given that we have a Democrat in the White House and a Democratic Congressional majority? I ponder this question pretty much every day as I watch stocks climb often on their own volition.
You have to admit that we have a great conundrum going on right now. Two years ago we had incredibly low unemployment with no inflation. That's about as perfect as you can get. We had terrific earnings and then the pandemic struck and caused the market to get shelled.
Throughout this period, though, there was one element that never changed, we had a president who graded himself by the averages themselves. When the Dow went up and it went up big after the March bottom, the shortest bear market in history, Trump cheered it in Twitter (TWTR) and on his little interchanges with reporters at every major milestone. To him it meant that he was doing well. He paid attention as closely as possible and made decisions with the stock market in mind, which meant low taxes everywhere. He even picked Larry Kudlow as his chief economic advisor, someone who openly campaigns endlessly for lower capital gains taxes.
I served as a judge for The Apprentice for several years and I can tell you that while Trump never followed individual stocks closely he knew it meant a great deal and delighted in asking me questions about what to buy. I always told him, among others, to buy Verizon (VZ) . Even then you didn't want to get on his bad side.
I worked with Larry for three and a half years and Larry never met a tax cut he didn't like. When we were on Kudlow & Cramer together I pushed night after night for a dividend tax cut and he went for a capital gains cut. I like taxes lowered on dividends because I wanted people to be owners not renters of stocks and the power of compounded dividends is one of the great wonders of the world. Larry wanted capital gains lowered for any number of reasons, including he wanted people to take risks and buy stocks and create companies and his passion knew no bounds. When President Bush pushed through the cuts we advocated, Larry told me Bush credited us for the cuts.
So you have a chief economic adviser and a president that were enthralled with the market. They wanted it higher, not lower, and it was almost an obsession with them.
Now how about this president? I don't think President Biden pays much attention to the stock market at all. I have known him for years and I would often see him on the train going south when he hopped on at Wilmington going to the capital. The president is the one of the most convivial souls I have ever met and one time he saw me walk by him and stopped me to talk about the stock market. First he introduced me to the conductor because he was right there and Biden would have thought it rude not to. He had just asked the conductor to play a game of golf with him so he delighted in introducing us.
Then he got right down to it. He said that he found my obsession compelling but sadly he couldn't take advantage of it in part because he didn't have the money for stocks. I told him that I understood the potential conflicts but it was never too late to buy an index fund. He then said to me that he would but from the disclosure forms he was the poorest person in the Senate. Number 100, the bottom. I remember saying that's too bad, but he didn't seem to care at all.
So let's see, you have one president who was obsessed with the stock market and another who could care less about it. One president who bragged about how rich he was and another president who makes sure you know he's the poorest senator. One man who reveled in being the real estate mogul builder, the other proudly pointing out when he introduced his jobs program that he was a union man.
And it hasn't mattered one whit. How can that be? Doesn't it matter? Shouldn't it matter?
Let's pull this apart for a moment and come to grips with why it hasn't mattered and, if anything the velocity of this move actually exceeds that of Biden's predecessor.
First, while presidents are anything but irrelevant, the federal government has uniquely become powerless and feckless because of hideous partisanship, something that JP Morgan (JPM) CEO Jamie Dimon pointed out poignantly and repeatedly in his incredibly good annual letter that came out yesterday. When you don't have the votes or there is a split in Congress you truly have a hard time getting anything done unless the crisis is so palpable as it was last year that the Republicans and Democrats had to reach some agreement on a crisis package.
That matters. Right now we are speaking over and over about what the corporate tax rate might need to be to pay for the jobs bill that's packaged at an infrastructure program. Given how tight thing are in the Senate between the Democrats and Republicans it's really difficult to pass anything without compromise and without it nothing gets done. There's a good chance that's exactly what happens.
Now consider if Biden had decided to double the taxes on capital gains and dividends. That would be a very different matter. Surprisingly, given how he favors labor over capital he hasn't touched a benefit that is chiefly for rich people, although I had hoped, at least with lower dividend taxes we would bring more investors of all ages in. Didn't really happen.
Second, I think that no matter how pro-stock market Trump may have been, his endless tormenting of Jay Powell with taunts like "crazy", "loco" and "clueless' made it very difficult to accept Trump as a serious person when it came to the traditional separation between the Federal Reserve and the president. You don't say "who is our biggest enemy, Fed Chairman Powell or Chinese President Xi" and think that stock investors want to put more into equities. Worse, the president was initially calling Powell "a powerful golfer who can't score" and derided him for being too conservative and then when Powell turned out to grasp the crisis before anyone and was well ahead of the president in trying to save the economy with easy policies there were no praising tweets.
Biden, however, hasn't talked to the Fed Chief and doesn't seem to intend to because he believes in the historic separation between his office and that of the Fed.
Finally, three, Trump's erratic behavior toward businesspeople and his disrespect for science collided with pretty much every CEO I know, especially CEOs who could switch to coal if they wanted to, another Trump obsession. Biden? They don't want higher taxes but they don't' want to be tweeted at either or be forced to choose a climate change or anti-climate change position. As many an exec has said to me, "I've got children I can't take his position."
In the end, you could argue that maybe the whole discussion is moot. What matters is rates are low and liquidity is high. I would come back and say, don't kid yourself, the president, for all that we talk about him, is largely irrelevant. But what does matter is calm, the market loves calm. It loves serenity. It likes certainty so much that even if the positions staked out are not their own, there are no surprises from this guy. That and that alone is enough to make people pay more for stocks even when a union man who cheerily told me he was the poorest of the 100, now resides in the White House.