We will have to vote for one of the choices the two major candidates are proposing.
Let me explain. To do so I have to describe the above graph.
The chart shows the growth in consumer expenditures (red line) and that of investments in machinery, equipment and construction (blue line). This is what the candidates are talking about.
The press, however, is too busy reporting and magnifying gossip issues. It fails to explain the real substance of the policies proposed by the two candidates.
Mrs. Clinton is suggesting we need to stimulate consumption through changes in taxes and public investments.
The growth of the economy will produce the resources to help and protect the less fortunate of us.
The outcome will also be an increase in investments to produce the goods demanded by the consumers.
Mr. Trump is instead saying that without a substantial increase in investments (blue line) the economy will not create the wealth we need to buy goods and services (red line).
The past behavior of the two measures suggests investments turn ahead of consumption and consumption grows much faster following a visible increase in investments.
In other words, investments create their own demand.
Quite frankly I tend, as investment strategist and portfolio manager, to rely on the latter conclusion.
The current position of the two gauges suggests the economy is in, or is close to, a recession. Without decisive programs to encourage business to invest, we are likely to experience very slow growth in the coming year.
This conclusion has an important strategic influence on which asset classes an investor should use in his/her portfolio.
Investment implications are discussed in depth in each issue of The Peter Dag Portfolio.
You will encourage my timely update of this blog on the economy and financial markets by entering a subscription to The Peter Dag Portfolio.
Thank you for visiting this site.
George Dagnino, PhD
Editor, The Peter Dag Portfolio
Author, Profiting in Bull and Bear Markets
Disclaimer. The content on this site is provided as general information only and should not be taken as investment advice nor is it a recommendation to buy or sell any financial instrument. Actions you undertake as a consequence of any analysis, opinion or advertisement on this site are your sole responsibility.
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