It’s the Economy Stupid

Courtesy of Google Images, Eric Allie, Cagle Cartoons

Courtesy of Google Images, Eric Allie, Cagle Cartoons

Clinton campaign spokesman, J. Carville, made it their campaign slogan and it has never been more appropriate than during the last 8 years of Obama’s reign. The dismal state of the US economy is well known. Now that the elections are over, Trump has the difficult task of undoing the damage.

The two main areas of focus are tax and regulatory relief.  Obama has imposed excessive regulations on major parts of the economy with the EPA assault on energy being the most expensive. A close second is Obamacare with increasing costs of health insurance by double digits annually. Because of the employer mandate, there are more than 6 million part-time workers who prefer full time jobs.

Next in line is Dodd-Frank whose costs fall mainly on small community banks, which have declined by 40%. These are the banks that specialize in loans to small businesses, whose growth has dropped significantly. The number of new laws under Dodd-Frank is staggering and more will be shoved out the door as Obama prepares to leave.

An interesting statistic is the number of jobs at the regulatory agencies has climbed by 11.8% (to 280,000) while private sector job growth has only been 8.5%.   Worse than that, the spending on regulations has been astronomical. More than 229 “major regulations” have been imposed since 2009. Major regulations only include those that cost $100 million or more a year to comply with.

The Heritage Foundation disputes the administrations figures of $108 billion annual cost of Obamas regulations. Heritage maintains they are much higher since regulators tend to lowball compliance costs.

EPA’s administrator McCarthy plans on “running not walking” to the end of Obama’s term. Translation: a lot more regs will be imposed by every major department. Last month 51 new regs were approved (cost, $38.6 billion); presently there are 166 regs under review and 28 are “economically significant”. Estimated cost of regs since 1980 is roughly $4 TRILLION.

The above is only a snippet of the information necessary to get a complete picture of the damage done to the economy because of the over regulation imposed during the Obama reign. While previous administrations also engaged in excess regulations, they paled in comparison to what Obama has done. Money spent complying with regulations is money not available to invest in growing the business. Hence the stagnant economy of the last 8 years.

If you are thinking… “the market has just hit new highs despite the regulations, so what’s the big deal?” Consider the following:

  1. Stocks have benefited from the Fed’s zero interest rate policy (ZIRP) and buybacks for most of Obama’s 2 terms
  2. The Fed will raise rates and deprive stocks of the ZIRP policy either in December or in early 2017
  3. The stagnant economy has had an earnings recession which will end when Trump lowers taxes and rolls back regulations.
  4. With companies spending less on compliance, money will be freed up for expansion.

Stocks can go a lot higher with the proper economic policies put in place. If the new administration follows through on lowering taxes, getting rid of punitive regulations, and implementing free market principles, the Bull market should continue. However, markets could be volatile in the final months of the Obama administration. Don’t abandon your discipline! Cut your losses and let your winners run!

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