wavePod

The Most Expensive Election Trade Ever Made (A Cautionary Tale) - Afford Anything | Make Smart Money Choices | Wave AI Podcast Notes

Back to Afford Anything | Make Smart Money Choices

The Most Expensive Election Trade Ever Made (A Cautionary Tale)

Afford Anything | Make Smart Money Choices

Fri Nov 01 2024

Summary

Afford Anything Podcast: The Most Expensive Election Trade Ever Made (A Cautionary Tale)
Host: Paula Pant | Cumulus Podcast Network
Release Date: November 1, 2024

Introduction

In the November 2024 episode of the Afford Anything podcast, host Paula Pant delves into the intricate interplay between economic indicators, investment strategies, and the looming U.S. election. Far from a mere discussion on money and investing, the episode explores the psychology of decision-making, highlighting the importance of critical thinking and recognizing behavioral blind spots in navigating financial landscapes.

1. Federal Reserve's Anticipated Interest Rate Cuts

Paula begins by addressing the Federal Reserve's impending decision to cut interest rates by a quarter of a percentage point. Despite an unexpectedly weak jobs report, the Fed appears poised to proceed with the rate reduction:

"[00:01:30] Paula Pant: 'The market at this point has priced in a 25 basis point cut, not just at the November meeting, but also in anticipation of their December meeting.'"

She emphasizes the Fed's cautious approach this year, contrasting it with the more predictable rate hikes of 2022 and 2023. The presence of a rare dissenting vote in September underscores the uncertainty within the Fed regarding future economic moves.

2. The Unprecedented October Jobs Report

The October jobs report revealed a stark deviation from expectations, with only 12,000 new jobs added compared to the anticipated 100,000. Paula attributes this anomaly to two primary factors:

Hurricanes Helene and Milton: These natural disasters are estimated to have reduced employment by 40,000 to 70,000 jobs across the Southeast.
Labor Strikes: Strikes at major companies like Boeing, Textron, and Hilton Hotels contributed to a decline of approximately 44,000 manufacturing jobs.

"[00:05:00] Paula Pant: 'There are two major factors at play... hurricanes and strikes combined probably led to around 100,000 fewer jobs created in the month of October.'"

Despite the gloomy numbers, Paula reassures listeners that these factors are likely temporary, aligning with the Fed's measured approach to economic adjustments.

3. Gold's Soaring Popularity Amidst Uncertainty

One of the episode's focal points is the remarkable surge in gold prices, which are on track to reach their highest levels since 1979. Paula explores the reasons behind this trend:

Central Bank Purchases: Unlike individual or institutional investors, central banks are significantly increasing their physical gold reserves, citing geopolitical risks and the desire to reduce dependence on the U.S. dollar.
Geopolitical Tensions: Concerns over potential conflicts, particularly between China and Taiwan, drive central banks to seek safe-haven assets.

"[00:07:00] Paula Pant: 'The modern gold rush was started by central banks... They are worried about geopolitical risk.'"

She highlights that while gold has historically been a modest performer, its role as an inflation hedge and its low correlation with equities and bonds make it an attractive asset during times of uncertainty.

4. The Decline of I Bonds as an Inflation Hedge

Paula contrasts the rising popularity of gold with the declining returns of I Bonds. Once yielding an impressive 9.6% in 2022, I Bonds have plummeted to a four-year low of 3.1%:

"[00:12:00] Paula Pant: 'Basically, there's really no point anymore at the current rates of chasing I bonds.'"

She advises listeners to consider alternative investment vehicles, such as high-yield savings accounts, which now offer better returns without the purchase limitations associated with I Bonds.

5. U.S. Stock Market: Dominance of the Magnificent Seven and Potential for Small Caps

The episode sheds light on the robust performance of the U.S. stock market, particularly the "Magnificent Seven"—Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta, and Tesla—which account for a significant portion of the S&P 500's gains. However, Paula also points out the emerging opportunities for small-cap companies:

"[00:15:00] Paula Pant: 'Generally speaking, whenever there are rate cuts, those tend to benefit small cap companies... the smallest companies that often tend to benefit the most.'"

She notes that the Russell 2000 index's bullish trend suggests growing optimism about small-cap stocks, especially as cheaper access to capital can fuel their expansion.

6. U.S. Economy vs. G7: Strengths and Deficits

While the U.S. economy showcases strong growth and market performance—the highest among G7 nations—the episode also addresses a significant concern: the burgeoning federal deficit, which stands at an alarming 6% of GDP.

"[00:20:00] Paula Pant: 'Among the G7 countries, our deficits are the worst... the US has had the highest level of economic growth since the pandemic.'"

The juxtaposition of economic strength and fiscal irresponsibility poses challenges for maintaining growth and global competitiveness.

7. Risks: Tariffs, Trade Wars, and Escalating Deficits

Paula outlines potential risks that could undermine the U.S. economic standing:

Tariffs: Proposed tariffs on imports, especially from Mexico, could trigger inflation and spark a global trade war, damaging economic growth.
Deficit Growth: Both presidential candidates' economic proposals threaten to exacerbate the already high deficit, with estimates projecting a rise to 6.1% of GDP by 2025.

"[00:25:00] Paula Pant: 'The prospect of looming tariffs, a global trade war and increased deficits could have some serious economic ramifications...'"

She warns that these factors could erode the U.S.'s strong economic position and lead to increased living costs for consumers.

8. Cautionary Tale: The Perils of Trading Based on Election Outcomes

The episode culminates with a compelling cautionary tale against making investment decisions based on election predictions. Paula recounts the story of Sam Bankman-Fried (SBF), who accurately predicted the 2016 election outcome but ultimately suffered massive losses due to unforeseen market reactions:

"[00:35:00] Paula Pant: 'He could not accurately predict what the downstream effects would be... he lost $600 million in his sleep overnight.'"

This narrative underscores the unpredictability of market behavior, even when the primary event (election result) is accurately forecasted. Paula advises:

"[00:40:00] Paula Pant: 'Don't trade the news. Think long term. Stay the course, buy and hold.'"

She reinforces the principle that while predictions can be accurate, the subsequent market movements are influenced by myriad factors that are difficult to foresee.

Conclusion

Paula Pant's November 2024 episode of Afford Anything offers a nuanced exploration of current economic trends, investment opportunities, and the inherent risks of reactive trading strategies. By weaving together insights on interest rates, employment data, gold investments, and the volatile nature of the stock market, she equips listeners with a comprehensive understanding of the financial landscape during an election month. The cautionary tale serves as a poignant reminder to prioritize long-term strategies over speculative moves based on uncertain events.

For those seeking deeper financial insights and decision-making frameworks, this episode is an invaluable resource, blending economic analysis with practical advice to navigate complex market dynamics.

Notable Quotes:

"The market at this point has priced in a 25 basis point cut, not just at the November meeting, but also in anticipation of their December meeting."
— Paula Pant [00:01:30]
"There's really no point anymore at the current rates of chasing I bonds."
— Paula Pant [00:12:00]
"Don't trade the news. Think long term. Stay the course, buy and hold."
— Paula Pant [00:40:00]

Loading summary...

Transcript

Paula Pant (0:00)

The Fed is on track to cut interest rates next week despite the fact that the US had the most WTF jobs report. There is a decent chance that inflation's going to keep rising. Gold is going absolutely bonkers through the roof as investors look for security amidst financial and geopolitical chaos. I Bonds are starting to suck and we have a cautionary tale for anyone who is thinking about trading based on the election. I know y'all are buying holders, but you probably have friends, family, co workers who want to make stock market trades based on your election predictions. We have a cautionary tale to illustrate why that's a bad idea, regardless of who wins. Welcome to the first Friday episode of the Afford Anything podcast. This is the show that understands you can afford anything, but not everything. Every choice carries a trade off and that applies to your money, to your time, to your focus, to your energy, to your attention. It applies to every limited resource that you have to allocate. I'm your host Paula Pant. I hold a Master's in Economic Reporting from Colombia. Once a month on the first Friday of the month, we host a monthly economic update. So welcome to the November 2024 First Friday Economic Update. Happy Election Month. I know Election Day is coming up in a few days. Early voting has already started in many states. I cast my early ballot two days ago. It was my first time voting in both the city and state of New York. But the election is not the only big thing that's happening next week. The Federal Reserve is also meeting and they seem poised to cut interest rates yet again, Most likely by another 25 basis points or a quarter of a percentage point. Here's the schedule for next week. Election Day is Tuesday. The Fed meets Wednesday and Thursday. The Fed will likely make their announcement on Thursday. The market at this point has priced in a 25 basis point cut, not just at the November meeting, but also in anticipation of their December meeting. The market is already pricing that in as well. Now I should add, what makes these Fed meetings historically interesting is that in 2022 and 2023 the Fed really signaled their rate hikes ahead of time. We had in 2022 and 2023 much clearer of an indication as to what they were going to do before they did it. What's made the rate cutting cycle in late 2024 a little different has been that the Fed is playing their cards much closer to the vest. And as you recall, when the Fed made their first big rate cut at their last meeting, their September meeting, when they made a 50 basis point cut, there Was for the first time since 2005, there was one dissenting vote. That is incredibly rare for a Fed governor to cast a dissenting vote. It is normally a 120 decision every time. But the vote at the most recent meeting, the one in September, was 11 to 1. So given that history of unusual history of dissent, and given the fact that the Fed has not signaled their intent as clearly this year as they did back in previous years in recent history, indicates that they themselves might not be too sure of what their next moves are. That they're watching the economy, the markets, the inflation data, the jobs data very closely and are not inclined to get too far ahead of themselves. Speaking of watching the data, the jobs report in October was, as I said in the intro, an absolute WTF report, completely out of step with our normal patterns. So In October, the US added 12,000 new jobs. 12,000. The Dow Jones estimate for what analysts believed the report would be was 100,000. And the previous month, September, we added 223,000 new jobs. Actually, that is a downward revised number. So the initial report from the BLS stated initially that we had added 254,000 new jobs in September, and that number was later revised downward to 223,000. So we're talking 223,000 new jobs in September, 12,000 in October. There are two major factors at play. One is, of course, the hurricanes. Oxford Economics and estimates that hurricanes Helene and Milton likely reduced employment by about 70,000 jobs across the Southeast. Now that's just one estimate. Goldman Sachs estimates that the job reduction was somewhere between 40,000 to 50,000. But regardless of which of the estimates you take, we have a range of somewhere between 40,000 to 70,000 fewer new jobs being created as a direct result of the two hurricanes that hit the Southeast last month. The other major factor are strikes. So there's a strike at Boeing that has caused job numbers in the manufacturing sector to go down by 44,000. There are also strikes at Textron and at Hilton Hotels. So between both the storms and the strikes, those two factors combined probably led to around 100,000 fewer jobs created in the month of October, resulting in October's incredibly paltry number of only 12,000 new jobs. The good news is both of those factors are likely to have temporary effects. I would not read too much into such an unusually low jobs report. And it seems as though the Fed is in agreement. If the Fed was concerned about unemployment, they would likely take more drastic measures. But analysts and investors have all priced in a very measured quarter point rate cut, which they'll probably announce next Thursday. By the way, I should add that the unemployment rate is holding steady at 4.1%, which is historically very low unemployment. And consistently in line with what we've been experiencing. Stocks are up pretty consistently across the board. Broadly, The S&P 500 is up. The large caps, the Magnificent Seven, are doing well. Generally speaking, whenever there are rate cuts, those tend to benefit small cap companies. As the cost of accessing capital gets cheaper, it's the smallest companies that often tend to benefit the most. So we see the big companies, the Magnificent Seven. Magnificent Seven total return index is up 1.3%. But the conditions are in place for small caps to also have a pretty good run as capital gets cheaper to access. Global stocks are up. The NASDAQ is up. Bitcoin is holding steady. The yield on 10 year treasuries is up. But the big runaway winner, which I want to turn your attention to is gold. And this is unusual because gold is an asset that investors often flee to in times of uncertainty. And yet here we are with a very strong equities market both in the US and globally. We have declining inflation both in the US and globally. We have many high performing assets that investors could be buying. And yet the safe haven asset of gold, the thing that investors buy for safety, gold, is soaring. Prices for gold are on track to reach their best year since 1979. And can I emphasize how long ago 1979 was? I know we all love Rod Stewart and Michael Jackson, Donna Summer, Earth, Wind and Fire, the Doobie Brothers, but that was 45 years ago. That's where the price of gold is heading. And it's happening at a time when you could just be buying equities instead. So the question is why? Well, I know it's kind of early in the show for this, but we're going to take a really short break to hear from the sponsors who make this show possible. And when we come back, we're going to dive into what is behind this counterintuitive run up of gold at a time when investors could be making a lot more money in equities. What's going on here? That's coming up next.

Paula Pant (10:23)

Welcome back. Why are investors pouring into gold? First of all, the modern gold rush was started not by individual investors, not even by institutional investors, like pensions. No, neither of those parties did it. The modern gold rush was started by central banks. Back in 2008, gold accounted for only 6% of central bank reserves. Today, gold accounts for 11% of those reserves. So it's nearly doubled, and it's done so in a relatively very short order. While the stat that I just gave you runs from 2008 through today, a large part of that buying has happened in the last two years. And here's where it gets particularly interesting. Many central banks are buying physical gold. Now, there are a lot of different ways that you can invest in gold. You can buy gold ETFs, you can buy gold futures. Gold futures are contracts that trade on exchanges, right? You make a deal to trade gold at a specific price and you agree on the terms today. But the settlement day is going to happen in the future. And then in between now and the settlement day, the price of that contract that you have is going to gyrate and you can try to profit off of that movement. That's the common way that commodities are traded. Very few people actually want to settle up for any commodity. But what we've seen with gold is that the central banks have been purchasing and storing actual physical gold. They're not buying gold futures, they're not buying gold ETFs, they're physically accepting delivery of gold. There's a huge storage area in Singapore where much of this gold is kept. And there are other banks that are trying to ship them to vaults in their own home countries. And so what this signals is that central banks around the world are worried about geopolitical risk. It's telling that some of the biggest demand for gold has come first out of China and then later India and Turkey. Now there are open questions about what's going to happen in many areas across the world. In particular, one that few people are talking about right now is China and Taiwan. There is the potential for Taiwan to really become a flashpoint in U S China relations. And there are many questions around what could happen to the world order if China were to invade Taiwan. When the central bank of a nation holds gold, that gold is not subject to sanctions. The dollar is the world's reserve currency. While there's been a lot of speculation about oh, is, is the dollar going to get replaced as the world's reserve currency? You hear people talk about that a lot. There is no secondary currency in the wings. Like what would the dollar possibly get replaced with? The yuan is not a contender, not right now. And yes, there have been officials from Brazil, Russia, India, China and South Africa that met at a BRICS summit. So those countries, collectively they're known as the BRICS countries, B R I C s. And if you invest in emerging markets, you can actually Invest in BRICS ETFs if you want to. And so the BRICS countries are working on creating a new set of cross border payment rails that would circumvent the US dollar, But it's nowhere near ready. I mean, it's notable that the BRICS countries could have simply chosen one of their home currencies, any one of their home currencies to serve as the replacement to the dollar. But they did not do that. Instead they decided that they were going to attempt to form totally new cross border payment rails. And so that highlights the fact that there is nothing waiting in the wings to replace the US dollar. It's going to continue to be the world's reserve currency. And the central banks that are worried about that, the ones who are worried about US sanctions are turning to gold. And this is happening in such a major way that the cost of gold has gone up 38% over the last year. It's now over $2,700 per troy ounce. And I want to underscore how unusual that is. The US left the gold standard in 1971. So remember how I said this is the highest point that it's been since 1979? Well, 1979 was eight years after the US left the Gold standard. What that means is that the US ended the direct convertibility of the US dollar to gold. The decision was made by President Nixon in an effort to do two things. One, to curb inflation, and the second to reduce the US's vulnerability to a run on gold. Once the gold standard ended, gold became a purely speculative asset. Think about it. Other commodities have intrinsic usable value. Broadly speaking, there are two types of commodities. There are hard commodities, which are things that are mined or extracted, and there are soft commodities, which are more like agricultural things. Under the category of hard commodities, you've got crude oil, coal, natural gas, right? And then under soft commodities, you've got soybeans, you've got beef, corn, cotton. All of these are things that have intrinsic usable value. But gold does not. Gold has scarcity, which is where its value comes from. But it doesn't have any utilitarian value. You can't eat it, you can't live in it, you can't use it to protect yourself. Warren Buffett says that bets on gold are made by those who fear other assets. Even though the price of gold has gone up 38% over the last year, American institutional investors are not loading up on it. When I say institutional investors, I'm talking about big investors, big investment groups. Despite the huge run up, they're still not buying in. Overall, among American US based institutional investors, only 1.5% of their assets are in gold. So a lot of this demand is coming from China and India. Those two countries make up one fifth of the world's economic output, but one half of consumer purchases of physical gold. And there are very good reasons that the demand is for physical gold. So if gold is stored overseas, if it's not in your home country, then the nation that's holding it could seize it. So, for example, the British government has refused to repatriate dozens of tons of gold to Venezuela because it does not recognize Nicolas Maduro as the legitimate leader of Venezuela. And so it's holding onto Venezuelan gold. So what we're seeing right now is that a lot of central banks are bracing themselves for the possibility of global political risk. It remains to be seen if Putin has bigger ambitions for Europe. But the national bank of Poland has raised its gold holdings by 167 tons. It has a strategy of keeping 20% of its reserves in gold. 20%. And the president of the bank of Poland, Adam Glipinski, has said that what he likes about gold is that its price tends to be high precisely at times. This is a quote. Precisely at times when the central bank might need its ammunition most. So what we have in gold is an asset that is an inflation hedge. Because remember, any physical asset is an inflation hedge. Real estate, gold, art, tangible goods are inflation hedges. Right? After a period of high global inflation, we have in gold an asset that is an inflation hedge. It is independent of the US dollar and therefore reduces the level of influence that the US can have in the form of sanctions on other nations. And it's an asset that has low correlation with the performance of equities and bonds, both low correlation with other asset classes. Historically, it hasn't been something that makes you a lot of money, but it's the asset that investors pile into when they're looking for safety amidst potential looming chaos. And so it is notable that that's the direction that many major central banks across the globe have decided to lean into in a big way. Switching our attention to I bonds. Okay, if you're not driving, raise your hand. If you remember back in 2022 when I bonds were yielding 9.6%, those were the days, I mean, we also had like enormously ridiculous inflation, but we also, to help offset that, had I bonds. Now, I bonds are designed to help investors protect themselves from inflation. And in 2022 it was yielding 9.6%. The only real downside to them was that the total amount of money that you were allowed to put into I bonds was capped. I bonds have a purchase limit of $10,000 per person. And two years ago that was a huge source of complaint because people wanted to flock into ibonds. It's a virtually risk free 9.6%, at least it was two years ago. These days I bonds have dropped dramatically and are now at a four year low of 3.1%. I bonds actually consist of two different rates. They have a variable rate and there's a fixed rate. And the fixed rate adjusts twice a year. First business day of May and first business day of November. So welcome to the first business day of November. And the new I bond rate is 3.1%. That's a decline of the 4.2% rate that was set six months ago back in May. So what does that mean? It means that frankly, at this point you can get better returns from a high yield savings account. And those don't have the same purchase limits that I bonds have. Nor do you have to deal with like the super wonky TreasuryDirect website. Basically there's really no point anymore at the current rates of chasing I bonds. And that means, unfortunately, that the I bond era is over. It's good news for the economy. It's good news related to inflation and macroeconomics. It's just bad news for the $10,000 that you have burning a hole in your pocket. But congrats to those of you who were on the ball back in 2022 and who claimed I bonds at the 9.6% rate next Friday night. Drinks are on you. I want to talk just briefly about small caps. I mentioned earlier that generally speaking, when the Fed cuts interest rates, small caps tend to benefit because small companies most need and can grow from cheaper access to capital. One way to test this hypothesis is by looking at the Russell 2000, which is an index of smaller companies. It is currently trading above its normal long run valuation multiple, and what that implies is that investors are bullish about small cap companies. Now, the fact that the Russell 2000 is trading in an increasingly bullish way that should be contextualized with the fact that the Nasdaq, which is comprised of tech companies, is also doing that, and The S&P 500 is also doing that. So it isn't that the rustle is necessarily a breakout, it's just that bullishness seems to be happening across the board. I mentioned earlier this small cohort of companies called the Magnificent Seven. That's Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta and Tesla. Those seven companies together constitute 62% of the gains in the S&P 500 over the past year. They comprise such a big component of the S&P 500. There are some people who colloquially kind of half jokingly talk about not about the S&P 500, but about the Magnificent Seven and then the S&P 493. Just so we have some verbiage that distinguishes the other 493 companies in the S&P outside of those seven. But even still, the profits among the S&P 493 are expected to grow by 13% next year. Compare the progress that the US has made to look at Germany. Germany is suffering from a recession right now. The German economy is expected to contract by 0.2% this year, and this is going to be its second consecutive year of decline. It also contracted in 2023. So among the G7 countries, the US has had the highest level of economic growth since the pandemic, and a major piece of that is that tech and innovation is centered here, something that will be increasingly important as we enter the age of AI, which is truly a game changer. I've mentioned this on this podcast before, but AI will be to gen Alpha what the Internet Was to Millennials. Soon Gen Alpha will be the last generation in the world who will remember what life was like before AI. And when they are elderly they will tell their great grandchildren these stories that will sound antiquated and outdated about pre AI life. Like when millennials talk about recording songs off of the radio onto cassette tapes or using 3 1/2 inch floppy disks to play their bootleg copies of the Oregon Trail, Right? It'll sound like that. And it's clear. You know, while we can't get complacent, it's clear that we are winning the AI race, at least as of now. Look at the degree to which LLMs large language models are trained in English. LLMs are trained more in English than in any other language. So there is plenty of reason to be bullish on the future of the US Market. And in the absence of some catastrophic black swan event, the US Market is poised to do great things and to perform very well in the foreseeable future. That said, I do want to talk about some risks that the US Market may face. One is the risk of inflation, and I mentioned this in the open. While inflation over the past many months has trended downward and we're currently pretty close to the Fed's 2% target, if tariffs are enacted, tariffs have an inflationary effect. I am broaching politics with that statement. With the election just a few days away and there are concerns that I have that I've voiced in the previous First Friday episode as well, with economic proposals put forth by both candidates. As I mentioned in the last First Friday episode, any effort to enact price controls on grocers or on grocery stores, which is a proposal put forth by Vice President Harris, is deeply concerning. I won't go into the arguments in this episode, but if you want to hear a detailed description of that, go to the October 1st Friday episode. What I'll mention in today's episode is a concern related to tariffs. Former President Trump has proposed tariffs universally on all imports and on certain goods, such as cars being imported from Mexico, where Ford and GM and many American auto manufacturers have plants. He has proposed tariffs of between 200 to 500%. Tariffs have an inflationary effect. A tariff is functionally a tax on all imported goods, and it causes the price of those goods to rise. So if those tariffs are enacted, there is a high likelihood that inflation will increase. There is also the issue of the deficit. Currently, the US deficit is at 6% of GDP, which is a number that is abnormally high. Typically, that is a number that is not seen other than during times of war or recession. It is abnormally high for a time period of peace and prosperity, which we are living in right now. And both candidates have economic proposals that would increase the deficit, though by differing amounts, so to differing degrees of severity. Both candidates would increase the deficit. And historically, we've seen the deficit go up under every administration, red and blue, for the last 23 years. So the last year that we did not run a deficit was 2001. Since then, from 2002 onward, under every administration, the deficit has been growing. No matter what the outcome is of this upcoming election, it will continue to do so because both candidates have proposed economic policies that will continue to grow that deficit. Now, the average deficit over the past 50 years has been 3.7% of GDP. It is growing to 6.1% of GDP in 2025. That's according to the Congressional Budget Office. Among the G7 countries, our deficits are the worst. And so that more so than a monthly economic update, that's really an annual economic update. This is a marker of where we as the US are in this place and time. Among the G7 nations, we have both the strongest growth, the strongest economy, the best markets. We have the magnificent seven on our home turf. We have the stocks you want to buy. And despite that prosperity, we also have the biggest deficits among the G7 nations. We are the extreme on in one very positive way and in one very concerning way, the question then becomes how do we maintain our growth and continue to press our advantages in an increasingly globally competitive world while simultaneously keeping the federal deficit in check? And how do we protect against geopolitical shocks that may happen? Given the increasing volatility in Europe, in the Middle east, and potentially between China and Taiwan, how do we protect ourselves from any black swan events that we as of this moment, cannot clearly foresee? Which is another way of asking how do we think probabilistically about a range of possible outcomes? I think the primary way to do so is by guarding against what the Economist refers to as tail risk, low probability but high impact events. By the way, some people have asked me, what media do I consume? Particularly with regard to major mainstream media, what do I consume? There are three. One is Bloomberg, one is the Financial Times, and one is the Economist. I would urge you, especially as we head into the election, to read the endorsements and the opinions of those three platforms. Actually, the Financial Times I wanted to link to all three in the show notes the Financial Times. One is unfortunately behind a paywall and only available to paying subscribers. The Financial Times, by the way, is owned by Nikkei, which is the Japanese stock exchange. So you know when people talk about the Nikkei Index, that's Japan's stock exchange index. So the Financial Times, the ft, as it's known, is quite focused on the movements of the markets and on global economic performance. Bloomberg and the Economist are of course also quite financial markets focused and economics focused, although Bloomberg maintains more of a domestic outlook while the Economist maintains more of a UK based perspective. That is, by the way, part of the reason why I make sure that my information diet is all three. Bloomberg represents in many ways the US viewpoint, while the Economist represents that British viewpoint, and the ft, at least through its top brass, has Japanese ownership, although many of the writers also represent a more British viewpoint. All three platforms have significant concerns about tariffs, not only because those costs would be borne by US consumers, it's US who would see the prices of everything from clothes to cars go up. But in addition to all of that, it would be the beginning of a global trade war which could spark retaliatory tariffs. I spoke about this in the last first Friday episode as well and those retaliatory tariffs could, according to the imf, lop off a percentage point or more from US Growth next year and could cut global expansion by a quarter of a percentage point. It also I mentioned earlier that the BRIC countries, Brazil, Russia, India, China, South Africa want to find some alternative to the use of the US Dollar as the world reserve currency. So far they have not been able to do that. There is no good second place contender. But the onset of a global trade war could speed up the efforts which are already underway to undermine the strength of the US dollar. Now couple that with the fact that central banks around the world are loading up on gold, which therefore makes them less subject to US influence, they're less vulnerable to sanctions. So the dominoes are being set in place for the US to have a weaker global position if tariffs were to go into effect. So the prospect of looming tariffs, a global trade war and increased deficits could have some serious economic ramifications both for you and me and our everyday spending as our cost of living goes up, as well as for the US in its position on the world stage. I should add on the topic of deficits that Wharton, the Wharton School of Business at the University of Pennsylvania, which is former President Trump's alma mater, Wharton, has estimated that former President Trump's spending proposals would increase deficits by 5.8 trillion over the next 10 years, while the spending proposals of Vice President Harris's campaign would increase deficits by 1.2 trillion over the next 10 years. I'll add an asterisk here that neither of those analyses include the financial ramifications of the proposal to not tax tips. No tax on tips, which is a proposal that both candidates have put forward. It's the one thing they both agree on. No tax on tips. The definition of what tips are and the construction around that is so vague that it is impossible to forecast because neither neither candidate has been specific about how exactly that would be written. So leaving out the no tax on tips proposal, which is a proposal that both candidates are mutually putting forth. Outside of that, the deficits will grow by 1.2 trillion under Vice President Harris and by 5.8 trillion under former President Trump. Again, that is according to the Wharton School of Business at the University of Pennsylvania. Well, for me and my family, our holiday season is over. We celebrate Diwali and Dasay, which is in October. But for a lot of you, you're still in the holiday season. And maybe you and your family put up a tree or maybe you sing carols by the fire or you bake cookies. You know, the heart of holiday traditions is family. But what happens when you're gone? You can protect your family's future with policygenius. With policygenius, you can find life insurance policies that start at just $292 per year for $1 million of coverage. Some options are 100% online and let you avoid unnecessary medical exams. If the worst were to happen, you want to know that your loved ones can cover major bills like mortgage payments. That's a really common cost that's often covered by life insurance, college costs, even funeral expenses. You want to make sure that your loved ones aren't going to be saddled with big bills at the worst possible time. With policygenius, you can compare quotes from America's top insurers side by side for free with no hidden fees. And they also have a licensed support team that can answer questions, handle paperwork and advocate for you. There are thousands five star reviews of policygenius on both Google and trustpilot and policygenius is the country's leading online insurance marketplace. Secure your families tomorrow so you can have peace of mind today. Head to policygenius.com or click the link in the description to get your free life insurance quotes and see how much you could save. That's policygenius.com Monarch is the modern way to manage your money. Whether you need to stick to a budget track your investments or collaborate with your partner, you'll get clarity, confidence and peace of mind for your finances with Monarch. Here are a few things that I like about it. First of all, there's a widget that's directly on my phone. I could just I see it at a glance in the same way that I look at the weather, so I can really quickly glance at my most recent transactions. And I also can see these dashboards where I see my income, I see my expenses, I see how much I'm spending in different categories. It's just a really good at a glance on your phone way for me to get a quick snapshot of my finances. Now. Monarch is the top rated all in one personal finance app because Monarch helps you make smart money moves. And right now, listeners of this show can get 30% off your first year by going to monarchmoney.com Paula Monarch is super customizable. You can customize dashboards, you can create budgets and notifications. And the Wall Street Journal awarded Monarch the best budgeting app of 2024. After trying out Monarch for myself, I get why it's the top rated personal finance app. And right now listeners of this show will get 30% off your first year when you go to monarchmoney.com Paula that's M O N A R C H M o n e y.com Paula to get 30% off your first year when you think about businesses that grow their sales beyond forecasts like feastables by MrBeast or a legacy business like Mattel, you know you've got a product with a lot of demand, you've got a focused brand. But there's also an overlooked secret. And that is the business behind the business that makes selling and buying simple. And for millions of businesses, that is Shopify. Nobody does selling better than Shopify, home of the number one checkout on the planet. And it includes Shop Pay, which boosts conversions up to 50%, meaning fewer carts going abandoned and more sales going. If you're growing your business, your commerce platform needs to be ready to sell wherever your customers are screwed, scrolling or strolling, whether that's online or in your store. Because businesses that sell more sell on Shopify. Upgrade your business and get the same checkout that Feastables by MrBeast and Mattel uses. Sign up for your $1 per month trial period at shopify.com Paula all lowercase go to shopify.com Paula to upgrade your selling today. Shopify.com Paula as promised, I want to close out with a story, a cautionary tale about why you should not try to trade the upcoming election, regardless of who you want to win. Now, when I say don't trade the election, I'm not talking about going to Poly market or predict it and placing 100 bucks on a winner. Actually, right now, on Friday, November 1st, as of the moment that I'm recording this, the betting market on Predict it has identical odds on former President Trump and Vice President Harris, with the yes price for both of them trading at 53 cents each. In any event, when I say don't trade the election, I'm not talking about the betting markets. I'm talking about executing trades in your portfolio based on the outcome of the election. Don't do it. Buy and hold, Stay the course, Think long term. All of the standard principles of personal finance apply. And I know that you know that. But I also know that you probably have friends, family, coworkers, cousins who are trading the news. I also know that it's natural human behavior that when you're surrounded by people who are doing that, you start to question yourself and you start to wonder, well, should I? So I'm here to reinforce what the financial independence movement and the classic teachings of traditional personal finance have always emphasized, which is do not trade the news. Think long term. Stay the course, buy and hold. And here is a cautionary tale as to why. Let's go back to 2016. Few people accurately predicted the outcome of the 2016 election. It caught many people by surprise. Nate Silver, the statistician who is the founder of 538. I want to be clear, because many people rather unfairly piled on Nate Silver for not foreseeing the 2016 outcome. To be absolutely clear, Nate Silver and 538 reflected that there was a probability that President Trump would win the 2016 election. They never said it wouldn't happen. They said that there was a probability that it might happen. They simply assigned lower odds to that probability than they did the alternative, which in the 2016 election would have been the election of Senator Clinton. Very few people predicted the outcome of the 2016 election, but one person did. Sam Bankman Fried. That's right. The guy who today is best known for the collapse of ftx, which is the digital currency exchange that he created before all of that happened, before Sam Bankman Fried got involved or created FTX, before any of that. When he was only 24 years old, he worked at a company called Jane Street Capital, and he devised an extremely intricate system to predict electoral college votes. And he nailed it. He absolutely nailed it. So using this incredibly Complex system that nobody, not even 538, with Nate Silver's 538, nobody else was using this system. Sam Bankman Fried, say what you will about him, but he is a genius. He created this system. He figured out electoral college votes in 2016. He figured it out before CNN announced that Senator Clinton had conceded. He figured it out before any of the major news networks had it. So he, and on behalf of his employer, Jane Street Capital, they had that information first and they made market bets based on the fact that they had that information. And when Sam Bankman Fried went to sleep at 1am on election night 2016, he had made $300 million in those bets on behalf of his employer, Jane street capital, 24 years old. It was the most profitable day in the history of that company. So this 24 year old kid goes to bed at 1am and when he wakes up in the morning, he finds that even though he got the prediction right, even though he knew the outcome of the election before anybody else did, his assessment of how the markets would react was wrong. And so the $300 million gain that he had earned prior to going to bed by the time he woke up had reverted to a $300 million loss. Loss. So he lost 600 million, he lost his 300 million of gain and then he lost another 300 million underneath that. This 24 year old kid lost $600 million in his sleep overnight. What this illustrates is that even if you out guess everyone else as he did, even if you call it correctly before anyone else, you still don't know the downstream effects of what that means. Right? You can get a prediction right, but miss the second order and third order consequences of that outcome. Sam Bankman Fried created a system, a prediction model that knew the outcome of the 2016 election before any of the major media stations knew. He possessed essentially insider information, yet even with that information, he could not accurately predict what that next order consequence would be. And that goes to show that if you are in the game of making guesses, which is the game of predicting, you can't just get one thing right, you have to get multiple things right. If you're buying and selling stocks. It's not enough to buy a stock at the right time, you also have to sell it at the right time. Here's a very, very simple example. I bought peloton stock in December 2019. Of course I didn't know at the time, but December 2019 was also the first recorded case of COVID in the world in Wuhan, December 2019, without knowing, you know, completely on accident. I bought Peloton stock. I got in at the right time guess when I sold it. I sold it in March of 2020, right? So I was correct in my accidentally, coincidentally correct in my timing of getting in, but way off in my timing of getting out. Like I told my best friend, I was like, I sold peloton stock in March 2020. And she, she was like, that's just funny. This underscores when you're in the game of making predictions, you can't just get one thing right. You can't just buy at the right time. Buying at the right time is meaningless if you sell at the wrong time, as I did with Peloton and in Sam Bankman Fried's case, knowing what's about to happen, having an accurate guess on that is meaningless if you don't know how human behavior will behave as a result. And frankly, human behavior is one of the hardest things, if not the hardest thing in the world, to accurately predict. That story of Sam Bankman Fried, by the way, comes from a book written by Michael Lewis called Going Infinite. It's a book all about the rise and fall of spf. So I'll close with that story, which you can share with anyone in your life who is thinking about executing trades in their portfolio based on how you think Election Day or Election week or Election Month. However long this is going to take, I'm recording this on Friday, November 1st. So we have no idea. Obviously I have no idea what's ahead. But if you or anyone in your life are thinking about buying or selling stocks or bonds or gold or any other assets based on what is about to unfold in the month of November, I share SBF's story as a cautionary tale. You could be among the best in the world at making those predictions and at gathering and analyzing and assessing data. And yet you could still miss the mark on the follow up question of and so what would that mean as it applies to assets in your portfolio? So don't trade the news. That is the wrap up lesson for today. Thank you so much for tuning in to the November 2024 First Friday episode of the Afford Anything podcast. I hope that you enjoyed it. As a reminder, we have a course that is currently open for enrollment. It's all about how to invest in rental properties. It's called you'd first rental property. Our course is available now through November 7th. For more information, go to affordanything.com enroll. That's affordanything.com enroll. There's a ton of information there about this rental property investing course. Enrollment again is now through November 7th. After that, we close our doors and we work closely with this cohort in training you, teaching you how to step by step, analyze, find, finance, renovate and rent out cash flow producing income properties. Affordanything.com enroll for more information. Thank you so much for tuning in. My name is Paula Pant. This is the Afford Anything podcast. You can find me on Instagram aulapant P A U L A P A N T and I'll meet you in the next episode.