The market melted up on Thursday 11/10/22 with the NASDAQ increasing over +7% and the S&P 500 up over +5.5%. Wow! While this is broadly attributed to an inflation number that came in at +7.7%, slightly down from the previous +8.2% reading, it seems unlikely that this is the real cause. After all, the Fed has made it abundantly clear that it will not stop with rate hikes until inflation gets to its +2% target (much lower than +7.7% for the record). Rather, we believe this melt-up is more likely related to a huge relief rally based upon the strong likelihood that mid-term election results mean we are now safer with a divided government. In any case, we believe it would be better if this election, and the government in general, was less central to the market. A lot of productive brain power gets wasted on following the Fed and anticipating government policy and elections. Should I lay off 15% of my workforce because the Fed is set to continue raising rates for the foreseeable future? Should I hold off on capex investments because the government is set to raise taxes? Should I be concerned that excessive government spending and debt might bankrupt the nation? Let’s pretend as part of a thought experiment that the government was 75% smaller than it is. Would anyone really care who wins the mid-term elections? Let’s continue with the thought experiment – what if there were many political parties (rather than just 2)? What if we had term limits with short durations for every position of power, elected and unelected? What if political fundraising was limited to very small contributions? Somehow, we need to get everyone united around the common pursuit of chasing the American Dream and for this to happen we need to shift the country’s focus from government to business.
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