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Real Talk with Rabih: How Does the President Impact the Market? – Episode #346


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The President has what has been called the toughest job in the world. But how much do his decisions affect the stock market? The economy? Commodity prices?

On this Dentist Money™ Show, Ryan and Matt quiz Rabih Dimachki, Dentist Advisors’ Investment Operations Manager, on the power of the President. When it comes to fiscal and monetary policies, where does the economic buck stop?

 


 

Podcast Transcript

Ryan Isaac:
Hey everybody. Welcome back to another glorious episode of The Dentist Money Show brought to you by Dentist Advisors, a no commission, fiduciary comprehensive financial advisor, just for dentists all over the country. Check us out at dentistadvisors.com. Today on the show, Matt and I are joined by a fan favorite Rabih Dimachki. And we’re talking about what involvement, influence, or control does any given president have over things that happen in the economy, the stock market and the commodities market. Really fascinating, fun conversation as always with Rabih, so smart, so many good details and facts about these issues. Many thanks to him for spending some time prepping for today’s episode and sharing his wisdom with us. If you have any questions, go to dentistadvisor.com, click the book free consultation button, and let’s have a chat sometime soon. Thank you everyone for being here. Enjoy the show.

Announcer:
Consultant advisor conduct your own due diligence when making financial decisions, general principles discussed during this program do not constitute personal advice. This program is furnished by Dentist Advisors, a Registered Investment Advisor. This is Dentist Money. Now here’s your host, Ryan Isaac.

Ryan Isaac:
Welcome to The Dentist Money Show where we help dentists make smart financial decisions, and avoid the bad ones along the way. I am Ryan and I’m here with the Hollywood Mountain, Matt Mulcock. What is up Matt?

Matt Mulcock:
Yo Ryan. Rabih.

Ryan Isaac:
Good as always. And we are joined…

Matt Mulcock:
Oh, gees, I just stole your thunder.

Ryan Isaac:
You gave the people what they wanted.

Matt Mulcock:
Hallo Ryan and I don’t know who else is here.

Ryan Isaac:
Matt. You don’t know this, but we have a special guest today, a fan favorite, highly requested Rabih Dimachki.

Matt Mulcock:
Oh.

Ryan Isaac:
Hello, Rabih.

Rabih Dimachki:
Hey guys, how’s it going?

Matt Mulcock:
I didn’t even see you there. I didn’t know. My fault.

Ryan Isaac:
We should have made that happen. Like where he pops up and you don’t even know he is here.

Rabih Dimachki:
Surprise.

Ryan Isaac:
Yeah. Surprise. Rabih, thanks for being here, man. Welcome back to the show.

Rabih Dimachki:
Thank you for having me. This has been fun.

Ryan Isaac:
You’re a regular now and the people need it, the people want it, the people are gonna get it. That’s how it goes.

Matt Mulcock:
Give the people what they want.

Ryan Isaac:
We do. Today we’re gonna talk about some interesting things. I’ve been thinking for weeks and weeks about this idea that we have the president of our country at any given time, who has power. And that this idea that any given president has power to push a button or pull some levers in the office there, and then just make certain things happen. Whether it’s gas prices, other commodity prices, stock market fluctuation. I follow a famous surfer on… And he is like… He’s into like investing. It’s all like crypto and [chuckle] NFT stuff, ’cause he is like 24 and he’s cool and I’m not. But he always posts memes about like on the bad days in the stock market, when it shows those charts where everything’s red, because everything’s down, like those brick charts of the companies. And then there’ll always be like a meme of the president, like, “Good job buddy.”

Ryan Isaac:
And I… So anyway, I see these things and I’m always like, that’s a strong perception that at any given point in our country that the president is directly in charge of exactly what’s happening, and has all the power necessary to just flip a switch and change it, that’s a perception. Right or wrong, it’s a perception. So that’s what I want to talk about today. I reached out to Rabih, smarter than all of us put together times a 100, and I was like, “Dude, let let’s talk about… Let’s just talk about that perception and maybe try to just shed some light on and understand what power does a president have over the economy directly, or the stock market or rates or gas prices or any of these things.” And anyway, so that’s where I was coming from on this. Does anyone else wanna just before we dive into any data or anything, want to share any client reactions, client stories, questions around the subject or anything at all about this?

Rabih Dimachki:
Just a disclaimer, I’m not from America [laughter] and we’re talking about politics.

Ryan Isaac:
Oh. This is even better actually.

Matt Mulcock:
Yeah.

Ryan Isaac:
Rabih, that’s actually a fun disclaimer. I like that. You have no dog in the sun. I mean, you’re here. So you do.

Matt Mulcock:
Yeah. That is a good disclaimer, because just as you mentioned before, Ryan, this can get… Unfortunately the day and age we live in now in America, with social media and…

Ryan Isaac:
Yeah, it’s [0:04:16.9] ____.

Matt Mulcock:
How hot politics can get. I think just the caveat or the disclaimer that we’re not making political opinion. We don’t have political opinions here, we’re not espousing one side or the other, we’re just trying to give facts and we’re just trying to give the data, and what history tells us.

Ryan Isaac:
And I think the two main… Maybe there’s three main areas. One would be, what’s the effect that the president has on the economy, which is such a broad question. So you’re just like laughing at that I’m sure. What’s the effect that president has on the stock market and then popular today, what’s the effect the president has on commodity prices. I would say those are probably the three main areas. Matt, would you add anything to that? You think that covers it?

Matt Mulcock:
Yeah. No, I think that covers the main pieces of it. Yeah.

Ryan Isaac:
Okay. Alright. Well Rabih, where do you wanna start? ‘Cause you’re just like frothing to get after this. I’m so excited. You got the data, you got the research.

Rabih Dimachki:
Yeah. You guys, you asked me about it just a couple of days ago, and I’ve been doing nothing but reading papers and…

Ryan Isaac:
That’s why you’re not sleeping. Sorry. That was our fault, I didn’t know. I thought it was something else.

Rabih Dimachki:
No, it’s. Alright.

Matt Mulcock:
And then we pushed the podcast day. So then he was like, “What the heck.” [laughter]

Ryan Isaac:
I know, we moved it on, and we gave you extra days to study for the test. So…

Rabih Dimachki:
No, this has been fun, so much fun and actually changed my perspective at how I look at it. When we posed the question for this podcast as like what impact the president has, it actually didn’t… Intuitively I did not think, are we talking in a democratic system or in an authoritarian system, one. And we did not talk about a system where there’s checks and balances, versus no existence of checks and balances. So when we take those two variables and put them in a framework of how we are thinking about it, and we apply it to the US, the results are gonna be completely different than if we’re talking about a country in Europe or whether we’re talking about a country in the Gulf or in Asia. Till actual policy is passed, you might not see impact on the economy. And for policy to get passed, not only you need the president, you need the whole administration, the governing body with it. So in the case of the US, you need a consensus between the president, as well as the two chambers of congress, to be able to pass a law. And this opens the huge conversation about the impact of fiscal policy. Fiscal policy does have an impact on the economy, the president on its own doesn’t, so.

Ryan Isaac:
Yeah. Very little is what you’re saying.

Matt Mulcock:
So Rabih really quick. ‘Cause as we were prepping for this, I think it’s a good place to come… And Ryan, I’m sorry I’m jumping in here.

Ryan Isaac:
No, no jump in. No, it’s perfect.

Matt Mulcock:
Well, I do think…

Ryan Isaac:
It’s a panel bro, this is like the panel.

Matt Mulcock:
Yeah. That’s a good point. I love these panel discussions by the way. So we’ve talked about before in our other discussions about monetary policy and then you’re bringing up the term fiscal policy. Can you just explain, just like, maybe just starting from a baseline of the differences there for people to understand?

Rabih Dimachki:
Yeah. Lovely question. Monetary policy, as we have alluded to in previous podcasts, it is in the control of the federal reserve and it talks about controlling interest rates, controlling the money supply in the economy, assessing the health of the labor sector. And in terms also how this affects the currency and how it’s valued between other portions of the economy. This is what monetary policy specializes in. Fiscal policy is mainly the role of government within the economy. We previously said that the whole economy is a pizza with many slices. The government is a slice of those slices.

Matt Mulcock:
Don’t bring up that dang pizza thing.

[laughter]

Matt Mulcock:
Don’t bring it up, I am getting hungry again.

Jess Reynolds:
Hey everyone. This is Jess Reynolds with Dentist Advisors. As you know, we are passionate about giving dentists, the education and resources they need to make smart financial decisions. We’ve brought you The Dentist Money Show podcast, which has been downloaded over a million times. And we’ve been providing dentists with a premier private wealth management experience for 15 years. Honestly, it’s been great. And now we’re adding to our lineup to help even more dentists get the financial guidance they need. Now, not every dentist is looking for the Cadillac experience that comes with our private wealth management service. So we have introduced a self-paced subscription based planning service called The Dentist Money membership. For a monthly fee, Dentist Money members get access to a suite of planning tools, including the innovative elements app, an investing portal, CE approved content, and a lot of other cool members only benefits. Plus, as a dentist money member, you can pay for one-on-one coaching sessions with a CFP advisor on an as needed basis. To learn more about these features, visit dentistadvisors.com. You can get started right from the website or book a 15 minute demo just to see how it all works. That’s dentistadvisors.com.

Ryan Isaac:
Let’s jump in then to some of the things. Again, I think the main areas were the effect on the economy stock market and commodity prices, were kind of what we wanted to just generally discuss. Where do you wanna begin? Jump in wherever you want.

Rabih Dimachki:
Let’s just continue where we landed last. We said that fiscal policy is what actually has an impact on the economy. And here we’re talking about Expansionary fiscal policy versus a Contractionary fiscal policy.

Ryan Isaac:
And when you say fiscal, an example is interest rates. That’s what you’re talking about.

Rabih Dimachki:
Nope. When we’re talking fiscal, we are talking taxes.

Matt Mulcock:
Like government spending.

Rabih Dimachki:
Government spending.

Ryan Isaac:
Oh sorry, not monetary, fiscal. Yeah. Not monetary, which is interest rates, fiscal policy, which is yeah. All the other stuff. Okay. Yeah. Keep going.

Rabih Dimachki:
That’s right. So when we’re talking about fiscal policy that would slow down the economy, we are talking about stuff like increasing taxes or the government decided not to spend into infrastructure or into new technologies. When we are talking about a government policy, fiscal policy that supports the economy, it’s the opposite. And to the extent the President is able to push for a certain tax cut or for a certain infrastructure bill or for a certain, brokering a deal regarding a trade agreement with other countries. Though this is where the President per se has an impact on the economy, and as Matt talked about it a little bit ago, it doesn’t happen in one night. This might stem out for a long time. Like the latest infrastructure bill that was passed for a trillion bucks is on a timeframe of 10 years. So whoever’s gonna be the President in 10 years, if those investments were in place and the US is in a great shape economically, that person will get the credit. So…

Ryan Isaac:
So a big… Real fast, a big example of this might be the tax reform that was passed during Donald Trump’s time. Which, I mean, what year did it… I mean, the talk started right when he was elected, but it took effect in ’17 or ’18, it’s still in effect and affecting the next person and the next set of laws and everything.

Rabih Dimachki:
It is still in effect. And, what happened at that point, you had a homogenous Congress and President at the same time. So if you look at the data, when you’ve got a split Congress versus President, versus when they’re all from the same party, the speed at which a policy might be executed is affected. So that was one of the situations where they are close, but the impact of that tax cut, when you drop down taxes you boost the GDP and GDP growth really showed in terms of growth to a point that right now, the US is receiving more revenue from taxes than if it had high tax rates. Just simply because the economy grew, everyone is making more money. The tax revenue is higher.

Ryan Isaac:
The pie got bigger. The pizza pie got bigger.

Rabih Dimachki:
Exactly.

Ryan Isaac:
Okay. Okay. So that’s a really a good example. So that’s what we’re talking about. The economy, the effect that the President has on the economy, but it’s such, I mean, we all go back to our, what… That’d be like political science classes back from high school and college, like the structure of the government.

Matt Mulcock:
Three branches of government.

Ryan Isaac:
Yeah. The three branches and just what it actually takes. I mean, of course every President, every Congress, they all have different agendas at different times. And, of course they’re trying to push their agenda, but, like you just said the speed at which it can actually happen or ever happen. I mean, how many things get debated hotly for years and then fizzle, nothing ever happens. Right. And, yeah. So the speed at which it can and how it bleeds into future presidencies and Congress. And, I mean, it’s very intertwined. I mean it’s not…

Matt Mulcock:
Well and to Rabih’s point. Right. And you sent up those great graphics to us, Rabih of like the… And I’m sure we’ll get to this again, as far as like what the returns on the stock market based on Republican or democratic President versus Congress. But to your point, Rabih, you’re saying it’s not just the President. And if, again, whether or not we have a Republican or a Democrat, it’s also in relationship that President and their party in relationship to the other branch of government being Congress, and how they keep each other in check. Right? Like there’s a very different between like, we’ve got a Republican President, Republican Congress or intermixed, as far as getting policies in place. And we’re seeing that right now. Right. We’re seeing the stalemate that is there when it comes to not having, as you put it, this homogeneous approach to both Congress and the President.

Ryan Isaac:
Yeah. And I think a lot of people, we’ll probably get to that. Thanks, Matt. We’ll probably get to that chart, but it’s funny to look at it though. And it’s kind of like the chart that we show clients sometimes when we’re talking about asset allocation around the world, we have this chart, it looks like a big colorful quilt of all these colorful patches randomly assorted in different orders that represent different parts of the world, getting a higher or lower return at any given point over decades, and it’s totally random. And you can’t base an investing strategy based on that, and when I look at these charts of market performance during certain presidencies or Republican or Democrat, it feels like the same thing. What am I gonna do, like “He got elected, so I’m gonna stop investing for awhile or… ”

Matt Mulcock:
Yeah.

Ryan Isaac:
He’s in or she’s in, so now let’s go, and it’s… There’s no discernible pattern. You can’t do that. So they are kind of disconnected that way, but… Anyway, yeah. Super fascinating. Okay, so let’s go to… Do you feel like that kind of sums up how we would describe the relationship to the President and the economy, ’cause I’m just trying to draw the connection where someone will say, “This economy is good under this President or the economy was better under that President,” and so just to sum it up, from what I heard, we’re trying to just make the connection that the economy is tied to policies and policy making, which is a conglomerate of different branches of government, either being in alignment or not in alignment and actually getting things passed, and then they get passed, but then they take forever to implement and then they drag on, they have expiration dates and people were picking up stuff that got implemented from past presidents and Congress and everything, so it’s kind of like this big long intertwined mix, but that’s the relationship between president and economy, and so we shouldn’t draw a direct line of he started in 2020, and so then therefore the economy did this.

Rabih Dimachki:
Exactly.

Ryan Isaac:
Right. That’s not… You can’t draw those lines.

Rabih Dimachki:
Exactly, between a president and the state of the economy, we can’t draw a line, but we are to a certain extent, confident that good policy would have an effect on the economy. We can’t really ascribe it to a person, but we can ascribe that good policy will affect the economy.

Ryan Isaac:
How would you define good policy? What would that mean?

Rabih Dimachki:
Well…

Ryan Isaac:
Or is that just in hindsight, like we only know it was a good policy 10 years later and like yeah, that was a good idea.

Rabih Dimachki:
That’s one way to know it, and the same policy might have a different effect depending on the time, and that’s why it’s just a political call to action that we have to vote people who we think are able to get us out of the problems that we are facing.

Ryan Isaac:
Got it.

Rabih Dimachki:
So, there is a good link between the policy and the economy, the question is there, does this link extend itself to show up in the equity market, and here’s where it’s funny, it doesn’t exist. So statistically speaking, just to nerd out for a little bit, excuse me guys.

Matt Mulcock:
Please do, please do.

Ryan Isaac:
Let’s go.

Matt Mulcock:
We love when you nerd out.

Ryan Isaac:
Nerd on.

Rabih Dimachki:
When economists start putting all the data about the current presidents and the current fiscal policy, and the output would be unemployment rate or real growth in GDP or whatever the change in the inflation rate there is, though the numbers are statistically significant. Whereas when they start taking data about the President and putting it into their model and they’re trying to look at the output where, “Oh, what’s the change in the S&P 500?” The results are not statistically significant, although if you look at the really colorful colors, all of them are going up, some of them are going down. But if you take this out of the context of it just being this sample this one time, it does not repeat. So, good policy is statistically significant at the level of the economy, good policy doesn’t really have a direct link that is evidence-based, that can be that repetitive when it comes to the markets.

Ryan Isaac:
Well, I’m just thinking too like, what are we? 360 or 370 million people? Is that… I don’t know how many of them are…

Matt Mulcock:
In that range yeah.

Ryan Isaac:
Right, but you say that electing someone that we feel is gonna create a good policy or address the issues we feel are important to us, that’s the diversity of a democratic nation, right? Because what one person might need a congress or a president to do in any party maybe around taxes, another person needs to vote because they need some social program to work, right? Or someone who needs different things that might benefit the real estate market, someone else needs it to benefit the commodities market. And they might be different things that a different person is going to implement based on their values or their party or whatever. I mean, that’s a really, it’s just a very complex… It feels like a really crappy job honestly. The president. [laughter]

Matt Mulcock:
It sounds like a miserable job.

Ryan Isaac:
They all look like they age like 20 years, four years later.

Matt Mulcock:
Oh yeah, have you seen those memes of Obama when he first got in and then eight years later it’s like he aged 40 years.

Ryan Isaac:
He’s pretty healthy fit too, but…

Matt Mulcock:
He was a fresh fried spring chicken…

Ryan Isaac:
It took its toll, man.

Matt Mulcock:
Ready to make change and then the country just wore him down.

Ryan Isaac:
It’s just like the ultimate entrepreneur business leader role, it just takes years off your life, but I guess I’m just observing that that’s such a diverse, complex process and what somebody… What a group of people finally votes in based on what they want to see, if that person and party who gets in is able to even accomplish a fraction of their ideals, I mean, that stuff is carrying over for years and years and years, and into different economic circumstances and we have a war going on now that we didn’t two years ago, and we have… It’s just so complex. So to repeat back to what you were saying though Rabih, you were talking about the connection between President, the economy and the stock market, your conclusion from data and just the data just says, “No, no connection, no discernible pattern. No connection.”

Rabih Dimachki:
No, straight from who is governing to how the stocks are gonna perform, there isn’t really any insights that we can derive from the data, and…

Matt Mulcock:
I think this is super critical to focus on because you’re saying from a statistical standpoint, there is no connection, but that doesn’t change people’s…

Ryan Isaac:
Just gonna say that, perception.

Matt Mulcock:
Perception and their ability to take the narrative, twist it, and say, “Look at this period of time, five years ago, 10 years ago, 20 years ago, look at this President and what they did with this and look what the market did during this reign”, it’s like, but you’re saying, “Well, yeah, that’s a master class in hindsight bias and just picking the data and saying, ‘This is what I wanna look at.'” You’re saying there’s no connection when you look at it in real time.

Rabih Dimachki:
No, and actually, if we look at the past performance of the S&P 500 and compare it by presidents, I find this a very captivating example, if we look…

Ryan Isaac:
Describe the chart since people can only hear us.

Matt Mulcock:
Yeah. We’re gonna chart up, but we’re gonna describe it.

Ryan Isaac:
Describe the chart, Rabih. What are we looking at?

Rabih Dimachki:
The chart…

Ryan Isaac:
And where can they find this? We could link it too, but where can they find this? This is from White Charts.

Rabih Dimachki:
This is from White Charts. It’s the study about the S&P performance over… Performance under Republican and Democrat Presidents.

Ryan Isaac:
Going back to Truman?

Rabih Dimachki:
Going back to Truman all the way to Trump.

Ryan Isaac:
Which is… All the way through Donald trump. And then it’s linked by… You can see the up and down movements of the stock market, up or down and the little roller coaster-looking graphs and they’re shaded either blue or red, depending on the President, and then linked to the little President, they have little bubbles of their faces below with the percentage of growth, except for… There are a couple that have negative percentages. Yeah, okay.

Rabih Dimachki:
Exactly. So what this shows is the total growth throughout the whole term, and if you guys see there are only two Presidents who had a negative stock market return or S&P 500 returns during their terms, and it was Nixon and George W. Bush. And when you look at this, so… On one hand… This is great news. So only two out of all the presidents, since Truman and Trump had a drop in the stock market performance during the term, regardless of whether they’re Democrats and Republican. This is a great point. The second point to look at, it’s, “Oh okay, so only Nixon and Bush had the stock market cumulatively underperformed while they were in office. And you start thinking about it, “Okay, how can I blame Nixon? And how can I blame Bush?” And if you think about it…

Ryan Isaac:
That’s Matt’s point, that’s Matt’s point, ’cause that’s where our brains go. Alright, what do they have in common?

Rabih Dimachki:
But if you think about it, during those two terms, two of the biggest economic events in our history happened. In Bush, we had the 2008 Financial Crisis and…

Ryan Isaac:
Not caused by them.

Rabih Dimachki:
____ crash and during the Nixon, we abolished Bretton Woods the gold standard. We shifted to having the US dollar as the reserve currency of the world. Those have a bigger impact on how the stock market returned during those times. So here we’re looking at the data summarized by the performance and who the president was there, and given that there’s this correlation between them, we are just saying there’s a causation, just because Nixon was in office this happened, just because Bush was in office this happened. And if you really think about it, there were more important stuff than the actual policy pass back then that affected the market. I really like this example. I think it hits straight to the heart of the issue.

Ryan Isaac:
Well, you think about the election that took place, well, the president who took over, it was Obama in the bottom of the recession that began in 07 and then bottomed out at the beginning of 09. I mean who ever got elected at that point is gonna see this, “Obama had, what is it? 181% growth in the S&P during his time.”

Matt Mulcock:
I was in literally just gonna say that. I depends on the cycle you’re in, right?

Ryan Isaac:
Whoever is taking over, you just happen to be born at a certain time, you got elected president at a certain time, and you took over… You just took on a world’s worth of problems and issues that had nothing to do with anything you will ever do or say or be, and you just had to try to deal with them. That’s why I view Presidents as being… What was the word used, Matt? A mouthpiece? A figurehead?

Matt Mulcock:
Figurehead.

Ryan Isaac:
Yeah, because what a complex world it is, and the complexities of our nation as a part of this world, and it almost feels like they don’t do a lot other than talk sometimes, just ’cause there’s so many things going on that are so out of their control that they didn’t start, they won’t end and they won’t change or fix either, and they just… It’s the world is just kind of marching along and whoever got put in the position at that time, they’re gonna have to deal with those things and have the effects of them, but you both said this… Rabih, you were talking about the charts and you’re like, “Okay, Bush and Nixon,” What can we say was, “Why did it go wrong under them?” Or Matt was saying, despite data the perception is still always gonna be… Depending on who your candidate is or your party is, you’re gonna do what all humans do, which is ignore all the bad stuff that happens when your person is in charge and just be excited about the good stuff and then complain about the bad stuff when the next person is in charge and then ignore the good stuff. This is what humans do. And the stories still go on.

Matt Mulcock:
I was gonna say the politics are just a game of stories, that’s all it is.

Ryan Isaac:
It’s so true.

Matt Mulcock:
It’s just, “Who has the best story at the time and the most believable story, who’s… ” I mean like you said, they… All they do is talk. I think that’s a big part of it. As Presidents in general and politicians in general, this is not a statement about any one party, this is all of them, saying they get elected because they are incredible speakers and narrators, orators.

Ryan Isaac:
They’re carrying the brand.

Matt Mulcock:
They can carry the brand. They’re marketers. They are incredible marketers.

Ryan Isaac:
Totally.

Matt Mulcock:
And I think this also speaks to Rabih, something Rabih was talking about earlier. There’s one way to get elected and then there’s another way to actually, once you are elected to actually get policy put in place. A lot of times these politicians are speaking on issues they know will never get through, but it’s gonna get them elected. So I think that’s also another complication and added layer here, why there’s not a direct link to President and what actually gets done and then what actually leads to economic either growth or pullback.

Ryan Isaac:
Yeah, totally, and I mean if we’re taking this back to the question of how does this affect my investing, if I’m a mid-career, early career, I just have time ahead of me. I’m a long-term investor. I’m a saver. I mean, what are you gonna do? Just not save money for four years because someone got elected. Or eight if they go on again. I mean, of course not. I mean, of course you wouldn’t do that. So yeah, really interesting. Rabih, there were a couple of other charts. I don’t know if you wanted to hit those and describe them. This would be a fun webinar, so we could show some of these things physically to people. But did you want to talk about any of those other couple that you shared to us, to me and Matt?

Rabih Dimachki:
Yeah. Sure. And, but the conclusion out of these is what we stated earlier. We see those, we go into the market historical data and we try to determine and see how did the market react to this versus that. But then when we take this data and we plug it into the statistical machines that we actually have to depend on to make a claim, to give advice based on, they don’t make it, they die when they are in that machine. But honestly, if you go to just historical past data, and this is also data from White Charts, and you look at how the S&P 500 performs when a President elect is announced, like who won the elections, when a Republican President wins the market goes up 1.5% on average. When a Democrat President wins, it goes up 0.9% on average.

Rabih Dimachki:
However, during time in the office, the Republican President’s average is 22.5%. The Democrats President average is 47.6%. Given the two events we just talked about happened to two Republican presidents. We take this data and it’s like, oh this might be a great trading strategy. Whenever a Republican President wins the elections, the S&P is gonna go much higher than what it would’ve done under a democratic. But once you take those and put them under, what all of modern finance is based on, which is rigorous statistical tests to make sure that this actually is repeatable, you just figure out that, it was just a one time thing. And this is what the history is telling us.

Ryan Isaac:
What’s the relationship there in commodity markets? Should we summarize and just say super complex, and it has a little power?

Rabih Dimachki:
It is actually more complex than just the economy or the stock market.

Matt Mulcock:
And less of a connection, right? Because we’re now talking geopolitical as opposed to just the nation.

Ryan Isaac:
Totally.

Rabih Dimachki:
Yeah. Now, instead of the President being at the top of the pyramid deciding everything, he’s actually one part in a global system trying to push their own agenda.

Ryan Isaac:
Well as of this week, I read, so when are we recording this? Like, mid-July 2022. Biden’s gonna go to the Middle East to try to sweet talk some of the oil producers in the Middle East to produce and release more oil. So…

Matt Mulcock:
He might catch a live tour then, the golf event. Who knows.

Ryan Isaac:
Yeah. Maybe catch, I mean, so like to your point, Matt. Yeah. He’s just a guy that’s gotta go over in a whole group of people around the world that have all kinds of competing. They have their own interests.

Matt Mulcock:
Yeah. He’s battling… That’s the thing. The president here is battling now what Rabih was talking about earlier, where you’re talking about authoritative governments, like they don’t have the same structure that we can’t assume, we can’t just assume the entire world is a democracy. That’s not how this works. So there’s so many more pushes than pulls that…

Ryan Isaac:
Like in the middle east. He’s not gonna go out there and be like, there’s this guy named Ryan, he’s paying seven bucks a gallon right now. [laughter] We really need to… He’s in California, can you do something about that?

Matt Mulcock:
He’s not driving right now.

Ryan Isaac:
Yeah. He’s like riding his bike. Yeah. No one cares.

Matt Mulcock:
No one cares, right?

Ryan Isaac:
Yeah I mean, it becomes… Matt that was a perfect way to frame it. It becomes, it goes from already an insanely complex national issue and system that’s just so complex and starts way before them and ends way after and involves a lot of people. Now, it’s international. And once that opens up, I mean, it’s like not everyone’s listening to the plight of one country going, “All right we should change our oil production philosophy.”

Matt Mulcock:
Well and Rabih, it’s worse for Europe right now. Right. I mean, their reliance on Russia right now is far greater than ours, right.

Rabih Dimachki:
That that’s correct. Let’s just… Taking the example of what’s happening with oil. You have multiple interests. In the US from like what Biden’s perspective is right now, for me, let me relieve that price pressure of the consumers. I’m gonna go sweet talk the Arabs, or I’m gonna try to push for, to remove the tax during the holiday season from the gas or whatever fiscal policy they’re trying to do. For the oil producing countries, well their budgets are now in surplus, their currencies are stronger, and they’d rather keep banking on higher oils to make money. And for big consumers of oil and gas in this situation, Europe, who’s suffering from a supply shortage, it’s a matter of, we need to do this before we break as an economy. It’s not that extreme, but I’m just exaggerating to show it.

Ryan Isaac:
Everyone… You’re just saying that everyone has these very different and very crucial incentives to different, depending on who they are. And, it’s a tough thing to do just come together and be like, let’s make sure prices drop because that affects people in some ways that they don’t wanna be affected.

Rabih Dimachki:
Yeah. But honestly, if you think about it, oil is really the odd one out when you compare it to other commodities, like an impact… The impact a president can have is when they broke a huge international trade agreement that would create efficiency across markets. And in a sense drop the price of commodities down. That would be a good impact, but oil is not part of the World Trade Organization. And the reason it’s not because oil as a source of power for all economies is a matter of national security. And at this point, this discussion is political and not economic. So, oil is complex due to the political nature of it. They don’t want it to be freely traded just because there are different interests of countries involved. And this is politics. If I want to put politics aside and not give credit or take credit from any politicians and think of this only as purely from an economic perspective, I think there are two forces driving the price of oil in the market today. The first one was a matter of inventory management and harvesting profits that were missed out in 2020 by oil companies. Remember in 2020 we had negative future oil prices, and…

Matt Mulcock:
Yes, they were literally paying you a whole… A barrel of oil.

Rabih Dimachki:
So there’s that one, there were a lot of losses of the income statements back then, which has now turned into, the tables have flipped. And now those companies who were losing money back then are like, “I’m gonna extend this as much as I can so my balance sheets look good.” This is reflecting in how energy as a sector in the S&P 500 is outperforming everything else. That’s one. Two, you’ve got the geopolitical risk that honestly, no matter what President was in office now in the US, the fact that there are pipelines between Russia and Europe that got disrupted is nothing they can control. And, if we just took… Look at these two factors, those are more than enough to explain the change in oil prices rather than to blame it, or give credit to a certain person in the US.

Ryan Isaac:
Storyline. And the story will be different next year. And the year after that. And the year after that and the next president, the next president. Stories will just keep on… Game of stories like game of thrones.

Matt Mulcock:
Game of stories.

Ryan Isaac:
Game of stories. That’s the new series you’re gonna come up with. Thanks everyone for listening and tuning in. If you have any questions about your own financial decision making, your financial planning, your investments, and how just kind of the world large of the economy or different circumstances in your life play into those decisions. We’d love to help. Go to dentistadvisors.com, click the book free consultation link. We’d love to have a chat with you.

Matt Mulcock:
Go to dentistmoney.com.

Ryan Isaac:
Go to dentistmoney.com, check out Dentist Money, the resource to Dentist Money, a new membership plan for dentists all over the country. Dentistmoney.com. So many resources, so many dot coms. We’re just throwing that everywhere.

Matt Mulcock:
We’ve got so many resources, so many websites. We feel like Oprah. Just throwing a, “You get one, you get one.”

Ryan Isaac:
You get one, you get one.

Matt Mulcock:
Everyone [0:35:03.4] ____ a website.

Ryan Isaac:
Thanks for being here guys. Appreciate it.

Matt Mulcock:
Thanks Ryan.

Rabih Dimachki:
Thank you.

Ryan Isaac:
Thanks to all of you for listening. We’ll catch you next time on another episode of the Dentist Money Show, take care now. Bye-bye.

[music]

Behavioral Finance

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