Warren Buffett, Chairman and CEO of Berkshire Hathaway, speaks during a game of bridge after the annual Berkshire Hathaway shareholders meeting in Omaha, Neb., on May 5, 2019.Mr. Trump, the president-elect, claims his policies will restore an economy “destroyed” by Joe Biden and Kamala Harris. He has promised to accelerate growth with sweeping tax cuts, mass deportations of illegal immigrants and new tariffs.
One reason to stay cautious is the fact that U.S. presidents aren’t nearly as important to the economy as many people think. Look at a chart of U.S. economic output this century and the striking thing is how steady the upward progress is no matter who happens to be sitting in the White House. Governments have, at best, only limited control over these areas. What control they do have typically tends to take a while to manifest itself. Look back at the past eight decades and you can’t point to any case where a new president has come into power, tinkered with policies and immediately kicked economic growth into a new higher gear.
The problem, though, is that everything else might not be equal. Adding unneeded stimulus to an economy already operating near capacity is likely to spur inflation and help keep interest rates and bond yields at elevated levels. That would not be good for stock prices since higher yields would mean that bonds would provide an increasingly attractive alternative to stocks.
Mr. Buffett may simply be reacting to those lofty valuations. He is sidestepping a pricey stock market and buying risk-free Treasury bills when they offer yields equivalent to much riskier stocks.
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