Change is the only constant you can rely on. News reporting is no different. Politics have now become the filter through which new stories are reported and facts are sorted. Whatever color of the political spectrum occupies your heart the market does what it does based on the economics of future earnings and the facts regarding their sustainability. If you let your political leanings color your investment choices you are more likely to diminish your results. A stock doesn't care who buys it or sells it. If there is a buyer who believes he can make a profit, based on the facts at hand, a price will be set, and the stock will trade. When inaccurate or false information misleads a buyer, it is more likely they will price a stock too dearly than picking it up on the cheap. Investors have always been faced with imperfect information, and that is why it is important for business news outlets to stay impartial in their reporting of the facts regarding the economy and the forces which drive it. This has become difficult for them to do at times because of the noise created by the business of news reporting. "Facts" are becoming frequently tied to the political leanings of the demographic that one news organization or another is trying to reach. It has become so blatant even the most respected news organizations are routinely misreporting information that is market driving. These are reports based on unsubstantiated hunches, which are quietly retracted later. Prior to the advent of socialized news reporting (see Twitter & Facebook) serious news organizations vetted facts before they were published. Today "fake" news front runs the real news, becomes sticky, and unfortunately we just remember what suits our point of view.

Ultimately, people make economically relevant choices based on these false impressions. Unfortunately, this leads to poor market choices. The adage "How do you know when a politician is lying" comes to mind (ans. "when their lips are moving"), but now the question is "how do you know when the news is fake" and the answer is "when it's reported."

For example, let's try to understand the under-employment issue which seems to correspond with the economic down turn of 2008. Looking at the labor force statistics we can see that the participation rate hovered around 66% as far back as 2007 but dropped to 63% by 2013 and has stayed doggedly stuck there since. Why? We read and hear a lot of stories about the need for new job training programs, its robot automation taking away jobs, or its the early retirement of baby boomers. Fake news? There is evidence that many baby boomers are staying in the work force longer. A significant portion of underemployment is due to the ACA (Affordable Care Act) signed into law in mid 2011. Research now indicates that many people dropped out of the work force because "they no longer want/need a job" for this very reason. It is not car building robots, jobs going to China, or retiring baby boomers. Productivity has also stalled since the ACA's implementation, and it follows that it is largely for this same reason. Productivity growth surged after the 2008-2009 recession, but then promptly stalled out in mid 2011. One can certainly debate the merits of "free" healthcare, but there is little doubt as to whether it has affected labor force participation and productivity. Did fake news make you believe otherwise?

Taking a top down look at healthcare in the US we find that an average of $350,000 is spent per person during their lifetime (a bargain). When we amortize that cost over the average lifetime (78.5 years), compound it at 2% (the historic average real national growth) we find a per capita annual payment of $8,100 would cover it. That's $21,000 for an average family of 2.6 souls (strangely enough just a little less than what I'm paying now for my family of 3.) According to the Federal Reserve per capita wealth is about $260,000 and per capita income is $58,000. If we (of the US) nationally put aside 14% of our income into a health care insurance fund it would cover the cost, but wait a tick, the present value of those payments compounded at the same 2% rate is $320,000, that is 123% of our wealth! If there was a way to sell off the collective family jewels of the US today it would not be enough to cover that cost. The only way to pay this bill is by earning, saving, and taxing (or borrowing) a lot more in the future. Even if the Federal government could compel participation and winnow it down to a 5% pool of free rider's, costs will keeps going up. Did fake news lead you to believe that the ACA would make it less expensive in the future? Now let's look at the stock market. Is it up because A) Donald Trump and his policies will eventually bring better earnings to the market or B) The companies inside the market are earning more money now or C) Investors (the average individual) is earning more and can borrow and invest more? Which answer has your news sources led you to believe is true? The answer could be "all of the above", but the facts lead to just one, B. Earnings of the S&P 500 companies surged over 10% in the first quarter.

Much of this was due to a recovery in the oil sector, but without energy earning would still have been up 8%. Higher wages, reduced unemployment, and low interest rates are what moved the market higher over the last two years as earnings have stayed flat. The broad US market now trades at nearly 20x forward earning expectations on what appears to be genuine growth. That said, a 1% reduction in the corporate marginal tax rate would add about a dollar of earnings to the S&P. So, if the administration could get marginal rate from 36% to 26% we could see an additional $10 of earnings or a $200 rise in the S&P 500 at its current multiple. That could explain the rise, but those changes are at least a year away and the market trades on the bird in the hand. Also consider that the only way we pay for healthcare on a national level is by earning, saving, and TAXING more. So, while the earnings of the S&P 500 companies may go up, adding over $2 trillion to national wealth (enough to buy 2 years of health care) tax revenue will have to come from higher personal income tax receipts.

This will happen through the phasing out of certain personal income tax deductions that the rich use. The rich will have to pay more in the form of income taxes, but they also will continue to appraise the market at higher multiples because of the better earnings streams. Net it out and the little guy will pay relatively less in income taxes, and should see his 401(k) and pension fund assets go higher. It is smart tax policy, the only people who get hurt are the tax accountants, did fake news have you believe otherwise?

That leaves me firmly in the hold camp regarding stocks today. If you must buy stocks be prepared to earn less in the future on those investments then the market has returned on an historic average. There is currently no reason to believe that a sharp market movement to the down side is imminent, good earnings news and Fed policy are priced in, so a significantly higher move isn't likely either. Collect dividends, prune a little here and there to adjust your cash balance, and stay the course.

Just ignore the FAKE news coming out of DC, enjoy the summer, and perhaps the Fall congressional session will bring some REAL news worth taking about!