by Gary Alexander

November 9, 2021

What an important week we just witnessed. In a small but consistent way, Americans spoke out against a wide array of nonsense and reclaimed their “common sense” center. Maybe that’s one reason the stock market has been so robust this year – foreseeing our return to sanity. All four major stock market indexes hit new all-time highs, including the laggard Russell 2000 index (which our analysts had been predicting), and all four major indexes have now doubled from the March 23 lows – doubling in under 20 months:

INDEX Last Week 2021 to Date Since March 23, 2020
Russell 2000 +6.09% +23.41% +153.4%
NASDAQ Composite +3.05% +23.92% +142.1%
S&P 500 +2.00% +25.05% +115.3%
Dow Jones Industrials +1.42% +18.69% +100.3%
Data source: Yahoo Financial

The S&P 500 has risen seven straight days through last Friday. The biggest daily gain was Wednesday, the day after the shocking election results. Virginia and New Jersey dominated the news, so I won’t add any details there, but several other localities came to their senses. Minnesota voted out the “Defund the Police” cadre. In my little Northwest corner of the nation, we saw three super-Woke ballot initiatives go down in flames in a county that had voted 74% for Biden and only 23% for Trump in the last election.

One local measure called for a “new nine-member commission to provide oversight over the department of Environmental Stewardship regarding the department’s duties as to climate change…” which would likely expand into gardening permits and gasoline vehicle limits. It went down 60-40. Another called for an 11-member “justice, equity and inclusion commission,” which would color-code jobs for islands with few minorities. It failed, 63-37. A third measure admitting theft of land from natives went down 51-49.

Statewide, Washington State gave a 19+ edge to Biden in 2020, but voters rejected all three new spending bills, each resembling Biden’s wish list. State voters rejected an imposition of a new 7% surtax on capital gains in excess of $250,000 by a wide margin, 61-39, even though the state legislature passed it without a vote of the people. Voters slammed down a costly $432 million for a new suicide prevention hotline (54-46), and a 2% tax on “captive insurers” (57-43). Like other states, we’re in no mood for new taxes.

After the long hot summer of 2020 brought destruction to many inner cities and January 6 brought a foolish and failed Storming of the Bastille, this year has brought few demonstrations (although a lot of silly talk), as many Americans retreat to their Covid cabins and rethink the long haul of vaccinations and lockdowns. The result seems to be the beginning of the end of legalized madness. It won’t end tomorrow. Some extremists still think they hold the high ground, but Tuesday’s results clearly tell them they do not.

All this ties back to the stock market and corporate profits, since profits come easier in nations that practice the right Philosophy, based on the core Principles of freedom, enacted through Public Policy decisions (Politics) involving the right Programs and Plans, administered by good People. Companies may then magnify Profits through greater Productivity. Call it the 7-P Path to Prosperity: Philosophy + Principles + Politics + Programs and Planning with Productive People Produce Profits – in that order.

Therefore, it was no coincidence that I am also reading the newest book by our favorite economist, Ed Yardeni, “In Praise of Profits,” because he was spelling out these same important principles.

Turning the “Dismal Science” Into “Creative Prosperity”

Stock market profits must be accumulated in a milieu of relative freedom. That’s why last week’s mini-election and the relatively smaller spending packages now under consideration in Congress are important.

Too much political rhetoric is wasted on negative thinking – like hating the opposition, or wresting money from “the rich,” or fearing “existential crises” like “climate change” or “systemic racism,” which may or may not be half as serious as their partisan pundits fear. Economics is often called the “dismal science,” perhaps since all its greatest innovators tended to focus on shortages and negative outcomes.

Dour Pundits Malthus and Smith Images

Thomas Malthus (1766-1834) was the most negative, therefore the most beloved and most influential in the bearish community. In 1798, he predicted mass starvation since populations grow geometrically while food production grows arithmetically. He was mostly wrong on both counts, and he ignored technology, but neo-Malthusians still quote him to this day. The first economist, Adam Smith (1723-1790) was also too dour. He argued that capitalism was based on selfishness: “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.”

Yardeni disagrees. He counters: “This oft-quoted statement is totally wrong, with all due respect to the great professor. The butcher, the brewer, and the baker get up early in the morning and work all day long, trying to give their customers the best meat, ale, and bread at the lowest possible prices. They don’t do so because of their self-love, but rather because of their insecurity. If they don’t rise and shine early each day, their competitors will, and put them out of business. Entrepreneurial capitalism is therefore the most moral, honest, altruistic economic system of them all. Among its mottos are: ‘The customer is always right,’ ‘Everyday low prices,’ and ‘Satisfaction guaranteed or your money back.’” No selfish words there!

Karl Marx (1818-1883) and Friedrich Engels (1820-1895), only 25 and 23 when they first wrote The Communist Manifesto, “erroneously focused their analysis on class warfare, pitting industrial workers against their capitalist employers, who were caricatured as greedy, exploitive, and imperialist. They failed to understand that the only class that matters in capitalism is the consumer class, which includes everybody.”

Communists Marx and Engels Images

Likewise, economist Joseph Schumpeter (1883-1950) focused on the negatives when he called the trend toward greater wealth “creative destruction,” a funny name for better working conditions, safer jobs, and a better standard of living, so Yardeni renamed the process “creative construction” to focus on the winners.

In college, I learned that economics is the “allocation of scarce resources,” a delightfully economical (four-word) definition, but it’s vaguely negative, focusing on scarcity. In the latest (19th) edition of the dominant Economics textbook by Paul Samuelson (1915-2009, now co-authored by William Nordhaus, born 1941) the state’s role is expanded, so they define economics as “the study of how societies use scarce resources to produce valuable goods and services and distribute them among different individuals.”

Yardeni begs to differ. His short definition is “Economics is about creating and spreading abundance, not distributing scarcity.” He explains why he differs from Samuelson’s state-distribution-of-scarcity view:

“Economics isn’t a zero-sum game…. Economics is about using technology to increase everyone’s standard of living. Technological innovations are driven by the profits that can be earned by solving the problems posed by scarce resources. Free markets provide the profit incentive to motivate innovators to solve this problem. As they do, consumers get better products often at lower prices.”

Capitalism may be coming back in style. That’s what a strong stock market has been trying to tell us.

All content above represents the opinion of Gary Alexander of Navellier & Associates, Inc.

Please see important disclosures below.

About The Author

Gary Alexander

Gary Alexander has been Senior Writer at Navellier since 2009.  He edits Navellier’s weekly Marketmail and writes a weekly Growth Mail column, in which he uses market history to support the case for growth stocks.  For the previous 20 years before joining Navellier, he was Senior Executive Editor at InvestorPlace Media (formerly Phillips Publishing), where he worked with several leading investment analysts, including Louis Navellier (since 1997), helping launch Louis Navellier’s Blue Chip Growth and Global Growth newsletters.

Prior to that, Gary edited Wealth Magazine and Gold Newsletter and wrote various investment research reports for Jefferson Financial in New Orleans in the 1980s.  He began his financial newsletter career with KCI Communications in 1980, where he served as consulting editor for Personal Finance newsletter while serving as general manager of KCI’s Alexandria House book division.  Before that, he covered the economics beat for news magazines. All content of “Growth Mail” represents the opinion of Gary Alexander

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