You
might recall...
Back in the
1980's...for those old enough to remember....the key word on Wall Street was "globalism". There
were the Korean funds, the German funds, the Australian funds, the European and
Emerging market funds, etc. Name a
country and there were analysts, marketers, and salesmen hyping the value of
direct investment in various non-boundary-specific paradigms. All sorts of strategies and product
offerings were predicated upon a post- World War 2 expansion and cooperation
amongst nations which was, then, a full generation in the making.
Today, the dialogue has
shifted dramatically. Owing to a
movement towards fiscal austerity, tribalism, and "patriotism", one
more frequently hears about protectionism
and individual
country's "rights".
Indeed, and as a result of these factors, global trade is taking a
beating right now brought about by tariff wars, escalating immigration
concerns, and a declining manufacturing base.
As the rhetoric gets
more heated, so too does the damage to a principle now more than 30 years old.
The last few weeks in
the global stock markets have been reflective of the changing discourse. There is no question that the expansion in
financial asset valuations has been lengthy and successful, one of the longest
in modern history. But bull markets tend
to end not specifically by their own weight but usually by a man-made catalyst
that simply confirms the suspicions and doubts within investors that the good
times are destined to end at some point, anyway.
And with good
reason. We know that business cycles,
like all things in life are parabolic
and always navigate an ebb and flow that
can be measured and, sometimes, predicted.
But we also know that, given the factors which govern today's recovery
and expansion, there is no real cause other
than political hyperbolic oratory for
the recovery to end at this juncture, at this time and place. The data are shifting, yes, but not to the
point that the economy would reverse at a moment's notice.
The implications of an
unforced error upon the financial markets would be devastating, as we saw last
week when the markets zigzagged recklessly as a result of desperate social
media folly. The prevalence of irresponsible
dialogue is strictly a non-traditional way of doing business, which,
apparently, fazes some but doesn't bother others.
Nevertheless, it is my
job as an analyst and portfolio manager not to try to "fight the
windmills" but rather to observe, measure, and to make the necessary
course adjustments on behalf of our clients.
Taking a more cautious view, we have been doing just that by buying
short-term fixed income with available cash as a buttress against the volatility
of the equity markets, and by removing the least likely to perform stocks from
our portfolios.
Best
options
The challenge ahead is
equally as daunting because I still see the possibility of portfolio success as
quite high, but the potential for policy and verbal errors is equally as high. The latest data shows a falling consumer
confidence and demand. As I wrote last
week, there are any number of pressing social issues that need to be addressed
by public and private initiatives including global hunger; reduction of natural
resources (including fossil fuels); failing infrastructure; health pandemics;
ecology; water shortages; arable farmland depletion; and territorial security.
Imagine the potential
of Wall Street if any one...or all....of these themes became this generation's
buzzword, as globalism was for generations earlier?
The threat to any
global ecosystem is not rooted in the fallacy of the concept. No, the threat comes from an escalating politically
driven rhetoric reinforcing a self-fulfilling admonition about unreasonable
jingoistic stresses. Unpredictability,
not the underlying data, is causing the current flight to safety.
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