The
Home Stretch
Why
such obstinacy? Because any effort to
conciliate with someone else makes our leaders feel "weak"...at
least, according to their words and deeds.
Energy
shortages, weather disasters, healthcare pandemics, decaying infrastructure,
pharmaceutical drug price increases, wage inequality, hunger and poverty, will
not wait for political theatre to abate.
Their impact upon life today is incalculable.
Capitalism
without ethics and leadership is a vessel sailing without a rudder.
As
we tiptoe into the fourth quarter one can almost feel an appreciable nervousness
about leaving behind the tumult of the previous 3 months for what is perceived must
lie ahead. Those who thought the
market's expansion was long overdue for a correction were ironically
"rewarded" for their pessimism during a volatile tug of war in the
last quarter. Indeed, the lowering tide
took down all ships....and 401-k's....in the process.
The
notion that the time was right for a recalibration in financial assets emanates
from a philosophical and scientific belief that a market that is built with no constraints upon upwards enthusiasm
eventually falls of its own weight anyway. So why not now? But to usher this premise from simply being a
hypothesis into a scientific rule requires steady and effective economic policy
and consistent rhythm, neither of which applies to the present situation.
Measurable
economic cycles require a kind of capitalism and mindset that can be depended
upon to deliver consistent and noble ideas, which encourages a free exchange of
goods and services. As noted above,
artificial interference by speech-making or political fiat impedes economies
more quickly than the other things about which we worry.
Markets
The
markets have experienced these kinds of crossroads before, and will again. Ultimately, however, the ingredient most
needed to remediate the current climate, this quarter and beyond, is trust in the fairness of our processes and
institutions. Unfortunately, I see
that as the most odious of our shortcomings at this moment.
Take,
for example, the assumption that stocks
trade upon the expectations and accuracy
of earnings projections. Anything
which stifles an impartial evaluation of such becomes, in itself, the emotional
and systemic monkey wrench that grinds forward progress to a halt. Even when a corporation produces a
"better mousetrap", it is likely to fall victim to a stealth trap
door when the guidance used to proffer such information is toxic or
inaccurate. You might hear that "interest rates are too low (or too
high)". But it is moral
persuasion and coherent leadership that
opens wallets much faster than anecdotal conversation about the yield curve.
This
is the kind of moral meaninglessness which keeps people awake at night. Despite empirical evidence that real economic
growth is still flourishing, stagnation and uncertainty are even more
statistically likely to thrive in a climate fueled by rage, dishonesty, and
lack of insight. Sad but true, a
yearning for inspiration exists everywhere around the globe.
I
believe that market volatility is very likely to persist as a result. Earnings patterns are uncertain, ambiguity is
sprouting, and capital outlays are being held in abeyance. While imprecise economic factors do not, by
themselves, auger for negative market or economic performance, these collective
data are producing pressures that counteract upside momentum, thus inhibiting consumer's
expenditures of discretionary dollars.
Too many circumstantial events are conspiring to create doubt. The mental hurdles themselves are almost
greater than the quantitative statistics we use to measure markets.
Risk
aversion is not the same as risk management.
When investors and speculators start to sit on the sidelines there is no
recourse other than to wait patiently for their return.
Noticeably,
financial averages are no longer performing with the same level of intensity or
upside expectation as before. A sense of
plentiful inevitability is gone. Debtors
are reining in their spending and lenders are holding on dearly to their
capital. As speculation diminishes, the
timeline of recovery elongates...perhaps even eventually pointing
downwards.
Strategy
Nevertheless,
the questions for our future are not receding into the mist. Despite declining consumer confidence, we
still must deal with the issues of our time: healthcare, water and food scarcity, education, technology, and energy. For example, given our addiction to fossil
fuels, where and when are we seriously going to find and implement renewable
alternatives? Is the threat of global warfare
committed in the name of a commodity worth the hazard and sacrifice? Or can we effectively use technology to find
the solutions to shortages and limited access of all the globe's functional natural
resources?
Support
for "green" policies as a concept exists almost everywhere. But putting it into practice by retrofitting
industrial infrastructure, reshaping the job market, managing the initial
capital expenditures, etc. are topics which require debate, goal-setting and, most
importantly, leadership and consensus. Decisions that we make today involve the
union of legal, moral, ethical, and strategic considerations. It
won't just happen on its own.
It
would be simple for investors to "roll over" and give up from
despair. Or they can focus on the long
game and matters which speak about the pain and suffering of countless numbers
of other less fortunate persons. Across
all continents, struggles that touch rich and poor alike have attributes that
private and public capital can positively expand.
Free
markets are supposed to be the incubator for such projects, no? This is neither a red or blue, liberal or
conservative puzzle. More to the point,
it should be a market-based challenge.
The
price and availability of agricultural goods is rising faster than our ability
to budget for them. Patterns of
distribution in precious assets are narrowing on a global scale. No one should ever go to bed hungry or
malnourished. We all live on one
planet...our "big blue marble".
My
proprietary database, ArlingtonEconometrics, has uncovered countless economic
and investment opportunities for the future.
For example, we put forward portfolios in Water, Energy, and Global Agricultural
designed to profit from the continuing efforts of science and industry to address
these issues. My algorithms reveal where
the future intersection of capital and moral leadership can be magnified into
profit potential in technology, healthcare, and infrastructure, too.
But
we also urge prudence in portfolio allocation as we head into this quarter. An absence of conviction and momentum coupled
with an unhealthy dose of acerbic political campaign rhetoric suggest a
reasonable dissuasion from jumping into the quagmire with both feet at present. Trade, interest rate, and macro uncertainty
are directly impacting corporate profitability, investment decision-making, and
overall market confidence. Therefore, we must be cautiously selective in our
allocation choices.
If
one perceives investing only as a means of aggrandizing
net and self worth then everyone
loses the potential also for doing good for others. Finding that balance should really be our
mission as we near year-end. We cannot expunge
the priorities we believed in and transacted at those moments in our past, but
we can and do have an obligation to choose that for which we are willing to
sacrifice in the future.
Suggested
balanced account asset allocation, Q4, 2019
Equity: 40%
Fixed
Income: 35%
Cash: 25%
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