A Paradigm Shift

What else is there to discuss?  Presently, there is no item of news more pressing or prevalent then the results of last week’s presidential election.  This month’s commentary will be focused on the market implications of that event and the extent to which it should inform our allocation of client funds.  We recognize that some who are reading this feel genuinely relieved and hopeful at the result, while others feel pronounced grief and fear.  It is beyond the scope of this work to address all aspects of the implications of the new regime.  Our focus remains on the market and economic implications and we seek to understand those forces as dispassionately and objectively as we can.  We’ll discuss what we expected, what we didn’t and how we move forward given the events that are unfolding.

Going into the election, we felt a strong sense that the media and professional pollsters were vastly underestimating the Trump campaign with an eerily similar tone in which the media underestimated the Brexit vote earlier this year.  This sense proved to be correct as both the Brexit vote and the election were a loud condemnation of the status quo.  This is  more or less what we expected.

In the wake of that, we also expected the stock market to be down dramatically and for precious metals and bonds to rally in the wake of an uncertain development and an upending of the system as we know it.  To date, this has not occurred.  Stocks sold off sharply in the pre-market hours and then closed up in the days following the election.  Presently, stocks are selling off again and demonstrating difficulty in breaking out to new highs.  Precious metals have sold off as the dollar strengthened as have bonds.  In the short term, we did not anticipate these moves but they do not change our overarching bearishness on US equities in the short term nor our bullishness in the metals longer term.  Markets can be magnificent at providing information as to the truth of an asset’s value.  Likewise, markets can be horrible at focusing on anything other than the latest item of news, in this case the headline would read “Trump Wins, Sun Still Rises.”  In short, we believe there is a strange relief in having the election over, regardless of the result,  that has bled over into short term bullishness in equities that appears difficult to sustain.

Going forward, we encourage cautious ownership of equities and the use of hedges on those positions where appropriate.  Stocks can indeed go higher but the likelihood of that was previously diminishing and having Trump as President-elect doesn’t automatically change the reality for our economy overnight.  Bonds are likely a poor investment overall as has been the case for some time.  A combination of rising rates and inflation driven by fiscal stimulus will make it more difficult to earn a reasonable return in the fixed income asset class.  Precious metals should benefit from inflationary policy and we remain owners of gold and silver in certain investment models.  What we are certain of is uncertainty.  Those that would point to the inevitable positives or negatives of Trump’s budding economic proposals are dismissing a great many variables that can impact, for better or worse, any economic policy initiative assuming that initiative can be put in place as originally conceived in the first place.  The future is more uncertain today than it was a week ago and it remains to be seen if that future is good or bad from an economic and market perspective.  As such, diversification is key.


A Paradigm Shift

Speaking somewhat more personally with respect to the election, we are grieved, not necessarily with the result or with the candidates but for what that result and this election represents. The problem isn’t Clinton or Trump; they are merely symptoms of the division that exists within our nation.  The problem is that division.  This is a disease that no politician can cure and one which the media thrives on as the schism produces fear which in turn produces ratings.  This doesn’t mean that there aren’t issues to be genuinely concerned with, but it does mean the solution is not found in the wisdom of the ubiquitous talking heads from whatever news outlet you fancy.  The enemy is our fear and the hate-filled division that fear produces.

Someone once said “love your enemy” and it strikes us that such a command has a high degree of relevance and even hope for the times in which we live.  Some of you may roll your eyes and implore us to “get back to the issues” but we believe this is the issue upon which all others rest.   If we cannot care for and have genuine empathy for those with whom we disagree and perhaps despise then we as a nation are already lost and are not worth saving.  This a good news/bad news scenario.  The good news is that we each have power and authority to love, to seek out and engage those we could otherwise deem our foe.  To seek understanding before seeking to be understood.  Each and every one of us can do this without an executive order, an act of congress or a decision from the Supreme Court.  Each of us have command of our own hearts.    The bad news is that this is really, really hard.  It grates against our pride, defies our need to be right and challenges our long-held beliefs about who the enemy is.  Dr. King said that “Hate cannot drive out hate, only love can do that.”  He knew something about hate and even more about love.  Something that we would do well to remember in the days to come.


Yours Sincerely,