From dogs who don’t want to be taught new tricks to
armchair gurus quoting stock market savants from over 50 years ago, the
penchant for managing investments from the standpoint of autopiloting has lost
momentum in the digitally volatile twenty first century, which presented an
often rewarding alternative, namely, to stop it! Nassim Nicholas Taleb
points out in his most recent book “Skin in the Game”, that he feels dumb if
his has no skin in the game, meaning being invested. I agree, of all the books
and videos and blogs I’ve come in contact with over the decades I gladly admit
that what risk meant at that time completely changed once I began engaging in
it for others.
Markets
I bring this up because as the markets have precipitously
dropped this week, the inclination for online declarations to buy or sell seem
more a function of auto pilot. I say this because all of the events that appear
to be influencing the widespread selling are happening collectively through
what has for many become a familiar environment, uncertainty. This is clearer
in the drop in interest rates, particularly within the US Treasury market that
is a frequent destination for capital seeking protection. In all, there isn’t
much else to say, the markets are working off an overbought condition, cash
treasury holdings are serving as a buffer, and for now patience is the best
strategy.
Economic
The biggest concern currently influencing the global
capital markets appears to be the connection between the coronavirus and the
potential for economic slowdown. This is logical, just as a hurricane such as
Sandy can shut down a large city, the outcome should be seen as much for what
is learned as for what has actually been broken or disrupted. For now, the
economic growth in the US remains on track even with some interruption in
imports from China being delayed. Likewise, as the virus spreads in Europe, the
collective economies are impacted internally as well as from China. For now, only
the economic data, as it comes out over the next few months will shed some
light on the true impact of the virus, and at that time whether Fed stimulus
will be warranted.
External Events
This is where the real challenges for the capital markets
reside. First is the ongoing spread of the corona virus and the lack of
concrete data on the state of precautions taken by countries that have more
recently been affected. In my opinion this is important in the sense that the
domestic broad indexes are looking for an end to the frustrating hesitation to
release fact, and an answer may lie in how the US is ultimately affected by the
virus and how transparently it tracks the problem. However, where uncertainty
regarding the virus starts to dissipate, uncertainty regarding the growing
probability of an ideological clash defining the upcoming presidential election
is, in many respects. of greater potential to disrupt the capital markets than
the virus. For now, no matter how favorably uncertainty can be exploited,
that’s a lot of uncertainty to swallow. And for that, it’s best to maintain
comfortable levels of cash with intention to buy, and monitoring the current
risk on the table to make sure we’re keeping an active eye on the road in front
of us, not behind.
