As pockets of US East Coasters sit working and waiting out the nearly inevitable temporary loss of power due to Hurricane Dorian, I cannot help but partially relate this “wait” to a comment made recently by one of the Federal Reserve Bank Presidents. Back in August Robert Kaplan said the following about US trade policy and the markets,
“When you have this amount of uncertainty and this frequency of changes, my reaction as a businessperson is not to speed up – it’s actually a little bit to slow down the cadence of it and maybe take a little bit more time.”*
This line of thinking is by no means to make light of an extremely dangerous hurricane. Nor is the opinion expressed by Kaplan regarding his reaction to markets universal within Federal Reserve circles. In fact, currently there is a fair amount of disagreement among several of the Fed Bank Presidents and members of the Fed Board. Still, Mr. Kaplan’s comment can be equated to a successful long-term investor’s attitude toward decision-making – and a rational way to prepare and “wait for” a hurricane (while getting to a safe place).
The US trade policy “storm” has left the world markets in a state of uncertainty with BIG market moves both up and down, as evidenced by the huge intra-day volatility in markets over 2019 and as recently as 4 weeks ago. These moves (outlined in the Aug. 16 edition of TGIF 2 Minutes) have led to confusion regarding the likelihood or not of a US recession and the destination of global short- and long-term interest rates.
In the midst of the US trade policy uncertainty, the Federal Reserve considers itself somewhat powerless to “solve” this particular uncertainty using their primary tool of setting the level of inter-bank lending rates. This tool is meant to affect elements like inflation and levels of US employment/unemployment…not necessarily trade and tariff wars (which can be storm-like).
These can be excellent thoughts to keep in mind as trade and tariff policies take shape – and take shape again:
- These are partly uncharted waters for the markets (given the present size of US and Chinese economies vs. the World)
- The Federal Reserve is not the “100% solution” – it remains to be seen who and what will most affect the outcome of world trade
- Asset Allocation in a portfolio is the primary determinant of returns
- Knowing the time frame for each of your goals is key – some goals are short-term and others are longer-term ….and require a wait to be achieved.