At the beginning of the year we wrote a Perspective on “What to Expect in 2016 (and Beyond).” There were several expectations of which many were not likely to play out until later in the year. For example, our views on commodities staying flat were based on dollar strength and China not beginning its full-fledged fiscal response to its growth until later this year. Dollar weakness and the steps China has taken already have pushed the timing up with gold being the poster child for this change along with the major industrial commodities. Stay tuned on this one. This could be temporary.
It is our plan to comment in “Outside the Boxes” on various of these expectations as differences unfold along with a complete review at mid-year. Below, is the first of these reviews.
This update, having to do with the Presidential race, was in our “…cocktail conversations…” section along with an earthquake prediction and a view on dietary habits and their impact on historically defensive stocks. While this would ordinarily be a part of cocktail hour, it is my view that what is happening in our electorate as witnessed by the Trump phenomenon, could reinforce elements of volatility and dispersion in the investment markets, particularly in a slow growth environment. The thoughts reference the markets, but also raise some questions about the 230-year experiment this country has been having with democracy.
The blog starts with a reprise of what we said at the beginning of the year followed by the “update.”
Worth paying attention.
The January 2016 Reprise
The May 2016 Update
“I’m sentimental, if you know what I mean,
I love the country, but I can’t stand the scene.
And I’m neither left or right,
I’m just staying home tonight,
Getting lost in that hopeless little screen.
…I’m still holding up,
This little wild bouquet,
Democracy is coming to the USA.”
Democracy lyrics © Sony/ATV Music Publishing LLC
The Winning Ticket
It certainly looks like it will be Trump and somebody on the Republican ticket. It is still critical for the ticket to have the highest odds of winning Ohio and Florida. One would think that a reconciliation with Kasich would have been the answer. Hillary Clinton, the presumptive Democratic candidate, has to consider a similar logic. While history suggests that Vice Presidential candidates are selected more for their contribution subsequent to the election, this year could be different. It has certainly been a different primary season.
Democracy: Head, Heart or Gut
I started this update with the lines from one of Leonard Cohen’s many great songs, “Democracy.”
These thoughts express my sentiments pretty precisely. This may be one of the most democratic elections we have had in a long time. The constituencies have been motivated by non-establishment candidates on both sides to vote as they feel in terms of their innate fears and beliefs coming from the gut and the heart. This is in contrast to the more “enlightened” fears that would come from the head, calling for preservation of the system. This is what, historically, has been presented by the “Establishment.”
There have always been differences in the views between the two major parties of what really is important in the system, but the outcomes have been conventional and, ultimately, supportive of global commerce, finance, and an expanding role of government. In this election, the anti-establishment elements may end up determining what will appear to be a different path. Although, I would expect that the ultimate differences will not be long-lasting.
The historical evidence suggests this uncontrolled versus enlightened democracy was not envisioned by the forefathers of this 230 year experiment. Democracy in its raw form is coming to the USA.
Nevertheless, the uncertainty that may come out of the conventions and then, the election outcome, combined with what will be a slow growth period globally will likely lead to continued volatility and wider dispersion in financial and investment results. This does require a fresh look at allocations and investment strategies for the near-term as well as the next several years.