“Sign, sign, everywhere a sign… Blockin’ out the scenery, breakin’ my mind… Do this, don’t do that, can’t you read the sign?”
The year was 1971, and the little known Canadian group Five Man Electrical Band released their one and only hit. The song was a typical anti-establishment paean, but the chorus lyrics above resonate almost a half-century later.
To be honest, the past couple of months have been extremely difficult for those of us in the investment advisory world. Markets deal with uncertainty on a regular basis. But these periods of non-clarity usually last for weeks, if not months. We’re now in a pattern of near-daily back and forth due to Twitter feeds and subsequent constant news reporting. Here are some examples from the last thirty days alone:
1.) Treasury Secretary Steven Mnuchin “hoped that the latest talks would seal a US-China trade deal” on 29 April (quote courtesy of Reuters). On 9 May, the New York Times reported that the two countries were nearing a trade deal that would lift all tariffs. On the very next day, CNBC aired an interview from Mnuchin where he stated that “no more China trade talks were planned as of now”. President Trump also tweeted that day that there was “absolutely no rush” on reaching an agreement with China. Yes, perhaps this is posturing and deal-making protocol. However, markets are on a hair trigger reacting to every bit of news, and that’s problematic for advisors seeking direction. Wall Street would doubtless react unfavorably if no deal were reached due to adverse tariff effects. On the contrary, pundits have opined that a trade deal would spur the market higher. Which way do we turn?
2.) On 4 May, two months after the Hanoi summit between President Trump and North Korean leader Kim Jung-Un, Pyongyang fired a new type of solid-fuel short range ballistic missile and tested two separate multiple rocket launch systems. Any hope that the test was a one-time affair evaporated just five days later when North Korea again launched several of the short-range missiles. On 24 May, US National Security Adviser John Bolton stated (via USA Today quote) that the above tests were a violation of United Nations Security Council resolutions. At 9:32 PM on 25 May, President Trump tweeted “North Korea fired off some small weapons, which disturbed some of my people, but not me. I have confidence that Chairman Kim will keep his promise to me, & also smiled when he called Swampman Joe Biden a low IQ individual, & worse. Perhaps that’s sending me a signal?” Signs, signs, everywhere signs.
3.) As of the middle of May, Iran is now an official threat to the United States. On 19 May, President Trump tweeted “If Iran wants to fight, that will be the official end of Iran”… “Never threaten the United States again.” In a response to Trump on the same day, Major-General Hossein Salami, commander of Iran’s Islamic Revolution Guard Corps, said that “Iran is not looking for any kind of war, but is fully prepared to defend itself.” There have been few specifics on what the actual threat is all about, but the US has committed additional troops to the region and also agreed to sell over eight billion dollars of arms to Saudi Arabia and the United Arab Emirates. Stay tuned.
4.) The rhetoric over the potential of impeachment of President Trump has been going on for a while, but May saw new escalation. During the late winter, House Speaker Nancy Pelosi said that impeaching the President was “just not worth it.” Pelosi has been rather consistent in her quotes about not favoring this tactic. However, on 22 May, she stated (quote courtesy of Fox News from an address at the Center of American Progress) “the fact is, in plain sight, in the public domain, this president is obstructing justice and he’s engaged in a cover-up. And that could be an impeachable offense.” Two days later, she suggested that Trump (quote from USA Today) “is crying out for impeachment, and that’s closer to the truth. It would be the ultimate way to portray himself as a victim.” The prospect of impeachment is perhaps the most divisive of all disputed topics.
Do this… do that… can’t you read the signs? Believe me, I’m reading a lot (hence the research in this missive from many sources). But all of my work isn’t leading me in any direction that could unlock the clouds of opacity surrounding the markets. Therefore, the natural reaction is (and should be) to do nothing as far as macro portfolio changes are concerned. The four topics listed above all have significant market effects, depending on how they are settled. I’m not smart or brave enough at this juncture to be confident how any of them will turn out. Hopefully, we’ll be able to get some clarity soon. Hang in there.
Thanks as always for your continued trust and support. Your advisory team of Kelley, RC, and I are here to answer any questions that you might have There’s obviously a lot to discuss. I simply wish that we could give you more substantive answers.
|The opinions expressed in this letter are those of William Schiffman and should not be construed as specific investment advice. All information is believed to be from reliable sources; however, no representation is made to its completeness or accuracy. All economic and performance information is historical and not indicative of future results. Diversification cannot assure a profit or guarantee against a loss. The S&P 500 Index is a broad based unmanaged index of 500 stocks, which is widely recognized as representative of the equity market in general. Indices are unmanaged and do not incur fees. One cannot directly invest in an index.
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