This is certainly an interesting time to be a value investor. I’m saying that because as an investor I’m obsessed by looking out at the horizon and identifying the oncoming downside investment risks. At this period in time it’s particularly difficult to quantify those risks to portfolio performance.
Aside From the Obvious Sources of Uncertainty
The most significant downside investment risks are known. Risks such as: bond yields, the EU economy, Brexit, oil prices, inflation, and the Chinese economy. Once those risks are mitigated for there is another. Another risk for which the best minds in the investment world cannot seem to apply the usual calculus. The epicentre of the risk and an increasingly large cone of uncertainty is January 20th, the inauguration of President Trump.
Most probably there will be a profound ideological pivot in government and how government executes its policies. This pivot will affect corporate earnings and be a source of market volatility.
Case in point. Companies such as Ford have already started delaying or cancelling capital expenditures. In Ford’s case, the company scrapped a $1.6 billion car plant in Mexico. The cancellation was coincident with threats from the incoming President of a border tax for imported cars.
That follows one of many instances where the President Elect has moved markets. Most notably, in December Lockheed Martin’s stock dropped almost 3% in premarket on a tweet regarding the costs of the F-35 stealth fighter program.
Way Forward Readings
The repercussions from the new administration’s policy and regulatory changes and how these changes interact in the financial markets are unknown.
So investment-wise, I’m in a bit of a holding pattern; awaiting policy initiatives that will decrease the uncertainty/increase clarity. Therefore there is no significant change to my post- summer assessment and action plan.
While I wait, as usual, I’m doing lots of reading that informs how I see the investing environment. The readings are from a variety of respected sources. Here are a few of them:
Joseph Stiglitz, Project Syndicate
Bill Gross, Janis Capital Group, January 2017
IMF, Dec 2017
IMF, Jan 2017
Financial Post, Dec 2016
David Wessel, Brookings Institute, Jan 2017
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