Investing can be nerve wracking for most people. If you watch TV, you probably think it is as simple as buying an ETF and forgetting about it until you need the money 25 years from now. All I have to say to that strategy is, “Good Luck!” or even better, “Take care of the luck, if you have any…”
This investing environment is and will continue to be overwhelming for the foreseeable future. Oh the excitement of trade wars, massive mergers, rising interest rates, commodity inflation, and currency fluctuations. You probably only marginally care about these things on an individual basis, or you may not care about them at all. If you are in either camp, this blog is for you.
I am writing this to inform you of what you don’t know and don’t care about; more importantly, I am writing this so you only have to spend 5 minutes getting up to speed on the things you SHOULD care about. Relying on the luck that you may or may not have is not a sound investing philosophy!
So here is the quick and dirty on all of the things that you probably don’t really care about, but should.
TRADE WARS: This is way overblown. The media loves to talk about drama, and this classifies as drama. The bottom line is that we are moving into a “trade status quo environment,” per Jeff Saut, Raymond James. Ultimately, most of the noise associated with this is posturing. The US, China, and the EU all lose if this policy becomes the long-term norm. That being said, tariffs have been commonplace for decades, and the US is simply restructuring how it approaches trade. Open and free trade is ideal for stocks, but we haven’t seen true free trade since the beginning of time.
Final thought: The US has the leverage, and the world will more or less fall in line on trade; they just don’t want the optics of falling in line.
MASSIVE MERGERS: These mergers will continue to streamline and consolidate the delivery of content and unify pricing. As long as there are a few large competitors in each sector, we don’t need to worry about monopolies. Deals ranging from Disney to Amazon, will likely result in more customizable and streamlined options for consumers.
Final thought: This isn’t an antitrust problem at all; rather, it is an opportunity for investors to bank on scalability and pricing power.
RISING INTEREST RATES: It’s about time we saw decent savings rates. For the record, I am using the term, “decent,” loosely. Frankly, the Fed needs to maintain predictability and provide clear guidance. Even though we are still well below long-term rates across the entire yield curve, our relative positioning to the rest of the world provides a compelling investment for the risk averse investor.
Final thought: As long as the Fed remains mindful of inverting the yield curve, rising rates should not harm the economy.
COMMODITY INFLATION: Oil higher, other stuff, not so much. Oil is going through an identity crisis at the moment. We love oil, then we hate oil. We have an oversupply, then we don’t. OPEC is a mess, but at least they are pretending to have a unified front. The vast majority of consumables and nonenergy related commodities are actually cheap. If you get all of your information from the news, you did not know this.
Final thought: Commodities either helped you or crushed you during the first half of this year – if you don’t pay attention to the minutia, you need to get out of Dodge.
CURRENCY FLUCTUATION: This is directly related to all of the other stuff you have previously read about here. Currencies go up and down constantly. If you are like me, and you love to travel, you need to pay attention to these moves. They are normally intermediate to long term trends, and if you play your cards right, you can travel like a champ. Central bank policy is not particularly fluid, and you can take advantage of this. Policies converge and diverge depending on purely selfish reasons. This is the original trade war tool. Today, the dollar is strong and getting stronger. At the same time, the pound and the euro are in limbo, but much stronger than they were a couple of years ago. The renminbi is weak, but not necessarily unfairly weak. The strong dollar thesis should remain intact for the near term, and I expect the EU and periphery currencies to modestly weaken as their central banks haven’t figured out which way is up.
Final thought: Same thing commodities, same thing currencies!!! If you aren’t absolutely on top of policy, don’t dabble in currency trading; rather, focus on core investments.
“Why did I just read this?”
Great question! You read this because relying on luck is not a sound investment philosophy, and you obviously care more than you thought you did! Moreover, you just got all the goods in 5 minutes! As Bubba Watson would say, “You’re welcome!”
Required Disclosure:
Any opinions are those of the author and not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice.