The markets were relatively calm in the third quarter, even though a lot took place in the world. We attempt to review the main events from global to personal.
Two major topics monopolized the press on the international front for the past several months: Brexit and Trade Wars. Prime Minister Boris Johnson has threatened to leave the European Union without a deal. The UK is scheduled to exit the European Union on October 31. Ideally, the UK and the EU will negotiate and finalize an exit strategy that doesn’t undermine the economy on the continent before that time. PM Johnson has attempted to use the prospect of a disorderly exit as leverage in their upcoming negotiations. However, Parliament passed a law requiring him to ask for an extension if no deal is reached. A no-deal Brexit would have short-term negative consequences for the economy and the markets. However, in the long-run, a new equilibrium will be established and growth should resume.
Meanwhile, President Trump upped the ante in the ongoing trade war with China. In addition to the numerous tariffs he has implemented, he is now considering limiting investment in China. The President is playing a dangerous game. Congress has started to consider taking back control of international commerce if things get too out of hand. Given that next year is an election year, tensions would typically begin to moderate as we enter the new year; however, this is not shaping up to be a normal election cycle.
While our President survived a two-year investigation into his alleged dealings with Russia and its influence on the 2016 elections, he is now allegedly trying to use the Ukraine and Australian governments to influence the 2020 elections according to new reports. While the odds of impeachment in the house have certainly risen in the past few weeks, predicting what would happen in the senate is more difficult. One Republican senator bluntly explained the President will not be removed unless public opinion turns on him. In other words, the Senate trial will not be a trial of facts, but rather perception (assuming it gets that far, which is not a sure thing). President Trump’s troubling patterns of behavior recall those of the Nixon administration, and a look at that period might be informative. When the Watergate hearings began, only 19% of American adults thought he should be removed from office. Over a year later, after impeachment inquiries and after the Supreme Court’s decision that he must submit the tapes, did 57% believe Nixon should be removed.
What are the market implications? There aren’t a lot of precedents to learn from, but I’d imagine the initial reaction to an impeachment would be negative for the markets. Attempting to forcefully remove a sitting president is, to say the least, disruptive. In the mid- to long-term, it probably won’t matter as much as we do have a presidential election next year. If President Trump is not impeached, or he is but remains in office, then the question becomes: How much did the process damage the Republican and/or Democratic parties?
While all of this might seem overwhelming to figure out from an investment perspective, it is really quite simple. Making investment decisions based on the party in charge is a fool’s errand. There has never been a time in my career where I have consciously picked a stock or changed my asset allocation because of how I thought an election would go. Our system of checks and balances have effectively limited the impact of campaign promises since the days of George Washington. Also, I would argue that external forces have far more influence on the direction of the markets than almost anything any president might attempt to do. That isn’t to say they have no influence. It is just more limited than perceived. A case in point, our economy has been remarkably resilient despite recent national turmoil.
White Pine’s news events from the last quarter have been much more straightforward and positive. First, along with several of our clients, we participated in this year’s Life Remodeled volunteer week. A quick write-up of the event can be found on our website at Life Remodeled which includes a picture of those who participated. While on the website, you might notice a “client login” button. This web portal is a convenient way for our clients to view their portfolio as well as receive secure documents. If you would like a login ID, please let us know.
On the staffing front, we’d like to introduce Irene Lind, our new part-time office assistant. The growth of our company over the past several years warrants the added help. She’ll be assisting Amy with administrative duties. Irene has a background in digital design, so she’ll also be looking for ways to improve our website and printed material. Our future staffing plans include adding a research assistant as well as another relationship manager. We hope to make announcements on these positions in the coming quarters. As many of you know, Russ has been cutting back his hours by taking most Fridays off. We believe hiring three people should just about do the trick to fill Russ’ shoes on Fridays. 😊
On a personal note, this past quarter I had the opportunity to participate in a camp for saxophone players. I used to play quite a bit in my teenage to young adult years, but I stopped playing to raise a family and start a career. In the last several years, I’ve picked it up again with a local band made up of my friends and fellow water polo parents. At camp, I found myself in a very unfamiliar position. As we all find ourselves in uncomfortable situations from time to time, I thought it would be fun to write up the story. You’ll find it below the Life Remodeled article at: August 2019.
Anthony J. DiGiovanni, CFA