Blog

When Reality TV Becomes Reality

Ron Albahary, CFA, Chief Investment Officer

Early this morning, Donald J. Trump became the President-elect, surprising markets, investors and citizens around the world. If you are trying to put some rational framework on this outcome, I ask you to reread my latest commentary-“Turning the Page”-which highlights the Fourth Turning concept, which resonated with me in light of the populist trends emerging across the developed world. While it does not provide answers for the potential consequences of such a seismic change in our leadership, the framework can help make some sense of a highly polarizing and emotionally charged outcome.

At press time, U.S. equity markets seem to have stabilized from the precipitous drop in the futures markets in the early hours of the morning. Already, we have seen some wide swings, making our call of more volatility globally look like a fait accompli given the surprise and uncertainty of a Trump presidency. With that said, I do believe in the checks and balances our Founding Fathers built into our governance system and that after a period of adjustment (and, for many, mourning), citizens, policymakers, corporations and investors will recalibrate their lenses to focus on the new reality and adjust accordingly.

From an investment perspective, our gradual risk reduction and conservative positioning should serve us well. And, for those clients with significant cash balances for risk management purposes, we should see plenty of volatility in the weeks and months to follow providing opportunities to build positions in risk assets if they present themselves. With that said, any decision to increase exposures to risk assets needs to be evaluated within the context of personal circumstances, global macro and geopolitical events, and the transition to and action within the first 100 days of the new administration. The latter should provide us with many more data points to develop a mosaic related to the economic and market implications that could ensue.

How D.C. functions beyond today is impossible to predict. To me, this change represents the tearing down of the establishment that comes in every Fourth Turning, according to Howe and Strauss’ theory[1]. Will the social and political strife worsen? Perhaps and likely. Can they get better? Well, after every Fourth Turning, history has shown that a golden age ensues in the form of a new First Turning. You know me as the one who evaluates the types, scope and probability of left tail (i.e. worst case) risks and I expect there will be many others adopting and expressing that mindset with this change. So, as you have read many times in this column, when the left tail beckons, we are compelled to challenge ourselves to outline possible positive case scenarios that could develop as extreme perspectives are not typically successful in portfolio management.

If the new President pivots to a collaborative and inclusive approach designed to unify, surrounds himself with capable people, listens to them and engages Congress in productive measures designed to address the many socioeconomic issues plaguing our country, we can only hope the First Turning comes quickly. That rosy scenario may seem like a long-shot, but is possible and worth incorporating into the mosaic until more actions are available to evaluate.

As President Obama said during the early portion of Election Day: “The sun will rise in the morning.”[2] regardless of the outcome. Our Republic has weathered many Presidents (good and bad ones), social, political and economic storms and has proven its resilience time and time again. Our great country will get through this. As always, your Threshold Group advisor team is at your service to help you work through your questions and concerns.

[1]“Strauss–Howe Generational Theory”, https://en.wikipedia.org/wiki/Strauss%E2%80%93Howe_generational_theory
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2] http://www.cnn.com/videos/politics/2016/11/09/president-obama-election-night-message-jnd-orig-vstan.cnn

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