Sunday, November 13, 2016

Finding Opportunity and Threat in Post-Election Markets

It's all too easy to see things through the lenses of our own preferences, positions, and emotions.  This is particularly the case in the wake of the recent election.  Few people have neutral reactions to the outcome, and few have neutral views as to the implications for the economy and financial markets.

There is a fair amount of talk about a big economic stimulus package to be launched by the new administration.  There is also observation that many of the people on the transition team are of a conservative leaning that normally tends to avoid government debt and spending.  How this might play out could have important implications for the economy and for monetary policy.  My base case is that we get a large stimulus packaged as a jobs-and-infrastructure-building initiative that could pay for itself with increased growth.  I'm skeptical of that latter part, which means that we could see not only rising inflation from fiscal stimulus, but also stagflation.

The important point is that we don't really know at this moment and the best we can do is make ourselves aware of various potential outcomes and continually update the odds of those occurring.  This is why I'll be watching interest rates, the U.S. dollar, commodities, and stocks very closely.  I'll be viewing those in relative terms--as they compare with rates, currencies, and equities globally.  I want to view the world through multiple lenses to best handicap the likelihood of growth versus stagnation, disinflation versus inflation.  Those outcomes will depend upon policies and developments overseas, not just in the U.S.  After all, despite our hyperfocus on the recent election, perhaps 2017 will not about the U.S.; perhaps it will be more about China or geopolitical turmoil in the Middle East.  Perhaps it won't be about bull or bear markets, but volatile ones.

It takes an open mind and flexible perception to not become too locked into one way of viewing the world.  Looking at multiple markets in multiple regions, in relative as well as outright terms, helps us change our lenses and perceive fresh opportunity--and threat.  I encourage readers to check out my latest post on how we can approach the world more creatively.  There is a three-step process that we can actually practice and cultivate that enables us to see opportunities and threats that others miss.  Adapting to changing markets starts with asking the right questions and making ourselves open to a variety of possible answers.  

Ultimately, the best way to see the right thing in markets is to begin by seeing many things.

Further Reading:  How to Cultivate Our Creativity