Over the weekend, the Chinese central bank cut the required reserve rate for some local banks by 0.50%. Ordinarily, this would be taken as a net positive for various risk assets. However, like many things… it depends upon the context. Context helps us determine whether an action/ policy is appropriate or inappropriate. In today’s marketplace, where rising nationalism/ protectionist policy is the new normal, a seemingly pro-growth move from the PBOC (People’s Bank of China) can be interpreted as a move to safeguard national interests rather than a means to promote global economic activity. The paths of global economies are beginning to diverge as nationalism waxes and synchronized global growth wanes. So, when is a required reserve rate (RRR) cut from the Chinese central bank a bad thing for global growth? It all depends on the context, so let's topically assess today's investment climate.
It may seem unreasonable to wear your emotions in the text of your Twitter account and it may seem entitled to encroach on disputed Pacific islands and run inordinate trade surpluses. It may seem strange that so many countries are actively or passively involved in Syria and what are Italian bonds telling us about the prospects of the new government in Rome? What if Italy leaves the EU, too? Of course, it seemed unthinkable that Great Britain would vote in favor of leaving the European Union in the summer of 2016. I just wonder what the acronym will be for an Italian exit. Then, lest we forget, there are the Russians. The list goes on, but you get the idea. We live in uncertain times, and while market volatility was depressed for much of 2017, risk cannot be eliminated. Risk simply changes form over time; it just trades places.
During times of uncertainty, it is most valuable to know what not to do. To put it another way, there is no preset prescription or guide because we don’t know what the malady might be or where the path might ultimately lead. We can, however, objectively assess data, headlines, et cetera and adapt. Only then do we plot our course because the path does make “all the difference.” Whether you are Billy Ray Valentine, Louis Winthorpe III, Robert Frost, or Stephen Hawking paths do matter and decisions have weight. The worst thing to do is anchor onto what has occurred in the past as a panacea for the future. There is uniqueness to each investment environment and outcome- managing risk is the key to long term success.
Market Outlook: Bullish USD, Bearish Duration, Neutral Equities