The Next Four Years
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- Written by Andre Buckley
On Tuesday November 6, 2012 history was made once again in the United States presidential elections. Not only was Barack Obama reelected President of the United States of America but he was elected during a time of high unemployment, slow economic growth and congressional gridlock that stopped many of his initiatives in their tracks. Looking back over the last four years and forecasting the next four gives unique investment insight and perspective to those of us contemplating what's best for our portfolios.
Strategic or Tactical Navigation?
First term presidents will implement as much policy as possible early in their term that will not only benefit the American people but also frame their reelection campaign.
Realizing that massive gridlock would be the soup de jour served with some of the presidents tactical plans, team Obama went into high gear to secure a strategic initiative, a second term. Not that this would be communicated to the American people any more than buy and hold is communicated to investors by their advisors. Sometimes the reality of a situation calls for innovative and new. Sometimes its not sexy but extremely boring. Patience is in order. A President will never let you see him or her sweat. An investor should never trade on emotion.
Speaking, from an investment perspective eight years does not fall into the category of “long-term”. Realistically some investors no matter how long their focus and how aggressive they claim to be get very antsy at the first sign of anything suggesting volatility. So, eight years can seem like an investment lifetime. This can cause us to be strategic where we should be tactical and tactical where we should be strategic. When your tactical moves become too large or too frequent your long term strategy may be weakened. Massive health care reform legislation can prove to be legacy building or a move too large to tactically align with Washington's political landscape where compromise is everything. Only time will tell.
Defining Investment Objectives
Second term presidents obviously don’t need to worry about reelection. They are able to focus on the objectives that were not accomplished in the first term without diverting the massive resources needed for campaigning. The next four years should consist of more compromise, reaching across the aisle and positioning future leadership. Just as important is the needed discipline to adhere to party principles and not compromise sacred objectives. Disrupting this delicate balancing act can prove costly. Sometimes those on the losing end must analyze and revisit what cost them defeat. What may have worked in the past may no longer be relevant to the current environment and demographics. Some die hards may ignore this but if the objective is to win those fringe elements will be alienated.
The end of a thirty year bond rally may cause investors to become more diverse in their search for investment or retirement income. What was once a sure thing, bond yield (or white male voters) can’t be relied upon in the current investment environment, or political environment for that matter.
Broadly speaking, the political goal is to win and the investors goal is to be successful. This is too broad to be useful in any workable context. Revisiting our financial plans to explore any changes however subtle will keep us focused and on track to have a successful portfolio (or campaign). Revisiting core values, disciplines and concepts keeps us center/ right or center/left. You never know which sub-asset class will pop. Diversification is the name of the game and although Latin America may have delivered in the past, you can’t bet the farm on it. If you still feel there’s viable opportunity going forward, overweight it but stay diversified.
Never Waste a Good Crisis
Nine years into the hunt for Osama Bin Laden does not necessarily enhance your foreign policy track record. Two years into killing him does. With no military experience to speak of, President Obama fulfilled one of his campaign promises increasing his credibility as Commander in Chief. Four years after one of the greatest economic downturns in U.S. history We still have high unemployment slow economic growth and an uncertain future. At the same time, President Obama has presided over one of our strongest bull markets for almost four years. How do we spin this? Just as there is no direct correlation to the former, claiming responsibility for the latter would be a stretch too. One thing's for certain the business cycle continues. If you happen to be in the White House at it’s peak, claim victory. If your opponent happens to be resident during the trough, its all his fault, right?
Another certainty of financial life that doesn’t correlate nicely with business cycles or presidential campaigns (unless you’re a conspiracy theorist) geopolitical risk. China, the Middle East, Northern Africa or European contagion provide investment opportunities for those looking for an entry point into a market up double digits. And don’t forget domestic overhangs a la fiscal cliffs. It takes a steadfast investor to stand in the face of chaos and fear and say, “okay, where is the opportunity here?” There almost always is one.
Defining a Legacy
Revisiting the fiscal cliff narrative, it is important to understand what’s at stake not only for the American people but politics at large. This is one of those rare opportunities when faith can be restored in the American Way. I’m very confident that Democrats and Republicans will avert this crisis and start on the journey to fiscal responsibility. They both have an opportunity to shine and not shining because the other guy may catch some of the glow is a losing strategy. It is my belief that the legacy of both the Democratic and Republican parties will be shaped in these next four years for generations to come. We hope politicians have learned their lesson.
