In a letter regarding the potential permanency of the new US constitution, Benjamin Franklin famously said that “in this world nothing can be said to be certain except death and taxes.” As investors, we deal with the reality of uncertainty every day and have to decide how much we want to expose our portfolios to these uncertainties. Equally however, one of the realities we face today is that, with interest rates so low, traditionally “safer” investments like cash and Government bonds carry the risk that their returns do not keep pace with inflation. We call this purchasing power risk, and over longer term horizons it is the reason many investors including major pension funds and endowments chose to accept the uncertainty of investing in more volatile investments such as stocks. In our opinion, investors who focus on a timeframe of five years or more can reduce the risk of losing money in stocks, potentially allowing them to participate in the possibility of higher returns.
That is the introduction and this issue becomes quite interesting. I think subscribers will gain perspective from the two historic graphs.
My own view remain cautious. Furthermore, if Wall Street cannot rebound next week following a Clinton victory, the risk of a medium-term correction increases. Moreover, if Trump manages to win that correction, at minimum, becomes a racing certainty and probably turns into a cyclical bear market
Nevertheless, the two important graphs in The Weekly View do not suggest to me that a market collapse is likely. Additionally, on a five year horizon, I think Wall Street and most other stock markets will be higher but probably on lower valuations, having emerged from a choppy period including a cyclical bear market, during the normalisation of interest rates.
Here is a PDF of The Weekly View.Back to top