The Dow Jones is down more than 1,300 points this morning. This is no time to panic.
Hello, my name’s Paul Carroll. I’m the CEO and founder of Efficient Wealth Management, a boutique wealth management firm in South Texas.
The first thing to keep in mind when we see the news is points and percent are not the same. The media is all about advertising. It’s about fear, and fear I define as false evidence appears real.
Yes, the Dow is down 2% today, 3% on Monday. That sounds so much less painful than 1,300 points. We do have an inverted yield curve. I’m sure everybody’s heard about that, and all that means is that we’re probably going to get a recession. We’re probably going to get an earnings recession. This is not going to be a 2008 meltdown, and that fact is very much evidenced by the strong showing of the bond markets.
In 2008, bonds collapsed. In this recession, or prelude to a recession, bonds are firming up. In fact the short term bonds have gone up higher than the five year bonds. That is an inverted yield curve, but the value of the bonds even at the long end have strengthened. So we know this is not a financial meltdown. The markets are speaking loudly that they’re concerned about the loss of trust in the global trading system. They’re concerned about the oil markets. They’re concerned about the fact that the economy of most of the west has been on a tear for 10 years straight with just a few short hiccups.
The biggest risk to the United States right now is not one that will be felt immediately. The biggest risk is with the loss of trust in the trading system, that the dollar dominance will lose, and we’ll lose the seigniorage, the benefit of having interest free loans because all the other countries use our currency. That risk is not great, but it is real. If the energy market switched to the Euro, that would hurt us over the long term, but this is not the same risk as a meltdown. And it’s certainly not the risk that the United Kingdom is facing with a hard Brexit.
The United Kingdom hard Brexit is effecting international markets. Slowly but surely the pound is freezing. It’s a great lesson in what the markets think of putting up trade walls, and they are not impressed.
We’re going to get through this. It’s not time to panic. In January, it’s going to be a fantastic time to rebalance, reposition. Meanwhile, we’ve been taking care of our clients by limiting their exposure to risk, diversifying as much as possible, and it’s a storm. We’ve going to point the bow of the boat into the waves and get through this safely. We’ll come out the other side.
We wish you the best of investment success. Thank you.