If needed...

Aug 01, 2019 | Megan Christensen


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Failing to plan is planning to fail.

So the Fed cut rates 25 bps for the first time since the 2008 financial crisis and has left the door open for further cuts if needed, eh?

With all of the strong economic data coming out of the US, i.e. job/labour market numbers, consumer spending reports, etc., recently, arguments can be made that this rate cut wasn’t, in fact, needed at all.

The global political economic scene is fraught with potential issues, yes, but expending 20 per cent of your arsenal before those issues materialize will not stop them from coming to a head, it simply leaves the Fed in a weaker defensive position if/when they do.

Regardless, what is done is done, and there’s diddly that you, Nick or I can do, other than accept it and trim our sails (sorry, I’m a sailor who’s been landlocked far too long).

However…

…as the above charts illustrate markets did not respond particularly well to the news that the Fed will continue to sustain the longest Bull Run in history. The Dow was down 333.75 points, the S&P500 down 32.80 and the NASDAQ down 86.46, to close the day.

Trump will likely point to this and say something like: “If they’d cut by half a percent like I said...” or “HUGE mistake not cutting as much as I told them to.” This is akin to a kid complaining that they got an Android tablet as opposed to the latest iPad at Christmas, but I digress. We’ll see how this shakes out in the coming days and weeks.

While considering this move, my mind kept going back to off-shore racing (again with the sailing…I really need to get out on the water).

Before the first tie-line slips and you’re on your way out to the course, hours—more like years—of practice, prepping and planning have been invested.

Come the wee hours of race day morning, all provisions and gear has already been stowed, all ‘fair winds and following seas,’ have been said by family and friends, and all hands are on deck.

The race is on.

The sheets and guylines that trim the foresails are run; the waypoints are set in the NAV system; you’ve got your foulies (a.k.a. rain gear) on, and the storm jib is strapped to the deck, because you know that every movement counts and failing to plan is planning to fail.

This is what the central bankers think they're doing, or at least it's their justification for the cut this time around, but keep in mind, that this isn't an in harbour, "around-the-cans" race. Surviving increasingly volatile markets is like competing in the Vendée Globe (solo circumnavigation) or at best the (fully crewed) Volvo Ocean Race. Its about endurance and always keep something in your tank.

With fixed income yields dropping, and overbought equities trading at astronomical valuations, how does one position themselves given current conditions?

Questions, concerns, comments and feedback are always welcomed; shoot us an email and let’s get a conversation going.

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