Anticipation
Just two more weeks until Christmas!
This is the point where children’s anticipation of Christmas presents really begins to grow. The Christmas tree is likely up and lit. They have been asked what they would like to receive for Christmas gifts, and their list likely exceeds any rational budget.
Inevitably, some Christmas gifts will be a hit while others will be underappreciated. A few may even be returned.
Right now the financial markets are also in anticipation mode. Traders believe the new administration that begins in January will be generous. Their wish list includes less bureaucratic red tape, lower taxes, and lower interest rates.
While they may receive some of their wish list in the new year, there is also the distinct possibility traders may receive some “gifts” they may not appreciate.
The new administration is likely to be less predictable than the current administration. The governing style is likely to be more haphazard with plenty of posturing, bringing an uneasy underlying market tension built on uncertainty.
Businesses may be forced to navigate a labyrinth of tariffs that could either disrupt the supply chains they just successfully rebuilt after COVID or provide a nasty increase in costs that either must be passed along to customers or subtracted from profits. Many are filling their stockings now to hedge this risk.
If the pendulum swings too far against immigration, employers may find themselves without enough qualified employees to stay in business. Based on Americans’ continued hesitancy to have children, we need a healthy and efficient legal immigration program in addition to productivity gains to sustain our position as a global economic powerhouse.
Inflation is proving stickier than anticipated which could minimize future interest rate reductions. Now that the Federal Reserve believes they are close to getting the inflation genie back in the bottle, they will likely be extra diligent to ensure it does not slip through their grasp. This could result in higher interest rates for longer.
The new administration seems to have little appetite for tackling the elephant in the room – our $36,000,000,000,000 federal debt to which we are adding $2,000,000,000,000 per year. Ignoring the snappily-named marketing gimmick called the Department of Government Efficiency (DOGE), the reality is that a combination of entitlement spending (Social Security, Medicare, Medicaid) and likely tax policy extensions will result in significantly more debt in the coming years. This could lead to higher long-term interest rates that drive up borrowing costs from mortgages to corporate bonds.
Children’s unfiltered reactions to Christmas gifts let you know immediately the emotions they are experiencing – everything from elation to acceptance to disappointment. One of the keys for successful long-term investing is to be less child-like when opening the gifts we receive from the markets – whether appreciated or underappreciated.
We look forward to the successful conclusion of 2024 and all of the anticipated and unanticipated possibilities of 2025 with the realistic expectation that not everything will go as planned.
Quote of the week: Howard Marks: “Experience is what you got when you didn’t get what you wanted.”