Donald Trump’s unexpected victory in the U.S. presidential elections was another resounding expression of the phenomenon which we described as The Revenge of the Precariat over Davos Man in our July post Brexit commentary.
This paper analyzes situations where momentum can be either a significant tailwind or exacerbate risks and undermine portfolio diversification. The Special Report looks at historical data and focuses on four key points.
At our just concluded 20th anniversary FIS investment conference in Philadelphia, we were privileged to have a guest speaker Professor Vivek Wadhwa. Prof. Wadhwa is an entrepreneur, author, and researcher at Carnegie Mellon University focused on the implications of the present revolutions in various aspects of technological innovation. In his entertaining and insightful address, Prof. Wadhwa profiled the radical advances and efficiencies in basic health care that are expected to dramatically drive down the costs of basic health care worldwide.1 These include technologies that are already available such as EKGs, glucose tests, HIV, syphilis, eye exams, and more from affordable smartphone assisted devices. On the market in India, but still yet to be deployed elsewhere, is the Swasthya Slate, a health tablet that can be used by any literate nurse to run dozens of diagnostic tests for pennies on the dollar that used to require hundreds if not thousands of dollars each and require long journeys to specific health facilities and onsite laboratories. Together with the myriad of other innovations including telemedicine and others is the prospect of substantially more affordable levels of basic health care for billions of consumers worldwide.
Last night’s Brexit vote reiterated just how out of touch financial and political elites in the UK are with the mass population. Fears of similar class polarization now cast their gaze on the recent rise of similar isolationist political movements elsewhere in Europe and the US with newfound gravity. While the short and intermediate impact could tip the UK into a recession, the most likely second order effect will be to hike premiums demanded for European risk assets under fear of rising Euroscepticism. Euro area capital investment, which had just begun to show some sign of life would likely be also be discouraged by exit risk uncertainty. US stocks will probably act as a safe haven for equity investors due to the safety of the dollar, a lower likelihood of US rate hikes and the prospect that earnings will fall less than in other economies. Additionally, exports to the UK and the Eurozone account for only 0.4% and 1.6% of US GDP respectively and the US dollar has risen by only 1.4% against the euro. That’s not going to make a huge difference on its own, though we have to expect a serious drop in business and consumer confidence across Europe, so demand for US exports (14% of total US exports) will fall. Absent aggressive BOJ action, yen strength will continue to challenge Japanese equities. Emerging markets may end up benefiting from a gentler pace of rate rises by the Fed, but they could suffer if the dollar continues to climb.