This is the third trading day of the year, and we'll looking at our third geopolitical crisis. First, a cold war broke out between Saudi Arabia and Iran. Second, China's stock market rattled our stock market by rigging their market, as only an ignorant Communist could. Now, North Korea has exploded a hydrogen bomb. Futures predict the Dow will lose over 250 points at the open. Who can guess what will happen on the fourth day?
The good employment picture of the U.S. doesn't matter. Nor does our rising consumer confidence and spending. The amazing technology developments expected later this year don't matter. It also doesn't matter that the stock market normally rises in the second half of years with a presidential election. Nothing else matters when geopolitical events dominate the headlines.
So, what should an investor do? First, don't panic - this too will pass! Second, if you are losing sleep, consider selling a small part of your portfolio, just to raise your level of cash. Third, look for any unusual side-effects. For example, an increasing possibility of war normally causes the price of gold to increase, but not this time. Increased turmoil in the Middle East normally causes the price of oil to increase, but not this time. Increased fear normally causes a flight to quality or the purchase of Treasury bonds, which drives down interest rates, but that has barely happened this time, even after three geopolitical surprises in three days.
I have two thoughts on this. First, only the panicky small retail investors are fleeing the market. Large institutional investors normally don't sit on cash. They invest elsewhere. Second, there is a growing sophistication and awareness that the "safety" assets of gold, oil, and Treasuries are can also lose money. This is a good thing!
I wonder if it is possible to have 365 geopolitical flare-ups in one year?
The good employment picture of the U.S. doesn't matter. Nor does our rising consumer confidence and spending. The amazing technology developments expected later this year don't matter. It also doesn't matter that the stock market normally rises in the second half of years with a presidential election. Nothing else matters when geopolitical events dominate the headlines.
So, what should an investor do? First, don't panic - this too will pass! Second, if you are losing sleep, consider selling a small part of your portfolio, just to raise your level of cash. Third, look for any unusual side-effects. For example, an increasing possibility of war normally causes the price of gold to increase, but not this time. Increased turmoil in the Middle East normally causes the price of oil to increase, but not this time. Increased fear normally causes a flight to quality or the purchase of Treasury bonds, which drives down interest rates, but that has barely happened this time, even after three geopolitical surprises in three days.
I have two thoughts on this. First, only the panicky small retail investors are fleeing the market. Large institutional investors normally don't sit on cash. They invest elsewhere. Second, there is a growing sophistication and awareness that the "safety" assets of gold, oil, and Treasuries are can also lose money. This is a good thing!
I wonder if it is possible to have 365 geopolitical flare-ups in one year?
