We’d like to share some comments on the upcoming U.S. Presidential Election—and the continuing effects of the current pandemic. It is so easy to get stirred up by the media that focuses only on the current and short-term view (which let’s face it has been rather dismal lately), and totally miss the long view. Calmer heads are looking past these short-term uncertainties however, and they are seeing opportunities for positive change in a variety of ways.
We don’t profess to be experts in U.S. politics, so we won’t be calling the election here. The fact is anything could happen on that front with a highly divisive country there at present. It seems that historically the largest shifts in social change are always accompanied by unrest and the suffering of a great many people. This makes me extremely uncomfortable to say the least, but from your investment’s standpoint, it is somewhat irrelevant.
The important factors impacting your investments are these:
- A huge amount of fiscal stimulus has been pumped into the economies of the world. This has helped businesses to continue and individuals to not only pay their bills, but to put aside a record level of savings. Once the pandemic is over, much of this money is very likely to flow back into consumption. There is pent up demand in the system as people have put off some purchases until they feel safer (aren’t you looking forward to travelling again?)
- Interest rates are at all time lows, and likely to remain low for the foreseeable future. Low rates help businesses to expand, as well as encourages consumers to borrow. Our current hot housing market is an example. Governments will have some large debts to carry, so keeping rates lower for longer will likely be a priority.
- A secondary effect of low interest rates is that investors, especially retirees, can no longer afford to settle for low paying cash equivalents. With life spans increasing people cannot afford to get less than 1% on their savings. They will run out of money. The only way to keep up will be to invest in stocks, which is supportive of the market as a whole.
- Innovation is sped up in times of challenge. We are hearing more and more about innovations in areas like medicine, technology, social change and environmental priorities, both by countries and consumers. If nothing else these times have made us as individuals, businesses and countries reassess the best ways forward. Professional money managers are well aware of these shifts and are positioning to find the best in class of the companies to invest in for the future.
- Money is moving into environmentally supportive companies. This is partly a technological innovation story, but also an awakening from corporations that they need to change. If they don’t diversify away from ‘bad’ practices they will not be here at all in the future. Companies are recognizing that if they don’t do this shift on their own, they will eventually be forced to by government regulation – and that will have to happen much more quickly than if they get a lot of this change done on their own now.
- There is a whole world of quality companies to invest in out there, not just the United States. Most U.S. based companies are actually international in their scope. Their strength is not dependent on just the U.S. economy, although the U.S. economy is surprisingly resilient.
Short-term, we can hope for a good resolution south of the border (whichever side you are on), and we know that this pandemic will pass. We can also hope that positive social change will help those that require more support. Neither issue has much effect on your investments, however.
What we can take to heart is that the capitalist system (although far from perfect) is working on many fronts to make our lives better. In fact, you as an investor in companies are helping to provide a great many jobs for people; and a good chunk of the innovation I referred to above is funded by companies you support by investing in them. So, try not to feel weighed down by what is happening this fall. Look to a brighter future!