Sculpting Fog?

Author: David R. Kotok, Post Date: September 6, 2018

On Wednesday morning POLITICO’s Morning Money shared this quote from Bob Woodward’s new book, Fear, and opined on Trump’s intentions in the trade arena:

“I can stop this,” Cohn reportedly said. “I’ll just take the paper off his desk.”

Trump apparently never noticed. Still, those anecdotes – while not the most explosive tidbits in Woodward’s reporting – underscore the president’s level of seriousness in wanting to rip up trade deals as Canada negotiates with the administration on a new NAFTA. Trade tensions with China are also poised to heighten further as the administration prepares to put new tariffs on another $200 billion in Chinese goods. Strap in for a bumpy ride.


When there is fog, a portfolio manager’s work gets hard

On Tuesday George Friedman weighed in with the following remarks on the significance of US trade relationships in a piece on the Geopolitical Futures site entitled “America’s Global Engagement”:

Take the renegotiation of NAFTA, for example. The United States is involved in discussions with Mexico and Canada over the future of continental trade. Lest this be regarded as a trivial relationship, the total population of North America is about 500 million, roughly the same as the European Union. The combined gross domestic product of these three countries is roughly that of the combined GDP of EU members. So the redefinition of this trade relationship is as complex and difficult as such a negotiation would be in Europe.


Finally, here’s a link to an excellent discussion of the secondary effects of the US-China trade war on global finance and the International Monetary Fund. This paper from the Petersen Institute warrants careful reading.

Let’s close with this investment notion: Portfolio management is a business of assessing risks, making estimates, admitting what you don’t know, and trying to be early on when you don’t know it. Markets generally look forward and discount the future.

I was asked a question along just these lines by Ramy Inocencio and Haidi Stroud-Watts on Bloomberg Daybreak: Australia the other day. You can watch here:

When there is fog, a portfolio manager’s work gets hard. The safe route is to slow down and recognize there are perils that are not visible. The other way is to try to sculpt the fog and plunge ahead. You may win – or you may hit a rock and sink the ship.

We are not fully invested. We have a cash reserve. Bonds are barbells, not bullets. Sculpting fog doesn’t work in the real world.

David R. Kotok
Chairman and Chief Investment Officer
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