I wrote the following to our clients the morning after the election, but thought it was worth sharing more broadly here:
All,
Last night and this morning as I watched and thought about the election results, I was reminded of a Chinese parable from the second century BCE.
Here is the translation of the fable from wiktionary:
It can be difficult to foresee the twists and turns which compel misfortune to beget fortune, and vice versa.
There once was a (father), skilled in divination, who lived close to the frontier (with his son). One of his horses accidentally strayed into the lands of the Xiongnu, so everyone consoled him.
(But) the father said, “Why should I hastily (conclude) that this is not fortunate?”
After several months, the horse came back from the land of the Xiongnu, accompanied by another fine horse, so everyone congratulated him.
(But) the father said, “Why should I hastily (conclude) that this can not be unfortunate?”
His family had a wealth of fine horses, and his son loved riding them. One day (the son) fell off the horse, and broke his leg, so everyone consoled (the father).
(But) the father said, “Why should I hastily (conclude) that this is not fortunate?”
One year later, the Xiongnu invaded the frontier, and all able-bodied men took up arms and went to war. Of the men from the frontier (who volunteered), nine out of ten men perished (from the fighting). It was only because of (the son’s) broken leg, that the father and son were spared (this tragedy).
Therefore, misfortune begets fortune, and fortune begets misfortune. This goes on without end, and its depths can not be measured.
Some of you are undoubtedly pleased with the election results (you believe it is fortunate), others despairing (you believe it is unfortunate), but either way I think the fable is apt. We simply don’t know yet if, in the long run, the outcome was good or bad.
Subsequently, the market seems pleased with the election results. Tax cuts (or simply extensions of previous cuts) and deregulation are expected and would be good (in my opinion). The deficit/debt, as well as the funding of Social Security and Medicare, will be an issue at some point but politicians (on both sides) are happy to let it be someone else’s (larger) problem later. The primary (economic) danger in the short run is probably restrictions on the free flow of goods (tariffs) and people (immigration) – if taken too far.
It has been particularly hard lately to infer policies from what politicians say. They (again, on both sides) seem to just say anything to get elected even if they have no intention of following through (or, less charitably, are simply lying). Thus, we don’t know exactly what is in store for the country. For example, I expect the promises of no taxes on tips, overtime, Social Security, etc. to be very quickly memory-holed. Despite this, I am not particularly concerned (I’m always a little concerned!) at the moment and all of our client’s portfolios are very well diversified.
If you have any specific questions (or simply need to talk), of course, we’re happy to answer them (or listen).