Analyst: Political volatility a concern
LATHAM, N.Y. >> A generally healthy economy is set against the backdrop of extremely high political volatility, which could affect financial conditions at any time, a leading analyst says.
Ken Herold, senior vice president, investment strategies group, for Natixis Global Asset Management ($895B) addressed more than 200 people gathered at a Cap Com Financial Services meeting on Thursday at the Century House.
The day before, the Dow Jones suffered a 370-point
drop, its largest decline since last September.
“I think finally, perhaps, some of the political concerns manifested themselves in the markets,” Herold said. “Volatility in the equity market has been low, almost stubbornly low. Volatility is going to rise. It almost never goes away. The cause could be political, it could be economic, any number of factors. It will probably return to us and in that kind of environment you want to make sure you have a diversified portfolio that can withstand those shocks.”
Controversy — nothing new to the Trump Administration — reached a new high recently, with the president’s firing of FBI Director James Comey and revelations that Trump shared highly-classified national security information with top Russian leaders.
Such turmoil threatens to undermine Trump’s political ability to get probusiness tax cuts and deregulation adopted, which could boost the economy.
“We don’t know what’s lurking around the next corner, but there’s a lot of issues out there,” Herold said.
Global political volatility will persist, meaning bigger booms and busts are likely, he said.
“I equate it to the weather,” Herold said. “It was 45 degrees at my house the other day. Now it’s 90. It happens.”
The economy, although not robust, is steadily growing and the current business cycle is still in an expansion phase, he said.
“But we know what comes after that, which is a downturn,” Herold said.
Major questions are when? How long will it last? And how bad will it be?
“I think people are feeling better today than they were coming out of the recession of 2008-09,” Herold said. “But they’re not feeling as good as they did in 2004, ‘05 and ‘06. They’re starting to spend, they’re starting to incur debt, but there’s this uncertainty, which is somewhat shaped by the past because it was a pretty severe recession in ‘08.”
He offered a basic strategy for weathering such storms.
“We think of things in a durable construction portfolio framework,” Herold said. “What that means is having a portfolio that’s diversified against a host of different asset classes, and having different asset classes that react differently. So if there’s a riskoff scenario, a flight to quality if you will, make sure you have asset classes that can dampen those affects. But you do want to express some risk to get incremental return into your portfolio. So really having a balanced approach and not abandoning any of the asset classes, for any particular reason, but always maintaining diversification.”