The world is cutting interest rates to stimulate their economies and thwart a recession. This reversal from high interest rates is good for stocks but because they are at all-time highs exceeding P/E levels of 2000 and 2008, vigilance and caution is prudent and necessary despite prices likely to go higher.

There are two wars underway, one in Ukraine and the other in the Middle East, which have the potential of expanding and involving the US to a greater degree. What’s more and not reported on network news is that central banks around the world are anxious about being the target of US sanctions if they do not subject their sovereignty to US demands. Confronted with what they view as a weaponized financial system, they are erring on the side of caution and have begun selling dollars and buying gold to hold as banking reserves. Most countries are also repatriating their gold to hold in domestic vaults just in case it could be confiscated as Russia, Iran, and Venezuela have experienced.

Meanwhile Russia and China long threatened by the US, have led the BRIC countries (Brazil, Russia, India, China, and South Africa) and others (“BRICS Plus”) including Saudi Arabia, (and with collaboration with the Bank of International Settlements), to create an alternative to the SWIFT system to facilitate money transfers in trade. Next week (10/22/24) they reportedly will announce their “UNIT” currency for international trade backed by 40% gold and other commodities. The UNIT blinds the US and Western countries, (the G7: US, UK, Canada, Germany, France, Italy & Japan) from seeing transactions in grains and raw materials transacted away from, or off, US and London futures exchanges. This obscurity creates a lack of price discovery in the world markets, the ramification of which is expected to adversely affect US and European farmers’ fall harvests. As winter is coming fast, this may affect what is available where at what prices.

Amidst these international tensions, we have an election in less than 3 weeks which may result in Administration policies employing expanded transfer payments that lead to a decline in productivity and recession on the one hand or to Administration policies that double-down on the US hegemony resulting in trade disruption while eventualizing a multi-polar world. While it is possible with experienced economic advisors and diplomacy that sound money polices are instead pursued that favor fair trade, peace, and a tax system that encourages people to work only in time will we see results which warrants caution when investing in this environment.

In summary, current monetary policy favors stocks over bonds. Yet there are geo-political events that may trigger a market correction with market valuations at highs. In managing accounts, we routinely assess the Health of the Market and employ a proprietary algorithm to evaluate whether we are in an expansionary, uncertain sideways, or contracting economy. We also consider ‘most likely’ scenarios along with these data and work to build-in flexibility to navigate outcomes. Part of our process employs hedges to offset risk which act somewhat like insurance while diversifying and holding some dry powder (cash or treasuries) on the sidelines to take advantage of opportunities. Utilizing this process and staying vigilant, we work to deliver good returns all the time while avoiding debilitating setbacks. It’s by no means a guaranteed process, but it is a carefully, time-tested discipline with both offense and defense built-in.

This Market Commentary discusses what is occurring in our world and should not be taken as political or persuasive rhetoric, but only as concerns we see on the horizon which warrant consideration when investing. We want to hear your thoughts and concerns and will be calling clients over the next few weeks to discuss and conform how we are managing your money to better sync with your objectives, preferences, and risk tolerance.