What do Greenland, the Suez Canal, Canada and Gaza have in common? You guessed it. America wants to own them. Or more specifically, the new US administration thinks it has every right to either own them or buy them.
How silly is that. But nobody who is close to, wants to be friends with, or works for the occupant of The White House would dare to disagree. They just smile sheepishly and nod politely. Do you remember when he told the world that it would be a good idea to inject bleach into our bodies to get rid of the COVID virus? How can we ever forget.
So, we shouldn’t be too surprised that the new US administration is capable of wheeling out buckets of nonsense. The latest appears to be that it thinks it can control the yield on 10-year Treasuries. It should really think that through, carefully.
The 10-year Treasury, otherwise known as the risk-free rate of interest, is determined by the market. Bond investors will decide what is an acceptable return based on the risks involved.
If the present administration is set on raising tariffs, running a massive budget deficit and deporting migrant workers, then investors will probably demand a higher return to compensate for the risks of higher inflation.
Regardless of what happens, it is important not to react to the utterances from The White House briefing room. To do so would only provide oxygen to fan the flames of chaos that can roil global markets. Worse still, we might just start thinking that utter nonsense actually makes sense, which would make us almost as silly.
Just accept that the next four years will be chaotic, which could mean that markets might be highly volatile. Instead of fretting, try to take advantage of the volatility.
Volatility is not the same as risk. Risk is when we buy an investment that we don’t fully understand. But if we know what we are buying, then volatility can become an opportunity rather than a threat.
It is also important to focus on the long term. Presidents come and go. Some might even come back again. But businesses should be built to last – long after this current administration becomes a footnote in US history.
Some businesses have seen far worse than the current political and geopolitical landscape. They live to tell the tale. Those are the companies we ideally want to buy and hold for the long term, rather than chase the latest fad.
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Disclosure: David Kuo does not own any of the shares mentioned.
