Investors Biggest Threats

In training, flight instructors often give challenges far beyond what you are likely to experience in a real flight by artificially simulating multiple system failures at the same time. On one challenging maneuver I missed an action to which my instructor replied, “Make sure you never forget to hit that switch in this situation.” Exhausted, I replied, “OK, but what is the worst thing that could happen?” He didn’t respond but just gave me that “We are 25,000 feet above the earth” look.
 
I receive regular emails asking what I consider to be the greatest current risks to investors, or what the worst case scenario might be. So I thought I would list some of the items I think we should keep an eye on. I do this as a training exercise while I continue to be generally positive about our economy in the near term, 12-18 months.
 
Unresolved Trade Wars – We need trade with other countries to remain a vibrant economy, and they need trade with us. In a localized economy the big player on the block usually has the advantage, but on the world stage the biggest player is often taken advantage of. The current administration is in a trade battle mostly with China that is hurting the economies of both countries. The numbers show China to be suffering more but their non-elected lifetime leaders have staying power. Both sides have ample motivation to resolve this sooner rather than later, which I expect, but as it drags on it will continue to hurt both sides.
 
Interest Rates – We need low rates for growth but high enough rates to temper inflation. It is a delicate balance. When rates were going up in the fall, the market panicked. Now that rates have levelled and may even go down this year, investors fear it may be a sign the Federal Reserve sees economic weakness. The best hope is for very small interest rate changes, which I expect.
 
Deficit Spending – As I mentioned last week, the math of debt is very simple. Either you control it or it will control you.
 
Healthcare – In 2018 Americans spent $3.65 trillion on healthcare making it the biggest portion of our economy. More people are employed in healthcare than any other industry. Interestingly, that amount was about ½ the total world spending on healthcare, despite our relatively small population. The cost of healthcare is sucking a lot of money out of other growth areas of the economy, which will suffer long term without a more efficient healthcare solution.
 
Political infighting and extreme ideas – The highly polarized environment in Washington has made it difficult to deal with our national challenges. Some solutions being floated are in direct opposition to the free flow of ideas and capital that have built our nation and its world leading economy. Somehow, common sense and common ground must be found to resolve these and other issues.  For investors and our economy in general, if we don’t find a way to solve problems together, this may actually be the worst thing that could happen.