Benjamin Franklin, in his essay “The Morals of Chess,” talks about the tenets of this classical game and how they make good lessons in life: Foresight, consider the consequences of a move; Circumspection, know the board and the relations between pieces; and Caution, do not make a move in haste. The same principles apply to investing, particularly when 2015 opens with an elevated level of volatility, driven by a confluence of economic, market, political and geopolitical forces.
Russian Defense or a Potential Greek Checkmate?
The first moves of a chess game play a big part in determining its outcome, and recent moves by Russia and Greece have raised the specter of a bad outcome. Speculative pressure on Russia went skyward as the Ukraine conflict continued and oil prices unexpectedly collapsed. Fractious politics in Greece forced an early election that could put a eurosceptic party in power, and a disruption of the post sovereign debt crisis calm could be in the endgame for the eurozone.
European Central Bank in Zugzwang, Federal Reserve’s First Move Advantage
Expectations that more European Central Bank (ECB) easing is on the way have offset some of the market uncertainties, with deflationary risks and low growth also forcing its hand. From a very different position, the Federal Reserve (Fed) looks set to take another step back from its extraordinary monetary policy this year. Next to more evidence that the U.S. economy is improving, we are seeing more signs of slowing growth outside the United States. This economic and policy divergence continues to add to market angst in 2015.
Tactics and Strategies
Even though markets are more volatile, we maintain our preference for stocks over bonds. More focus is on cyclical sectors and certain international markets like Japan and emerging Asia.