As we enter a new decade and prepare to navigate the financial markets, it would be helpful and prudent to list the lessons we have learned from the past 10 years so we may be better prepared for the next 10. Below is a brief but important list of those lessons which have taught us the most.
1) The Federal Reserve has more power and influence on capital markets than we ever thought possible.
2) The Federal Reserve is capable of being out of touch with reality for extended periods of time - "what housing bubble" or "the sub-prime crisis is contained."
3) Poor political leadership and decision making can have an adverse impact on an economy in a relativity short period of time.
4) Members of Congress are more dysfunctional and partisan than ever and have lost perspective of what is important to the American people.
5) Non-traditional asset classes can be great investments for extended periods of time - think gold, commodities, and high yielding currencies.
6) Volatile markets can last longer and can be more violent than previously observed in market history. The past decade saw two multi-year declines leading to a negative 10 year cumulative return in stocks.
7) Developed countries, such as the U.S. are well past their prime compared to developing markets.
We believe the next decade will have its own share of ups and downs. Taking into account the lessons from the past decade, we believe there will be many opportunities in non-traditional asset classes as well as non-standard tactical allocation strategies.
