President of the World?

Who’s running things?

Source: Lucidchart. CC0

Investment news often focusses on monetary policy and the future direction of interest rates. And with good reason. Interest rates are fundamentally, financially, and economically critical to understanding how much our investments are worth. Fundamentally, because the more companies pay to service their debt, the less they have in earnings. Financially, because the value of any financial asset is the present value of all the future cash flows. And economically, because interest rates affect the economy – with long and variable lags. Capital investment, consumer spending, government budgets: all are impacted by interest rates.

As a result, the level and direction of interest rates has a huge impact on our investment portfolios. Since short-term interest rates are determined by central bankers around the world, investors are right to try and understand what – and who — manages interest rates.

Source: Wikipedia

By far the most important central bank, for US investors, is the Federal Reserve. The US economy is about 22% of the world economy, and liquid US assets – stocks, bonds, and money markets – are more than half of all the capital market assets in the world. When the stock market falls by 10%, over $2 trillion in wealth is wiped out. So it’s no wonder that everyone wonders and worries about the Fed – what they’re thinking, what they’re writing, what they have in their coffee. And the Fed is led by one person – the Chair – who is the “first among equals” at their Board meetings. What he (or she) thinks is what the Fed will do.

Jay Powell is one of the most distinctive Chairmen the Fed has ever had. His background is as a lawyer, investment banker, and private equity manager. For over 20 years he invested in companies, helped them formulate and execute strategies, and either sold them to other investors or brought them to the public markets. His training and experience has taught him to respect the markets, but not be ruled by them. It’s likely that as the Fed’s Chairman he will take a similar approach.

Our central bankers have come from very different backgrounds: Yellen and Bernanke were academic economists; Alan Greenspan was an economic analyst and consultant; Paul Volker was a banker. Jay Powell, as a lawyer and private equity manager, will see the world through lawyer-colored glasses.

We can’t escape our perspective. We can never see the world as it is, only our perception of the world. That’s why it’s so important to be part of a team and learn from other perspectives. But if we want to understand an institution, it’s good to know who is setting the pace and establishing priorities.

Douglas R. Tengdin, CFA

Charter Trust Company

“The Best Trust Company in New England”

By |2019-06-10T09:33:45-04:00June 10th, 2019|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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