Predicting a weaker dollar when the Fed is printing money isn’t rocket science. Turning it into headlines is.
Barely a week goes by without Jeff Gundlach making news. Sometimes there’s a good reason. Often, however, it’s just a media feedback loop.
This week, for example, he warned investors that the dollar will remain vulnerable as long as the Fed keeps creating cash from thin air.
That’s not shocking in itself. It amounts to Fiat Currency 101: running the printing press inflates supply and depresses purchasing power.
We’re all hunting the signals that prove that conventional wisdom remains valid. That’s the topic of next week’s webinar. Register here.
But in a world where conventional wisdom bends day by day, the fact that Gundlach was willing to state what should be obvious is evidently worth a few clicks.
The clicks don’t derive from the message being novel or his argument surprising. It’s only the messenger that counts here.
Every advisor is a market commentator as far as clients are concerned. With that in mind, we can all be pundits with a little hard work and discipline.
Have a consistent point of view
It’s hard to have convictions, especially when the world is in flux and regulators are watching every move you make.
But people don’t remember you for the one-time crazy contrarian calls that somehow come true. Most of us need to make a lot of wrong forecasts in order to hit that home run, and after enough bad bets nobody takes it all seriously enough to keep listening.
People remember you for consistency. Make easy forecasts with confidence. Repeat the talking points over and over.
If you’re worried about people getting bored, find new ways to dress up the message. But unless the world changes its orbit, the core truths don’t change.
And you’ll be right, again and again. That’s how people learn to trust you.
When the world gets in the way of your predictions, figure out what went wrong. Share what you’ve learned and how your improved methodology will reduce similar errors in the future.
You don’t have to share the intimate details of how you interpret the market, but when you get it wrong, you need to be able to communicate the fact that you’re getting better . . . and do it in clear language.
Always state your conclusions in jargon-free terms. That’s the headline. Jargon hides your insight. This is the part where you want to yell from the rooftops.
Look at the latest from Gundlach. His argument is really about relative rates of central bank stimulus and COVID impacts. It’s incremental logic that ultimately points to a few percentage points of wobble in exchange rates.
That’s for experts looking to decode and debug his assumptions so they can do better. For the everyday investor (client), the headline is simple and shocking: if this goes on, dollar hegemony is in trouble.
Everyone knows what that means. And the hypothetical ensures that you’re not claiming perfect predictive power. All you’re really doing is asserting that Fiat Currency 101 truth again.
History teaches us that IF the Fed keeps leading the way on liquidity, the currency’s global status will naturally weaken. That’s no more shocking or even controversial than what every economics teacher repeats every day.
It’s probably going to be true in the long term. Keep saying it and history should prove you right in the end. Again, we go into detail in next week’s webinar.
Remain alert and agile
But even if statistics and history are not on the side of any “new normal” revelation, sometimes the day-to-day numbers bend away from textbook rationality.
External factors roil markets all the time. Technology, politics and central bank leadership can adjust the rate at which money flows. Beyond certain thresholds, unusual feedback effects happen.
Shocks keep teaching us all new things. No system is perfect. It only behaves that way until something gets in its way.
Then the system adjusts and a new status quo that looks a lot like the old one takes over.
When markets are roiled, simply asserting all this takes a little courage. It’s easy to throw history away and simply forecast what we wish or fear will happen.
Wild statements get people on TV. Sometimes they even come true or can be spun in a way that makes us look prophetic.
If you can look prophetic on a reliable basis spinning wild and contrarian statements, you’ve invented a new economics and can write your own ticket. Until then, the market will test all claims and quality clients will be hard to find, much less keep.
Admittedly, the market is not performing on predictable or “rational” terms. Under the outside pressure of the Fed’s multi-trillion-dollar balance sheet, bond prices have inflated beyond normal risk-return relationships.
People who want appreciable income are getting forced out of the Treasury market into dividend stocks. And on the other end of Wall Street, zero-rate policy cushions the risk on high-growth speculative stocks.
With money pouring into equities from both sides, valuations naturally swell, even in a steep earnings recession. This isn’t new economics or even a new status quo.
It’s just the Fed shifting all the math to deal with an extremely rare shock to the system. You don’t fight the Fed.
There will be costs and repercussions. The future will play out differently from the past. Maybe one day we'll be able to fight the Fed and win.
But the path to that future still relies on the math that Gundlach sees and we were all taught. Define all the inputs, run the calculations and we can see more or less where we’re headed.
Keep it actionable
And even that calculation assumes that nobody will get in the way. That’s where the “if this goes on” becomes relevant.
Nothing ever “goes on” forever. Someone will always touch the steering wheel to drive the system off its current course.
Sometimes they do that to achieve external goals. Investors do it all the time when it’s time to pivot out of accumulation and into distribution.
Politicians do it to make policy and win votes. And sometimes the world gets in the way and we need to turn.
If we crash, it doesn’t really matter who saw it coming or what the rest of us were saying on the market channels at the time.
In that scenario, the pundits can say what they want. But the world has managed to avoid ending so far and betting on its persistence is the smart use of professional resources.
Your clients should already be shielded from likely worst-case scenarios. They should have strong enough income to cushion a deep recession and prolonged market crash.
Gundlach isn’t warning anyone to get out of the pool. He deals with institutions that have perpetual income plans in place. They simply want to know that he’s paying attention.
At worst, paying attention means shifting a few percentage points away from the dollar into other currencies in order to keep the institutions on course. That’s it.
He isn’t rocking the boat. He’s here for life or until he gets bored, whichever comes first.
That’s where the real payoff of consistency comes in. If you’re here for the long haul, it’s okay to trust conventional wisdom. It’s not broken, so there’s no need to fix it.
Communicate that to your clients. Be the only pundit they need. We have tips for that coming on the webinar, so register now.
