Peter C. Cavelti

We examine several recent events that threaten to overthrow the social, economic and political order. As a general rule, when the unknowns starts to crowd out the predictable, it’s best to be cautious.

So far, financial markets have welcomed Donald Trump’s victory with exuberance, focusing primarily on his promise of lower taxes and less regulation.

The recent suspension of all Delta Air Lines flights highlights the drastic need to overhaul our badly impaired infrastructure. The eventual cost of overhaul will be high, and other areas of governance, such as health care, education and social welfare, demand equal attention.

We comment on the arrogance of the political class, the misguided and desperate actions of central bankers attempting to fix a broken system, Brexit and the future of Europe, and our conviction that investors have no choice but to resort to an approach of extreme pragmatism and flexibility.

The majority of people in the industrialized world feel disenfranchised. Their life appears to be in the hands of an unaccountable elite, where corporate, political and academic leaders collude.

The positive effect of central bank shenanigans is that equity values, for now, are being propped up, which boosts the wealth effect and in turn makes consumers a bit more confident.

Our view is that what lies ahead is unknowable and, because of that, the only strategy that makes sense is to keep an eye firmly on downside protection.

As investors are coming to understand, chaos is frequently present in the economy, whose functioning and success is dictated by two forces: the mindset of its participants and the policy actions initiated by politicians and monetary authorities. To say the least, that makes for an extremely complex construct.

Central banks try to be “precise” in timing a rate increase, but fail to understand the overall context—politically, economically and culturally. What’s needed is a return to a world where productivity and thrift is rewarded.

Richer valuations, a super strong dollar and policy paralysis make financial markets vulnerable. Add to that a monetary regime that is out of control and a deteriorating geopolitical climate.