On November 9, the US elected a new President.
The implications of the surprise outcome of the US election will wind up being quite severe. The initial reaction of US markets, like that after Brexit in the UK, was the correct one. In the US, the initial market reaction though lasted for only a couple of hours between the election returns and the market open the following morning.
While pockets of opportunity may exist – in the case of the US it will come in growth for pharmaceuticals and bank stocks – protectionist economies do not grow; they always contract. Newly found pricing power of domestic US companies will give way to declining global market and a US consumer market which will be less robust as a result of trade restrictions and walls that are put up. The US – and the UK for that matter - may very well fall into another deep recession or a 1930s-style depression.
In any case, everybody should have a strong exposure to equities as part of their retirement planning for the long term. It is also appropriate at this point to reposition your equity portfolio to those companies that may be at the beginning of a transformational move (again, banks and pharmaceuticals). It is also important to stay positioned in case coming technological efficiencies enable companies to produce so much more efficiently that they can buck the macroeconomic backdrop. Caution however is the operative word with equity markets here, and the long term needs to be viewed as extending out far longer than 4 years.
Even if equities should continue to rise, the recent US election certainly reverses a 20-year decline in long term US Treasury rates. If you have not locked in a lower mortgage rate on your home already, this is the time to do it. For most people, a 30 year fixed rate mortgage will be the most appropriate.
Bonds should be sold and that money should be allocated to cash. Investors may try to hedge with commodities and foreign currencies, but should not make large bets on emerging markets currencies or European currencies versus the US dollar.
BestCashCow has advised that people look at CDs in the past. Against the likelihood of an accelerated reversal in the US Treasury rates, this is now the time to favor cash over CDs, even over those CDs with favorable early breakage fees.
This is the time, more than any ever before, to protect yourself from economic disruptions and rising interest rates with larger than normal exposure to cash.