Market Update for July 3, 2017
Market Update for July 3, 2017

Market Update for July 3, 2017



J. Reed Murphy
J. Reed Murphy

Chief Investment Officer

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Market Update for July 3, 2017

What You May Not Know About Populism & July 4th


This week saw the return of volatility to markets spurred by comments from central bankers. Particularly, European Central Bank (ECB) President Mario Draghi’s comments suggested the phasing out of economic stimulus (a sign of economic strength), but ECB officials downplayed any implications the following day. The Euro hit its highest level of the year following Draghi’s comment.

Exhibit #1

Despite the volatility, there weren’t major changes in the week overall. International developed equity markets lost 0.26%, while emerging markets returned 0.10%. The U.S. was also impacted by central bank comments and further concerns over legislation out of Washington. The S&P fell 0.59%. Bucking a multi-week trend, WTI Crude Oil rallied nearly 7%, closing Friday at $46.06. The 10-year U.S. Treasury Yield increased during the week to close at 2.30% up from 2.14% last Friday, thereby creating negative returns for many fixed income segments.

Happy 4th of July!
Our founding fathers had great insight, but comically overlooked bringing a pen to the signing event. On a serious note, whose autograph is most prominent on the Declaration of Independence? Read to the end to find out.



This past Saturday evening, I picked up the phone to be told that my son was okay. Any parent that hears that knows the roller coaster of emotions that follow.

He was in a bad car accident. He had just completed a long shift at his summer job. He is fine, and no one else was involved. As we are amidst this 4th of July holiday, I realize we all have things to be thankful for as individuals and a country. I was reminded of a recent conversation I had with my son, when he asked about populism and how it might affect the economy. He is in college and is starting to reflect on the world that he will enter after graduation. His questions mirror questions we hear from clients, including one I had just this past week.

In the spirit of reading between the lines, I am sharing with you elements from a thought-provoking report by one of the world’s most esteemed investors, Ray Dalio (philanthropist and founder of Bridgewater Associates). Allow me be clear from the outset: Mr. Dalio is not forecasting many of the alarming points he highlights. And, it could be argued that measured populism has been constructive in certain historical times. Moreover, we do not believe that populism is arresting the markets and, in fact, it has been receding in recent times. Nonetheless, for those that are interested in history, Mr. Dalio’s research is nothing short of fascinating.

As we have written in the past, economies and markets adapt to their environment. That is, politics and economics influence each other with economics being more of an influencer on politics than politics is on economics.

As Ray Dalio notes, “… bad economic conditions normally lead to political changes—and normally we don’t need to pay much attention to politics to get the economics and markets right. However, there are times when politics becomes the most important driver.” Mr. Dalio notes that we are amidst some trends that are rhyming with very specific times in history. In a 60-plus page research report that was released on March 22, 2017, he sites that we haven’t had this much populism in the developed world since the 1930s.

Exhibit #2

Here are a few summary points from the study. If you want to read more in Dalio’s own words, feel free to read an abbreviated summary here or the full report here. The full report is worth reviewing to just see the comparisons of today to the Great Depression and Franklin D. Roosevelt’s presidency.

  • Populism is a political and social phenomenon that arises from the common man being fed up with 1) wealth and opportunity gaps, 2) perceived cultural threats from those with different values in the country and from outsiders, 3) the “establishment elites” in positions of power, and 4) government not working effectively for them.
  • It is often based on or has economic characteristics of high debt levels, high levels of central bank debt monetizations, interest rates near zero, high unemployment and large wealth gaps.
  • It can be grounded in political views from both the left and the right.
  • The phenomena comes along in a big way … once a lifetime—like pandemics, depressions, or wars. The last time that it existed as a major force in the world was in the 1930s, when most countries became populist.
  • Given the extent of it now, over the next year populism will certainly play a greater role in shaping economic policies. In fact, [he believes] that populism’s role in shaping economic conditions will probably be more powerful.
  • Classic populist economic policies include protectionism, nationalism, increased infrastructure building, increased military spending, greater budget deficits, and, quite often, capital controls.

Reading between the lines, populism can lead to isolated economic policies. It is agreed in most academic circles and based on history that such economic policies stifle creativity and economic growth. While Dalio doesn’t suggest we are on the precipice of such stagnation, it is also important to note that many such populist economic trends in the U.S. have relaxed in recent months, such as talk of wide-spread trade tariffs and border adjusted taxes.


In the spirit of 4th of July, the History channel provides a unique video here on the history of our holiday. Did you know?

  • Our independence was actually voted upon by the Continental Congress on July 2nd. The Declaration of Independence was signed by some (but not all 56) delegates on July 4th.
  • Three of our founding fathers who also served as Presidents died on a July 4th, two of them rivals and friends died on the same day within hours of each other, while on their death beds fondly asking how the other was doing.
  • John Hancock’s signature is famous for it is by far the largest autograph on the Declaration of Independence.
  • And, whom do you think invented fireworks?


Last week we profiled an interesting video on the psychology of human misjudgment by the famous investor, Charlie Munger. Based on the context above, we profile Ray Dalio this week. Here are Ten Rules for Success as illustrated by Evan Carmichael (entrepreneur, author, speaker, and consultant) in Mr. Dalio’s own words. If you think this will be boring, consider these humble highlights from a Wall Street veteran as an enticement to listen to them all;

  • practice radical truth and transparency,
  • learn from disagreements, and
  • know that you don’t know a lot.

Tags:  4th of July, Economics, Independence Day, July, 2017, Market Commentary, Market Trends, News and Markets, Politics, Populism, Ray Dalio, Reed Between the Lines

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