The markets have ushered in 2016 with what is the worst start EVER in a new year for the stock markets around the world. We are told this is due to turmoil in China, which the conventional wisdom is suggesting is sure to take the U.S. economy into recession. We don't agree.
While there is a lot to be unhappy about in regards to the way policy has shaped up in recent years here in the U.S. and globally, what we are witnessing is yet more of the "Hissy Fit" we have spoken of coming about as the Fed ends its policy of 0% interest rates. The problems in China have now been added to the list of reasons why we should all panic.
China is a centrally planned economy. While they have definitely made great strides in moving towards capitalism, they are still guided by their government. As such, problems such as those they are experiencing are going to continue until they come to grips and embrace a truly free, entrepreneurial capitalist system. By the way, this is true everywhere, including in the United States. To the extent that government is allowed to get ever bigger and more intrusive, inefficiencies step in and things don't function as well as they could in a more free enterprise-oriented system. This is not to suggest we favor a "free for all" system. Quite the contrary, we suggest a strong rule of law is crucial. However, "rules of the road" are different then requiring one to take a certain route, and therein lies the problem with centrally controlled systems. Fortunately in the United States, and much of the Western World, the degree of government control and mandate is less than in places like China.
Still, the markets will have their moments of panic and as we have said many times before, "this too shall pass". And even if we were to go into another 2008-type downswing, we would simply ride through it (as we did then) and look for where we could take advantage of opportunities that inevitably present themselves in such environments. We really don't think anything as systemically troubling as 2008-9 is happening now, and today's issues are being overblown, and we suggest that trying to time when to buy and sell (trading) is an exercise in futility.
It is far better for investors to stick with their plan, assuming it is sound. For us, that involves staying with ownership of business that are well managed and have promising outlooks for the future. We think this is one of the best times since 2008-9 to buy great growth companies, but also to buy positions in many income-generating investments and dividend-paying common stocks. Of particular note are opportunities in many higher-yielding securities issued by well-run companies but suffering in this panic-ridden environment. We plan on continuing these endeavors on behalf of our clients and recommend others do so as well.