Pick Your Donald

During the Iraq war, Secretary of Defense Donald Rumsfeld, in response to a question regarding WMDs remarked” because as we know, there are known knowns; these are things we know that we know. There are known unknowns. That is to say, there are things that we know we don’t know. But there are also unknown unknowns. These are things we don’t know we don’t know.  I’m not sure why, but I love this seemingly nonsensical quote. Perhaps because if you really think about it, there is a tremendous amount of truth behind that statement. Unfortunately in this instance however the statement was being utilized to back up some serious “un-truths”.  Fast forward to 2017 and we still have a Donald (Trump) struggling with knowns and unknowns, primarily within the realm of 140 characters or less. There is no introspection with this Donald however and the only unknown in this Trump reality show is what version of the facts will be on display. While political theatre can be entertaining, our primary goal as an asset allocator is to distill an investable thesis from this sideshow.  Perhaps an analysis of that other institution currently struggling with knowns and unknowns,the Fed, can give us some guidance as to what the immediate future may hold.  The Fed’s( and other Central Bankers) version of reality is similarly skewed in that it doesn’t know what it thinks it knows, does’nt actively seek answers to that which it doesn’t know and is wholly unconcerned with unknown unknowns (black swans).   In light of the populist ground swell in the United States, France, and the U.K., Central Banking is firmly ensconced as the only ” adult in the room”. One might argue however that as the political landscape becomes much less benign, pressure will mount for Central Bankers to address issues involving geo-political friction e.g. Trade. The necessity to address  new problems in an increasingly Balkanized world may require the use of new monetary tools. While we may only speculate on what these new tools may involve, rest assured that further attempts at stability will only lead to further instability across all global financial markets.

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