Market wisdom at a glance * SignalTube

What should the Fed do in a moment like this?

Host

Robert Kaplan

For the moment they should do nothing, which is what they are doing. They should let this situation continue to evolve, keep monitoring it. I think maybe we'll have more clarity in the next three or four weeks, but we don't have it right now.

Robert Kaplan

The markets, the credit market, the treasury market, the stock market is pricing in that this won't last very long. You start to see today, it's starting to realize maybe it lasts longer. And we don't know. And so I think the Fed is wise to be a risk manager here and not a prognosticator.

You've seen the response from the Fed, the ECB, the Bank of England. Is there a better response right now for you?

Host

Robert Kaplan

What you saw is the Fed, I thought appropriately was non-committal and balanced the market's repricing rate cuts into either no action or even something on the other side, but they've been non-committal.

Robert Kaplan

The ECB and the Bank of England are much more sensitive. Europe is much more sensitive to the price of oil and fertilizer in these commodities. And so they're a little quicker to jump. We're a little more insulated in the United States.

Robert Kaplan

I would have said to the Bank of England and ECB they would be wise to be more non-committal now too, because there's so much uncertainty, we'll have a better sense in a month, and I would be careful not to overdo it.

Rick Reader was talking about the potential for rate cuts in part because of the weaker economy heading into this. And a number of investors are pointing to nodes of fragility that are increasingly popping up in markets. How much do you see that being a concern and that there's perhaps a little too much complacency around the weakening that you could see in the economy going forward?

Host

Robert Kaplan

30 days ago before all this started, our economic forecast was for actually a strengthening US economy, strengthening global economy. We were 30 days ago calling for 2.1% plus GDP growth, not a cyclical slowing but a cyclical strengthening.

Robert Kaplan

The war is going to dampen that strength, strengthening, we just know how much. And but it's clear it's going to be lower GDP but stickier prices too.

Robert Kaplan

But no, we did not see a cyclical weakening going into this. This may create a cyclical weakening, but it's too soon to say that, my opinion.

How long can that last? Should this continue to be roiling even just the front end of treasury yields?

Host

Robert Kaplan

Equity markets are not down very much. Credit spreads are a little wider, but they're hanging in there. Again, because the market is pricing in that there's going to be a resolution. I don't know, in the next X number of weeks, not in many months.

Robert Kaplan

I think for the moment equity markets and markets generally are resilient. Merger activity is very active. That could change though if it's clear that this is going to go on longer and yeah we may say on hindsight the markets were underpricing the risks that this would create but we don't know yet.

What are your clients doing and how do you assess the flows coming out of the Gulf?

Host

Robert Kaplan

The Gulf was not only a source of capital, it was a destination for investment. There was a lot of activity looking at putting capital in the Gulf development in the Gulf.

Robert Kaplan

For the moment, we're hearing clients in every industry tell us I had an order. We were shipping a product to the Gulf. We got canceled. We're struggling with shipping. We're struggling with not just oil but fertilizer, helium. It's affecting semiconductors. The ripple effects are substantial.

What's the Haven asset that you're recommending to clients or that they're gravitating towards given all of this uncertainty?

Host

Robert Kaplan

For investing clients, you want to take a long-term horizon. Sometimes the best thing to do and history show and the best thing to do in this kind of period is do nothing.

Robert Kaplan

For Havens, yeah, you could have more cash. Up until about a month ago, we would have said gold was one option. Obviously gold is behaved in a way that's been surprising. In years past, we would have said the 10-year Treasury was a haven. It's not acting that way.

Robert Kaplan

I think our best advice is look over the horizon, don't have a three-month horizon, have a multi-year horizon, have an asset allocation you can live with, and if you can manage your emotions, try to stick with that and don't overact to what's going on right now.