October 2025
One evening last week, at midnight, as September turned to October, various elements of the US government were shut down. This has happened before, most recently in 2018 under the same President, but this time, everything feels more ominous. In fairness, markets were indifferent to the news and have even reached new highs since the announcement. My view is that this turn of events is yet another canary in the coal mine where authoritarianism is lurking just around the corner. The question for many investors is: “what does this mean for my portfolio”? So far, the answer is, “nothing at all”.
It has been said that financial markets climb a wall of worry. I have said on multiple occasions that one of my biggest worries is that people don’t seem worried – that optimism bias has led to lazy complacency. Stated differently, my perception is that there’s a degree of casual acceptance of macro-level circumstances that has taken hold among investors throughout the western world. My concern about valuations has been reiterated on multiple occasions for many quarters, if not years. What I have not said explicitly until now is that there is a considerable political risk that is proceeding apace – concurrent with the valuation risk. To my mind, this is a double uncertainty. The first question is when the bubble of multiple asset classes hitting all time highs will burst. The second question is when Donald Trump will drop the mask and all pretense of adherence to democratic principles. He was elected a year ago next month. In the nine and a half months since he has taken office, the destruction of centuries old political norms has proceeded at a breakneck pace.
The shutdown is another opportunity for the President to inflict pain on perceived enemies and to drive a wedge through the heart of the nation. He does this to foment fear and resentment among opposing factions in order to justify violent interventions that, when shown repeatedly on the evening news cause people to normalize images of military officials in the streets. He has gone so far as to use terminology like ‘the enemy within’ to describe people that, under any other President, would be thought of as legitimate, law-abiding citizens. The problem with President Trump is that there is no reliable way to predict what the future may hold. He thrives on chaos. It is his modus operandi. That makes the task for investors difficult, because it’s essentially impossible to construct a rational forward-looking investment strategy considering such unprecedented uncertainty. Historically, the finance industry’s mantra is to simply maintain your strategic asset allocation and ignore the noise.
More explicitly still, my concern is that this time really is different. I know that that statement will be seen as heresy in certain circles. To hear the industry tell it, capital markets will proceed in an upward trajectory over the long term come hell or high water, inflation or deflation, recession or expansion…. and even, presumably, the democratic election of an authoritarian strongman who has no regard for the constitution and who actively dismantles the checks and balances that were put in place to protect the population. I guess my concern is only going halfway. Having a bubble burst may ultimately be the least of our problems. I am absolutely certain that what we’re seeing south of the border is something that none of us has seen on our side of the Atlantic in our lifetime. It really, truly is different. What I don’t know, and what no one can know, is whether that difference has any material implication for how you go about investing your money. My guess is that it will. I have spent late 2024 and all of 2025 moving client holdings into hard assets like real estate, resources, infrastructure, and gold bullion. Time will tell if my concerns are justified. I would be delighted to be wrong.