I learn and apply these lessons to our investment tasks, communicating them through these blog posts. Global policy judgments are not a focus of these blogs. One can learn from watching conflict resolutions in military, political, and sports worlds that are useful in thinking about future investment decisions.
The G-7 meeting
The G-7 meeting in Canada was a wonderful display of tactics that may predict future strategic movements. President Trump was widely criticized before the meeting as a protectionist, particularly by European allies and Canada. In a brilliant flanking move, he surprised them at the meeting by suggesting a relationship with no tariffs or other barriers to trade. What it revealed was that each of the other countries involved had higher tariffs and more trade constraints than the US. The reason for the discomfort (or more correctly, horror) was that these were put into place to benefit specific politically powerful interests, which would presumably be hurt in a no-tariff world and would cause most of the governments at the meeting to fall. (The US is very conscious of the tariff wall which was the primary cause of the early conflict between the Northern and Southern states and thus really led to the Civil War.
The future may well depend on how close a parallel this is to the Battle of Cowpens during the Revolutionary War and its aftermath.
The Battle of Cowpens
The Battle of Cowpens, fought in 1781, was an engagement between American Colonial forces under Brigadier General Daniel Morgan and British forces under Sir Banastre Tarleton. Tarleton’s force of 1000 British in the King’s Army went up against the 2000 men under Morgan. Only 200 of the 1000 British troops escaped the battle. The Colonial forces conducted a double envelopment of Tarleton's forces.
From the American side, almost equally as important, they lost two major cannons that could have helped the Colonial forces at Yorktown.
Tarleton was a young and impetuous commander who marched tired troops into battle and fell into a well designed trap of counterattacking by the Americans. The Americans were instructed to fire two rounds and then retreat into the hills, sucking the tired troops into fire from three emplaced positions with their open flank. That is where the American cavalry showed up, having circled the British lines.
The battle was a turning point and coupled with the British defeat at King’s Mountain, compelled Cornwallis to pursue the main southern front of the American Army into North Carolina, leading to Cornwallis’s surrender at Yorktown. Quite possibly, if Cowpens had turned out differently, there might have been a British fleet off Yorktown rather than the French fleet and the US would have remained within the British Empire a little longer. Except, unknown to the participants, a peace treaty had already been signed in London, with considerable help from some members of Parliament.
Clearly the tactics at Cowpens may have had a role in the strategic reorientation of Britain and the United States. Could this also happen to the make-up of the G-7? Was the difficult meeting in Canada a part, perhaps a necessary part, of the pivot to Asia?
Investment Lessons
The following are possible parallels from the G-7/Cowpens actions:
• Read more fully about the past and look for less popular, simplistic explanations.
• Be careful about following young, impetuous leaders.
• Early gains can be a trap.
• Rest is an important ingredient for victory.
• Don’t leave your flanks unguarded.
Follow-Up Bits
Everyday we are greeted with bits of information, rarely however do we get the complete picture. Often, the bits are in conflict with each other and formerly perceived “truths.” The following are listed in order of their published date.
• Money Market deposit account interest rates jumped to 0.52% vs. 0.47% before the Fed raised rates by 25 basis points.
• The American Association of Individual Investors (AAII) weekly survey turned roughly 5 percentage points more bullish, dropping 5 percentage points from the bearish category. [At this level, rising short-term interest rates are apparently viewed as bullish.]
• Mutual fund investors around the world are primarily investing for long-tem needs, largely retirement. At the end of 2017, US investors owned 44.8% of the $49.3 trillion invested in Funds, with only 31% in equity funds. Of American households, 45% own Funds, with 61% owned in tax deferred accounts. Thus, conventional mutual funds are unlikely to be the leaders in the next speculative surge in the market.
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A. Michael Lipper, CFA
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