Why investors have the wrong view on trade wars

As many industry insiders discuss the negative impact of trade disputes, Tyler Mordy is looking at things a little differently

Why investors have the wrong view on trade wars

Tyler Mordy’s investment philosophy is built around taking a global macro approach and closely questioning anything that has somehow become common consensus. So, as many industry insiders discuss the negative impact of trade disputes and how they could be the catalyst for the next recession, it should come as no surprise the Mordy is looking at things a little differently.

While Mordy doesn’t believe that trade wars will help accelerate global growth, he does think the geopolitical uncertainty they cause could help prolong the current bull market that began in 2009.

“It might seem paradoxical at first but if you look at the reaction to escalating trade wars, policy makers around the world have cited heightened uncertainty as reason not to raise monetary policy too quickly,” says Mordy, President and CIO at Forstrong Global. “The trade wars have handcuffed central banks to a certain degree and softened the tone of a lot of policy makers around the world.”

China is a perfect example to back up Mordy’s thesis. The world’s second largest economy recently shifted to ease monetary policy and has also indicated a willingness to embrace fiscal stimulus as well. Mordy also sees plenty of room in for further “upside surprises” outside of China. 

“We know Mr. Trump has a history of talking tough and then backing off, and these policy flip flops and contradictions are typical of his approach,” Mordy says. “The rhetoric on trade wars in the last 3 – 4 months, and some of the hyperbole surrounding the breakdown of the liberal economic world order, are all headline risks. Although those risks should not be taken lightly, we still see a lot of room for positive upside surprises there.”

Mordy and Forstrong develop their macro investment strategy based on a carefully considered three to five year outlook. While Mordy and his investment team embraces the resulting “super trends”, they also challenge their own views on a continual basis to avoid falling into what Mordy describes as “a variety of behavioural pitfalls”.

“A really good investment process ensures that all of those pitfalls are minimized,” Mordy says. “There is a method that we subscribe to called ‘falsification’ that was created by German philosopher Karl Popper. It is all about embracing a view but then continually challenging it, trying to determine it impactful and the factors that should change your view. It is classic macro investing.”

“I think that orientation enables investors to shut out a lot of the noise. As macro investors, we have to challenge the consensus view because it is very frequent that the view that is widely embraced never comes to pass.”

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