Tip:
Highlight text to annotate it
X
Hi, you're watching Russell Market Week in Review for the week ending October 4, 2013.
We're coming to you today from Russell's world headquarters here in Seattle, WA. I'm Mark
Soupiset and I'm joined today by our Director of Capital Markets Research Ian Toner. Ian,
thanks for being with us. A pleasure, as always.
Well, there's certainly some political news out of Europe this week, news out of Italy
and some news out of Germany. But what I really want to focus on today is what is front and
center I think globally and that is -- the US debt ceiling debate that's upcoming and
then this week, certainly, the US government shutdown. Start with the government shutdown
and talk to us about what should investors really be paying attention to as we look at
this kind of political drama unfold? It's very interesting. When you're looking
at political news and then trying to apply it to your investment portfolio, I think it's
really important to remember what we're doing when we're investing. And when we're investing
we're thinking about long-term needs and goals that we have, whether it's as individuals
or whether it's as institutions. And you should always reflect on that thing we're talking
about, discussions like the debt ceiling or the government shutdown. It's kind of like
a marriage...you might disagree over where you're going to eat this evening, but that
doesn't call the marriage into question. We're invested in equities and other risk assets
because of the long-term return it will give us and we accept the fact that there will
be news which may affect the market in the short-term. So the government shut down. There
are individuals who are affected by that and we can have a political argument about the
rights and the wrongs of it. But in practical terms as investors, we've seen the market
trail a little bit, but there's not been a huge downdraft caused by it. The likelihood
is this will end fairly rapidly. There are no major, immediate market impacts from it.
So investors should probably look at the shutdown and say -- this is interesting from a political
view, it may have some downdraft affect on points in some markets, but strategically
certainly not something that should make me change my strategic thought process about
the things I'm invested in. And is that what we're seeing today -- in
your opinion? We saw the market trade down for two or three days. As we're filming this
on Friday morning the market's up a bit...is that investors sort of shaking off that initial
fear and remaining focused on the long-term? We saw the VIX staying steady at 17 today;
is that really what we're seeing? Yes, I think -- and this sort of leads us
into the other component -- which is the debt ceiling component. Investors are aware of
the strategic issue. The strategic issue, the shutdown is about healthcare and about
various other things, but is the context of the strategic issue about what size and shape
is the US government? And this is similar to other developed markets around the world.
The same problem...there are unfunded liabilities of various kinds, budgets, aging populations,
what do we do about that? Investors are now broadly understanding that these are issues
that need to be wrangled with and dealt with. The shutdown and the question about the debt
ceiling are just individual examples of the political structures dealing with those issues.
So investors broadly should look at them...they know roughly the story that's playing out.
So you'll often see not much market reaction unless something unexpected happens. But that
doesn't diminish either the impact on individuals who are furloughed, which is obviously a person
issue for them, or the seriousness of the issues that are being dealt with. The debt
ceiling reflects a broader conversation, but in reality, in all probability, the political
class are going to allow the US to default on its debt...is fairly unlikely.
So it sounds like, just to wrap up, that the key message here is whether you're an institution
or individual investors, these sorts of political events should be considered more blips on
the screen, you really need to stick to your long-term goals, remain focused on those as
we go forward. I know -- certainly from Russell's perspective -- it doesn't sound like it's
changed our long-term strategic views of the US markets and what we expect there.
Take them seriously, be aware of them, but remember that you're invested in risk assets
for the 30-year time horizon, for the long-term time horizon. And unless you see news coming
out that fundamentally changes your views, whether you're with Russell other people,
that fundamentally changes your views over that long-term time horizon, then the reality
is -- have a sit-down, think carefully about what we're doing, take advantage of pricing...when
things get cheap that gives you an opportunity to rebalance your portfolio. But don't get
too worried about it when you see the news coming across the screen.
Ian, as always, we appreciate your time. Thanks for being with us. And thank you for being
with us this week Market Week in Review.