JPMorgan (JPM) Asset & Wealth Management CEO Mary Callahan Erdoes is confident the government shutdown will get resolved, but the length of the shutdown nevertheless concrerns her.
“This will solve itself. We will get back to normal. The problem is the longevity of this one,” Erdoes said in an interview with Yahoo Finance’s Editor-in-Chief Andy Serwer at the World Economic Forum in Davos, Switzerland. “You can think about short-term government delays as short-term problems that get rectified quickly. The longer it goes, you’re not going to make that up in the economy.”
For example, a family that skipped dining out last week because they didn’t have the money available is not going to dine out twice the following week to make up for the missed experience. They’re also not going to buy an extra tank of gas when the funds are suddenly available.
"A lot of those things are expenditures that are not going to happen,” Erdoes said. “That’s going to have a weight on the GDP of the U.S. That’s then going to weigh on the minds of CEOs, who think about, ‘Should I put money into my next plant property or equipment that I’m going to invest in or should I wait?’ So, I think the longer it goes, the longer you’ll get a wait-and-see from both CEOs of corporations and individuals.”
The federal government shutdown, now in its 34th day, is the longest on record. But it’s just one item on the “laundry list” of “moving pieces,” from Brexit to U.S.-China trade tensions, that could weigh on the markets, according to Erdoes.
"Of course, we have the economy that's still relatively strong, everywhere in the world, mostly in the developed markets, but also in the emerging economies. And then the markets that's priced in what's happened in the past and where it's going in the future. And you can see the volatility that you mentioned, especially that we had in the fourth quarter of last year, that's trying to figure out what that future price is and to bring forward what they think is going to happen,” Erdoes said.
She added that days like the market selloff on December 24 are “difficult” and days like December 26 are “great days” for people who are “brave enough” to go into the markets. That said, she emphasized that timing the markets is a difficult thing to do.
“My hope is that people will see through this, not because it’s a perfectly rosy picture out there, but because the most important thing for us at JPMorgan Chase is really helping people invest for the long term,” Erdoes said. “To come in and out of the markets and think you are going to time that is a very challenging thing to do. Very few people succeed.”
Erdoes, whose unit oversees more than $2 trillion in assets, sees an opportunity to allocate a portion of a portfolio to emerging markets. She emphasized that this would be a long-term play.
“The statistic that’s always on the forefront of my mind is people who try to time the markets — if you put money in the markets 20 years ago and you just closed your eyes, you would have tripled your money. If you missed the top 10 days over 20 years, you would have only grown 50%. Now, that’s not a bad outcome. Here’s the bad outcome: If you missed the top 20 days, you’re flat. If you missed the top 30 days, now you’re half the money you put in. And it just gets consecutively worse from there.”
She noted that the best days are usually within two weeks of the worst days.
Julia La Roche is a finance reporter at Yahoo Finance. Follow her on Twitter.
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