Yuan Redux

For the second time in five years, China devalued its currency.

The last time this happened was on August 24, 2015. This is a day that market participants will remember well. The Dow opened down more than one thousand points. I remember running into Josh’s office saying, “health-care is gone. XLV is down 20%.” In the first 15 minutes there were 1,278 trading halts for 471 different ETFs and stocks. 765 stocks in the Russell 3000 fell more than 10%. Things stabilized around mid morning and the Dow finished down 588 points, or 3.57%.

The latest devaluation is a direct retaliation against the most recent round of tariffs, which China is trying to offset with a weaker currency. And they’re not stopping there. Bloomberg news is reporting that China is also contemplating a halt on all U.S. agricultural imports.

This is a big deal.

Investors are constantly told to tune out the noise, which is a good idea in theory, but an unrealistic one in practice. It’s ignorant to say this is noise, but it’s naive to think you can find the signal.

A better answer to “tune out the noise” is to compartmentalize it. It’s okay to be aware of what’s happening today, it’s probably not wise to act on it.

Waiting for the dust to settle is not a strategy that works in the real world. The investing world is always dusty, that’s why people who take risk are usually rewarded.