A Moment in Time – Uncertainty and Volatility Rise

To Our Clients and Employee-Partners,

Yet again, businesses, investors and the capital markets are experiencing a moment of uncertainty driving increased volatility and reduced confidence and visibility.  We all operate more effectively during periods of direction, rather than in times of uncertainty.  Tariffs, layoffs, spending halts, declines in consumer confidence, the specter of higher inflation and myriad other factors that otherwise might be ignored or heavily discounted, are all now in the daily discourse.  We don’t comment on politics or policy in these notes, leaving that to Jefferies’ outstanding team of macro strategists and economists.  We do, however, try to share our perspective on how to react and not overreact in the face of perceived change or challenge.  With humility instilled by the many different environments and challenges we have experienced while at Jefferies over the decades, we offer the following observations:

1. Moment in Time.  The U.S. Government is trying to effect some major fundamental changes.  While some may wish for a more measured or methodical approach, it is clear there is a desire to disrupt the status quo, and strong and relentless measures are on the table.  As two people who always stay focused on the long game, we are less concerned with whether the tactics are justifiable, and more focused on whether anything is or will be systemically broken.  For now, the answer is no.  We are in a complex, challenging and strident moment in time, but not a time of open-ended risk.

2. Perspective.  From a capital markets viewpoint, today is far from a watershed period of pain.  Global markets are functioning.  Indexes are off their highs, but finding attractive distressed opportunities is hard.  Interest rates are reasonable, unemployment rates are low, and liquidity in the financial system is healthy.  Yes, inflation and recession are in the discourse, but the economy remains stable.  The point we are making isn’t that the potential forks in the road might not lead to issues; it is that the current foundation is nothing like the periods of extreme pain that we have all operated through and managed to come out on the other side of even stronger.  This is very important to keep in mind.

3. Pendulum.  The U.S. has always been a melting pot of disparate backgrounds and divergent views.  There are checks and balances, and visible, as well as unseen, forces that impact the process to bring us back to a workable reality.  These forces include the financial markets, necessary legislation that must pass muster with a majority, federal elections every two years and new issues that surface out of the blue and serve to unite, distract or create new priorities.  It turns out that it is really hard to keep pushing exclusively in any one direction for a prolonged period of time when the world is so diverse, transparent and immediate.  This is probably a good thing.

So, what is Jefferies’ plan of attack during this period of operating outside of our comfort zone?  We are committed to staying the course and continuing to serve our clients and building a great firm for our constituencies:

1. Strategy.  There is no doubt that periods of uncertainty make you question everything, including your strategy.  If you like your strategy, in our humble opinion, the current environment is no reason to change it.  We like our strategy at Jefferies.  We lead with people, ideas, advice and execution to help our clients solve their most complex financial challenges and achieve their most important strategic objectives.  We are full service in terms of capabilities, sector focus and global reach, and use our strong capital base to complement our advice in service to our clients.  That is what we are going to keep doing with intensity and commitment.

2. Timing.  We will always maintain our long-term perspective and our usual everyday sense of urgency will probably operate at an extra high setting due to the myriad challenges and opportunities that present daily. 

3. Risk.  We are operating at record levels of liquidity throughout our highly liquid balance sheet, but we recognize that times like this may result in small errors becoming larger problems.  We are asking all of our 5,994 employee-partners across the globe to join us in being extra vigilant in defense of our home, so we can be in the best position possible to be of assistance to our clients.

4. Offense.  We are wide open for business throughout Jefferies.  We are looking for opportunities to serve, and not reasons to hide.  Clearly, our actions must be thoughtful, measured and targeted to deliver value.  We want to hear from our clients on how we can best help you navigate your challenges and opportunities.

5. Culture.  Times of volatility can bring out emotion and pain in people, both externally and internally.  We pride ourselves on being a firm that takes things personally and truly cares.  This is our special sauce and we all need to be on the lookout for those in need.  And it goes without saying, but we will say it anyway, asking for help in times like these is a sign of strength, not weakness.

This is how we see the world today and what we intend to do about it.  Nothing we just said is earthshattering or worthy of a medal or ribbon.  Volatile and confusing times are best dealt with by remaining calm, applying a healthy dose of common sense, staying consistent and committed to your strategy and principles, caring about your people, keeping things in perspective, and coming into the office every day (or being out with clients) and forging ahead. 

The two of us and our nearly 6,000 employee-partners at Jefferies are here to forge ahead with each of you, our valued clients. You have our commitment to provide maximum support as you strive to navigate this volatile time for the benefit of your stakeholders.  Times like these are difficult, but often offer incredible opportunities for future advancement as the moment passes.  Please let all of us at Jefferies know how we can be of most help to you.

Navigating with all of you in the moment,

Rich and Brian