Investing & Unintended Consequences

This week has been a whirlwind of news that could have dramatic impacts on the market long-term. I promise, I’m going to try to stay apolitical, but unfortunately, politics is having a big impact on markets right now from DC to California. It’s worth discussing how policy changes could be well-intentioned, but lead to unintended consequences and ultimately risk and opportunity for us as investors.

Here’s a small list of what happened in the last week or so:

Individually, any of these actions could be seen as a good thing (maybe not the last one). Lowering the costs of housing and credit cards is a noble goal, billionaires probably have enough, and people should follow the law.

But unintended consequences are often more impactful on the economy and markets than the intended consequences.

Just look at some big policies in recent memory.

In an effort to fuel the economy out of the dot-com-induced recession in the early 2000s, Alan Greenspan kept rates low and oversight so relaxed that it led to the CDS crisis (among other things) that caused the Great Recession.

President Obama’s efforts to insure more people and bring down the cost of care…drove costs higher!

Surprisingly enough, UnitedHealth Group's stock was one of the big winners of this policy, rising ~10x since the bill passed.

Intentions can be good.

Consequences can be unintentional, which I’ll expand on in a moment.

There were some big movers early in 2026, but overall, the market has been pretty quiet. This week, earnings season starts, so it’s likely we’ll get more fireworks soon.

The Asymmetric Portfolio has been bouncing in about the same spot for 6 months. I don’t like it, but the volatility and declines have been driven by a small number of stocks ($HIMS ( ▲ 2.05% ) $HOOD ( ▲ 1.95% ) $SPOT ( ▼ 1.74% )) that have driven the portfolio’s outperformance over the past two years.

I’m happy to be buying some of the companies I like most long-term at what I view to be more reasonable prices than we saw at the peak.

Let’s just go through a few examples of how consequences could be far from what the original intent is.

Banks (not the credit card companies) determine who gets a card, what their limits are, what the rate is, what rewards look like, etc. They’re likely to close up that credit profile to some borrowers if the profit from credit card balances take a hit.

High interest rates pay for all of the benefits you and I may get from using a given card. That will disappear. That wasn’t the intent, but it’s likely to be a consequence.

Note: Maybe that’s good for blockchain payments?!?

Almost every attempt to manipulate the existing housing market has backfired. The only path to lower costs is more building.

This isn’t an example of unintended consequences that I made up. Look at the direction of the Fed Funds rate (the short-term rate the Fed sets) since mid-2023. There have been 6 rate cuts for a total of 1.75%.

Now look at the 10-Year yield, which is the benchmark used for everything from corporate loans to mortgages, over the same timeframe.

Not only are rates not falling, depending on the time frame you look at, they’re rising.

What happens if the Fed cuts rates to 1%, as the president has asked for?

I would wager that 10-year and mortgage rates won’t fall and may actually go up.

This is why the Fed had independence in the first place.

This one is especially interesting to me because CEOs like Anthony Noto at SoFi have been much more bullish on the economy and lending because of falling rates. But rates aren’t falling on the long end of the curve, and the economic boon he expects may not come as a result.

I’m not going to open the immigration can of worms, but you can imagine how shrinking the workforce and lowering available low-cost labor could impact home construction, food prices, and even GDP growth. Maybe that’s good for the economy. Maybe it’s not. But the consequences for the economy and the job market may be very different than the intention.

I wanted to write this today as a word of caution.

I see a lot of certain prognostications like, “Because of X, Y will happen.” In all of the examples I cited above, we have no idea what the real impact is going to be long-term.

You may agree or disagree with any one of these policies, and your reasoning may be sound. But there are always unintended consequences.

Often, unintended consequences are more impactful — sometimes in the opposite direction of the intent — than the action itself.

I like to make the case against a decision or policy I may like. That helps balance my opinions and forces me to keep an open mind.

But being aware that the outcome may be different from what you thought is a good start.