So Black Friday came as it does every year. Not to be confused with Black Monday. Black is the new black? Anyway, the numbers for Black Friday are good, for online at least. So what does this mean? The economy is good? The sales were simply irresistible? Both? And what does this mean in the bigger picture for investment decision makers? It means a lot, and as usual will lead to some bulls and some bears. Can’t have a healthy market without both.

On a micro level, the earliest returns point to overall gains, with the majority of any increase coming from online sales. We now open doors for Black Friday on Thanksgiving Thursday, and we already start Cyber Monday sales on Black Friday. Serious “holiday” infringement going on. Not infringement to the point of Christmas decoration displays and sales beginning before Halloween, but infringement nonetheless. These early returns let us know that if you have an internet presence, with or without Brick and Mortar to back it up, you think things are good. And this leads us to the impact of this good news.

First and foremost, it means people think things are not getting worse. In fact, looking at the market indices hitting record highs, that news should not be a surprise. Housing sales are strong, unemployment numbers are good to excellent, and our President-elect’s promises of strengthening the middle part of our economy are obviously getting positive reviews…see the part about record highs in the markets. So what could end the party? Well, the party throwers themselves. Those spreading this news. Because we will soon butt up against a law no President can reverse. The “Law of Unintended Consequences.”

No matter your view of the independence of the Federal Reserve, independence is the intent. It is difficult to deny though, that the Fed has been disinclined to raise rates with any real resolve. It is widely accepted that the increases will soon resume, more as a result of the election being over than any new news. But a successful early holiday buying season certainly helps the public argument for the timing. Of course, there were many reasons for piling on the “raise” bandwagon back in mid-2015, and that didn’t pan out so well for those with money riding on the that side of the decision. Personally, I did win a $1.00 bet when it didn’t happen.

If we accept that rates will rise, we need to decide what this will mean, other than a ‘signal’ that we’re back on the upswing, economy wise anyway. I recently got an offer for a credit card with 0% transfer rate for almost 2 years. The television is full of ads for auto rates under 1% for 5 or 6 years. These don’t seem like signs that lenders fear large and/or swift rate increases. Not a ton of analysis there. No fancy software crunching numbers overnight. Simple observation.

So simple, and with so little empirical evidence, that my conclusion must be wrong vs the experts. I can accept that. It was a rather unsophisticated conclusion. When (we’re now accepting it’s when, not if, correct?) rates do rise, what are the implications. What are the Unintended Consequences? We can examine some of those simplistic examples to start. Credit card rates are low. Holiday sales are ‘good.’ Not so good that analysts are claiming to be caught off guard, like they were in the election by unbelievable results (see last blog). The majority of early analysis points to the deep price discounts as a major driver of sales increases. But still, early holiday sales are good. With consumer rates still hovering on the lows, remember.

Auto sales are also strong. The effect of cheap money must be counted as part of that. On the surface it sure sounds like a growing economy with smoother sailing ahead. But let’s take a look at the other side. Much of what is fueling us (oh, forgot cheap oil!) is cheap money. That’s The Fed’s work. Thank you, Federal Reserve. So what happens next month? Next quarter, next year? If thing’s work like they are supposed to, the Fed will continue to lag behind growth a bit and we’ll have a great Trump economic expansion. What does spending look like if rates are high enough for consumers to feel the impact every month?

The primary question that remains unanswered, but has large bets on both sides, is what happens when The Fed does start a path to higher rates. This is where the possibility of unintended consequences comes into the picture. After rates go up, and it is tougher to get a loan, will housing survive? There is currently a tight supply there. This is a market that could easily chase itself, as fear of rising rates leads more people to look at purchasing a home while they can purchase more. That drives the prices higher along with increasing rates, and all of a sudden a decent home is again out of reach.

Purchasing power would go down with increased credit card rates, and we would then learn the true amount of debt “The Jonses” are carrying. This is the part that we always need to explore when discussing micro sounding issues like a rate increase…what’s the macro effect. And is that macro effect actually what we expected or intended? If the economy is indeed in strengthening condition, we will enjoy the ride until we swing too far the other way…maybe not Volker too far, but we will swing too far to some degree. We have had dirt cheap money for a long time. At some point we’ll look back and say money was cheap too long and we let ourselves swing too far. Hopefully, it’s already happened and we’re on our way to continued economic health. That’s what the rallies in all the market indices are signaling…today.

Either way, don’t get completely caught up in one argument. That will be the first step toward letting emotion take over and creating blinders to stop you from seeing the big picture. And lest we forget, that’s the most important picture there is.

By now you’re aware we had an election last week. I’ll bet you even know who won. What’s left to write? I stayed awake that night watching historical moves in futures markets. I guess when it’s caused by an election it’s an historic event. When it’s caused by less easily explained factors it’s called a crime. The “Flash Crash” was the same dramatic move. Granted it happened faster in 2010, but in the end, just like this week buying came into the market. In fact, as a technical analyst, this week’s move was very bullish on the charts.

Two years ago, I had the opportunity to work with someone new to trading. He was a 26 year old physicist. I was not the smartest one in the room. Yet here I was teaching a “quant” about technical analysis in futures markets. He commented that a six sigma move, or six standard deviations from the mean should only happen, as he put it, “…once, maybe twice, in my entire family lineage. And I’ve seen 5 of them in the last 2 weeks.” I laughed and said “Welcome to the wonderful world of commodity trading.” And isn’t that really the cause of the flash crash? Too many standard deviations, not an evil empire taking down our economic backbone or, in my opinion, not someone breaking rules that existed at the time. Maybe it’s just gravity?

So how then, do we come to some sort of explanation on the market move and the election itself? The polls were obviously wrong. The pundits were wrong. Was the ‘market’ wrong? The market was right. The market is always right. We think the market is wrong when it acts illogically but the price is merely a result of our opinions, logical or not. Usually not. The market is not a living breathing thing. The prices though are decided by living breathing things. And those living breathing things had decided Hillary was going to win and this was deemed good. Then we decided she was going to lose and this was bad, until it was good. So what gives?

If you think this is the spot where I give a great explanation of why the market moved the way it did, it’s the wrong spot. In fact, it’s the wrong blog. I don’t want to write my opinion, and that’s all it would be. Rather, I want to make an observation. The rock band The Who were wrong; we will get fooled again. Why? Because 6 sigma moves just don’t happen, except when they do. And this was the perfect example. Brexit wasn’t going to pass. The surveys told us that. The pundits told us that. Both wrong. Sensing a pattern?

When we had Friday Wraps at Bloomberg, I always asked my younger colleagues to suggest a topic whose impact we could discuss across the market sectors. But one week the pre-meeting banter, and laughter, was around the story that Donald Trump was going to run for President. Topic found. We opened that session by me suggesting everyone stop laughing. Did I think he would win I was asked. No. Did I think he could win was the next question. Again, honestly I didn’t. But I wanted everyone to understand that despite my personal opinion at the time, yes he actually could. This was not a declaration of my preferences but just my years of observation peeking out.

I’ve been surprised before and wrong way more than that. But what no longer surprises me are surprises. Six sigma moves. They happen all the time. Usually they happen when a lot of people are wrong. Or confused. Or both. And then we try to explain them. And how we won’t miss it next time. But we will. We will miss it again and again. It’s human nature. Human emotion is not the logic of math. But human emotion drives our opinions, our opinions dictate our decisions, and our decisions dictate the whether the price goes up or down; math and the accepted frequency of six sigma moves be damned.

So what happens next time? Do we learn from this and have a more ‘correct’ market opinion next time? I think we learn from all of these historic occurrences. But I think that the lesson we’ve learned twice this year, from Brexit and the US election, is that no matter how convinced you may be of an opinion, the market will find a way to remind you of the fact that the most unlikely of events are just that, unlikely. They are not impossible, they just create bigger moves. Hopefully we’ll all remember that the next time we’re “positive” of what can and can’t happen. Stop laughing.