Happy Milestone


Milestones. They mark our lives, over the long term and the short term. Communions. Bar Mitzvahs. Sweet Sixteen’s. High School Graduation. Driver’s License! We’re big on milestones. They’re important. They helps us keep track of where we’ve been, and to look forward to where we’re going. Two of our big ones come every year. We celebrate our birthday no matter the age. And then there’s the New Year.

It’s a milestone shared by all at the same time. And we mark it accordingly. We have lists. Top 10 lists generally come out now. Lists of those we’ve lost; people we know and will personally miss, and those who have had some effect on our lives. Family, friends, athletes, stars. Movies come out in time to make the Oscar voting for this year. It’s big. Big enough we need Times Square in New York to contain a few hundred thousand revelers at the same time. And it’s not just the United States. This plays out globally every hour, depending on your time zone, in similar but somewhat different ways. Each country has its own celebratory customs, but they all share one common theme. A feeling of looking back and looking forward, all at once.

And this also comes into play in our investments. Did you do well this year with your (or your advisor’s) choices? Was it a tough one that you’re glad to close the book on? That last part is the one literal milestone here; we close our books. We made money or we lost money. But we count it at year end. So does the government. We log our profits and losses as of the end of the year to help determine our tax burden, or refund. So everyone is paying attention.

As a trader in the pit, this milestone came figuratively every day. The market actually closed every day back then, and as such, we tallied our profits or our losses daily. And in order to survive the profession, we considered it a milestone of sorts every day. If you patted yourself on the back into the next day for making money, you probably managed to ruin it to some extent when the market reopened. And if you came in thinking “I’m going to get yesterday’s losses back,” well this too often didn’t end well. And so every day, the best traders found a way to block out yesterday’s results and start fresh. It was a means of survival, and those that did it the best seemed to have more of those good days than those who didn’t.

Not every day in the pit was a good one. Not every day in the pit was a bad one. A mentor taught me, after a good day, go home, have a quiet night and get up fresh tomorrow ready to make money. Not make money again. Just make money. A bad day?  Do something good for yourself, he said. You just lost hundreds or thousands of dollars. Will a nice dinner out really cost that much in comparison? Generally not. But after dinner I felt better, more relaxed. Ready to go back tomorrow. A really bad day might require buying a new television to really feel better, but the idea was the same. Balance. Even keeled and ready to think straight about the mission at hand the next day.

The great part about December 31st is that it really forces you to follow that thinking. Because if you had a good year, it’s over; and the reminder is a tax bill. Now that’s not entirely a bad thing. I come from a family of accountants, and as such was raised to believe that if my tax bill is bigger this year (politics and changing tax rates notwithstanding), I should smile because it means I made more money. And if you lost money, well the government is going to give some of it back in a fashion. But either way, December 31st is book closing day. A milestone.

No matter your results, or your investing style, embrace this opportunity to start fresh. It’s what celebrating the New Year is about. Don’t spend too much time or effort thinking about your 2016 results. That’s not to say ignore what happened. Take stock (pun intended). What made the year successful? What made the year not so successful? What did you do right? What should you have done differently? That is how we get better. But over congratulating ourselves or obsessing over losses can easily become counterproductive. It’s done. Over. Fini.

Most of us don’t have to reset every day. You might reset every month or every quarter if it works better for you. But no matter what, you have to reset at the end of the year. That annual milestone that isn’t your birthday. Sure, that’s an annual milestone, but it’s date is personal. This is the one we all share at the same time. So my brief bit of advice is no matter what, enjoy the New Year celebration. Life has many ups and downs that we can’t easily reset from. Investing isn’t one of them. Embrace the opportunity to start fresh. Move forward with optimism, and don’t treat every profitable or losing day as if it is your overall result. It isn’t. December 31st is. And that’s what’s great about milestones. They’re markers; they mark the end or beginning of something new. So review your year, plan for 2017. And move on ready to increase your tax bill for the right reasons. Because in another year, it’s time for another milestone.

Thanks for reading the last few months. I wish everyone a happy, healthy, and of course, prosperous 2017. Talk to you next year.

Oh, What A Surprise!

Back before I even got hooked on the sitcom Taxi, as revealed in an earlier edition, my nightly routine included watching reruns of the sitcom The Odd Couple. One of the classic episodes involved Felix throwing a surprise party for his roommate Oscar, who wanted nothing to do with it. Felix convinces Oscar to go through the motions for the sake of his friends who would be attending (sorry, no YouTube clip to be found).

So what does this have to do with our securities markets? The Fed raised interest rates this week. You’ve heard? You’ve been hearing for months. It was a fait accompli. The markets have been telling us. The commentators have been telling us. Heck, once the election was over, there wasn’t anyone left Not telling us. And yet, the markets reacted. Bond futures down (translates to rates up), equity futures up. The S&P keeps making new highs. It seems we all pretended we were surprised. And some people probably lost their ‘bets’ in spite of all the signs. Remember, there was a seller for every equity buyer prior to the announcement, and a buyer for every seller of bond futures.

This move, though, has a great deal of long term implications. An analogy I’ve often used, and I’m sure I did not make it up, is that running the Fed is like driving a cruise ship. Speed boats can zig and zag constantly, changing direction on a dime. And if they want, changing it again if the captain changes his/her mind. Much like asking a kid what they want Most for their birthday. A puppy? A new bike? Ah, an iPhone, since the current one is already a generation old.

But cruise ships? They don’t turn so quick. Titanic, anyone?

A cruise ship picks a direction that it can follow. They don’t want to turn. New York to London does not involve many turns. And this is what I think the Fed has done. I won’t say if there will be 2, 3 or 4 raises coming in 2017. What I will say is that I don’t believe after this second action that there are any quick reversals of opinion or policy coming our way. That ship has sailed, so to speak. OK, too many analogies.

But this is big. Perhaps as big a policy decision for the next few years as our choice for President. There are very few things in our lives, let alone our investment decisions, that are not affected. And if the Fed is indeed more like the Queen Mary than a Scarab, we now have an idea of what the future holds. Not the usual “future” of hours or days we’re now used to paying attention to, but a real future; 5, 10, 20 years or more. Take a look at historical 10 Year interest rates for the last 150 years.


None of the annotations are mine. This is not a revelation of any sort on my part. It is, as my blog tries to be, merely observation. The questions it raises are; how is this interpreted, and what are the ‘downstream’ effects? By downstream effects, I mean “Why does it matter to you?” And we can break that down if we want into two categories; life in general and investments specifically.

By looking at the chart, we can see that rates really do have long term cyclical periods. In fact, the above chart says we’re on a path for the next 20 years or more. The first down move in the chart, which takes us to the middle of the first annotation, shows rates moving down from around 1870 through 1900. Rates show a rise from that low point around 1900 to a peak around 1920.  A decline followed until approximately 1940 and then the rise begins; until Paul Volker takes drastic action when Ronald Reagan became President. Since that time, rates have gone down. A few small corrections along the way, but pretty steadily in one direction. Cruise ship.

Every investment decision should now be made with the notion that we are in a rising rates environment. Let me point out that this is a good sign! It signals expansion. It signals economic health. It signals growth. And these are good things. Companies may see this as a reason to gear up for increased demand of their products. Employment slack (yes, I believe there still is some not blatantly shown in monthly numbers) evaporates. Wages go up. These are classic manifestations of an economic expansion. Econ 101, so to speak. And it seems to coincide with President-elect Trump’s positive bias towards business, especially United States business.

And obviously the Fed believes we’re on the right path. It can be argued, and often was by me, that the Fed was not going to raise rates again just before the election. Incumbents like positive stock markets going into an election. It helps the argument that the administration has done well economically speaking, so let’s keep the momentum going. Manipulation is such an ugly word, so I won’t use it. But people have historically voted in a way that they believe will most benefit them financially. We talk and even yell about social injustice and over-reaching government in our private lives, but in the end, we vote for the almighty dollar and our own pocketbooks. So the Fed wasn’t going to raise before the election. And in the words of Oscar Madison in the Odd Couple, “Oh What A Surprise!” when they did.

As to the effect of this rate increase on families? One raise, quarter point, not a huge deal. A few dollars a month on a car or mortgage, but really not much more than one less dinner out. But! If we know that this is now a long term trend we’ve begun, maybe we buy the car or house sooner. Maybe we take on less debt because we don’t want to pay ever increasing rates on our credit cards. This is the early stage. We have a long road ahead, or so history would indicate. Don’t stop buying. Don’t stop investing. And maybe even start saving, since your savings will actually start making money; another plus. Just make sure that when you do make these decisions, you realize what a big change we have just gone through. I’ve never been on a cruise, but I’ve heard they’re great! Economically speaking, this slow turn hopefully indicates we’ve got some good times ahead. Another Volker will come around one day, but history says today is not that day.

Did You See The Election Results?

No, not ours. We’ve been over that. We are over it. We’ve moved on. To new highs in the equity markets. US Bond markets are acting as if the much anticipated rate rise is coming and we’re on our way to economic glory. Let’s recap; Brexit – Yawn, US Presidential – Snooze. So now what? ITALY! Are we numb to these populist movements at this point? Do they no longer worry us? Or have we digested as much of this as we can and it’s on to holiday shopping, football playoffs, etc.

Italy just had a vote, in the nice and simple YES/NO format. The populist explanation of the vote explained that it was a referendum on whether to effectively expand the power of the Prime Minister at the expense of the regional governments and the citizens, of course. And the resounding defeat of the vote has resulted in the effective defeat of Matteo Renzi as well, who resigned when the results became clear. I’ve spent my career looking for patterns, and this one is one easily spotted on your first day trying. WE, no longer believe in what has worked relatively well for a long time. WE is becoming a pretty big group. And yet, while all these movements seem to believe that their votes will bring on substantive change, I’m not so sure that any of them are or will be getting what they think WE’ve bargained for.

Why not? The turnouts aren’t terrible. The balance of the votes are relatively convincing. And the messages being sent to the incumbents and those that would replace them are very clear. But from watching the markets react, and from watching elections as an interested party for quite a while now, I don’t really think these make much difference in the big (macro?) picture.

We do need to pause for a moment here to bring up the fact that this is Italy. Perspective. Before Donald Trump was the US President-elect, Italy endured Silvio Berlusconi and his scandals. This is not to suggest that the incoming administration will have scandals. In fact, that was far worse than even the ugly Trump accusations. And Italy still stands. They have survived enough to have this vote on their future. So as panicked as the British might have been from Brexit, and as traumatized as many were here at home by Trump’s “surprise” election, the countries survive.

There are more votes coming up in Europe. The future of the European Union seems to be in jeopardy as these votes come up and the populists ride to victory. France’s will come in 2017 with much of the same momentum building. As for momentum, Angela Merkel, once seemingly guaranteed re-election could be losing hers, and in turn Germany’s own elections next year. Each time a country goes through this type of vote, the doomsayers are out. Well, they’re basically always out, at times like this they are just are louder and more visible. But let’s look at what actually happened when we’ve had these recent events.


Currently, the British Pound is approximately 12% from where the currency opened vs. the Dollar the week of Brexit vote, when we thought they would stay. Lower? Yes. Disaster?…not so much.


I believe we’ve covered the all-time highs in US indexes.


The current (right most) bar is this week in the Euro. While low, its reaction was to sell off and bounce right back. Not a big indicator of an EU breakup

So how do we reconcile the doom saying with the reality? I believe that these charts are merely a representation of crowd beliefs and behaviors. We often over react to a piece of information as evidenced in these pictures by the enormity of the moves immediately following the election and their earliest results.

So as we look at populist voting patterns, maybe we can look at this in a positive. It’s the beginning of people becoming more involved and paying attention. The markets don’t seem to view it as the big negative many on the other side will portray. In fact the market moves seem to indicate that many of those looking for substantially negative reactions were taught that valuable lesson we all learn, many multiple times (point finger at self). Your opinion is just that, the market is always right.

Look at the situation today. The markets are stable. The US is rallying, and many would argue that this can’t hurt the global markets. No matter the rhetoric around no free trade pacts, global trade itself certainly is not going to cease. This is today’s normal. It’s not a new normal. It has come about from the progression of technology and the ability to trade, manufacture and conduct business globally in general. It’s here to stay. This is a genie that doesn’t go back in a bottle. And it looks like the markets know this, accept it, and maybe even like it. Keep calm and keep investing.