Spring 2022 Newsletter

A Message from Jerry

Dear Friends,

In our last newsletter I took some time to reflect on the macro or big picture regarding money, finance and how the wider world frames the context and limit of our understanding of money energy. I want to continue with a few more macro musings.

Often, this financial frame or context imposed by the wider world, if left un-interrogated, conditions the largely invisible assumptions we inherit and carry with us for our entire lifetime. Our family of origin economics are also among the most significant aspects of our identity that we absorb from early childhood. This is why we encourage you to have regular conversations around what shapes your concept of value.

Given the significance that money has in our lives most people, if asked, would be hard pressed to describe what money essentially IS. We are more familiar with the “what’s” and “how’s” of currency, but rarely know how to distinguish currency from money. So, let’s unpack that.

Currency is the result or product of an agreement. Anything can be currency; labor, vegetables, time, expertise, you get the picture. There is a story from the pages of American History that illustrates this really well. In 1626, the First Nation Lenape tribe “sold” Manhattan Island to the Dutch for what has come to be known as $24.00. Hmmm…so one could own Manhattan Island for $24? As they say on the lower East Side, “Such a deal!” This dollar valuation is, of course, an equivalent value based on the Dutch guilder. The actual currency, however that was exchanged (according to the story) was “beads and trinkets.” So, the island was in fact purchased with currency because Dutch guilders (money) held no value for the sellers.

When we confuse currency with money we often lose the magical and creative quality of money. Where is this “magic”? It is in recognizing that “value” is changing hands, but so much more is embedded in that exchange. The magic of the greater system is inherent in every monetary transaction. Life needs are being met through each exchange, and each exchange exists within a greater circulatory process that is the very essence of human economy and of LIFE ITSELF. When the magic of money radiates its presence through currency, the power of creativity, of bringing something into being out of nothing, lives. Our very lives depend on this grand circulation of energy and value.

Human beings, however, almost instantly become mundane and practical when it comes to money/currency and the need for accuracy. Whether we are reduced by the stress of daily subsistence (as are many people) or in the midst of abundance, we easily lose connection with the existential reality of what the circulation of currency/money serves. We take it for granted like we take breathing and our heartbeat for granted. However, just as the blood of our circulatory system carries the mineral nutrients and oxygen to each cell of our bodies, so money/currency carries the life forces that enliven the larger structures of our society and civilization.

The elaborate system of credits and debits that has evolved to track the constantly changing balances of myriad account values is what we call accounting. With apologies to accountants, much of the deep significance of money energy is often lost as money in most accounting circles has been reduced to transactions, sums, balances, and finite numbers.

I invite you to reflect on this. Perhaps a ray of light that endures within the substance of money itself will emerge for you, and help you encounter the magic of this macro financial picture. I have much more to discuss with you about the philosophical and spiritual dimensions of money, the mystery and magic of money, and how to elevate its meaning in your own life to the realm of its origin. But, I will save those musings for the next newsletter.

I will end here with a gentle reminder that our task is not to predict the markets; which is, in any environment, impossible. Our task is to help prepare each of you to meet the ever-present uncertainty of life with knowledge and confidence. If we follow our financial plans our material life goals can be met, perhaps with sufficient extra to extend beyond ourselves to our families and the larger world. As ever, here’s to your good wealth!

Aloha,

Jerry

 

Please click below to read our full Winter 2022 Newsletter, including messages from Bernard & Kim.

 

Modern Market Dynamics

Image by Ibrahim Boran

April 25, 2022

Dear Friends,

Three dynamics of modern markets converged on Friday. They were set into action on Thursday and let loose on Friday. What leads to this conclusion? It rests on two observations: first, nothing in the U.S. or global economic picture changed substantially from Wednesday to Friday and, second, the markets discount or “build in” current events immediately. They incorporate news into price or value levels, as they are known. So, if there is a large move in the markets, it should be triggered by some event in the future economic picture. Let’s review some of the big areas that would trigger such a move and see if they have occurred. If they have not, then it leads to a different source than actual events.

Let’s begin with geopolitics—the big one. Nothing new or surprising happened in Putin’s destruction of Ukraine.  No poison gas was detected; no new nuclear threats were made. Just the same destruction he has been engaged in since the invasion began.  Macron looked to be the winner over Le Pen in the French elections. 

As far as I can tell, Britain is still not back in the EU. North Korea launched no missiles at Hawaii. Iran did not announce or admit to possession of any nuclear weapons. A significant segment of China’s economy was still on lockdown. Disney was still duking it out with Florida. Global supply chains were still significantly slow. Supply induced inflation was still plaguing the world. U.S. inflation was still elevated. The U.S. Federal Reserve still intended to raise the discount rate by 50 bps. The U.S. economy was still growing at an elevated rate and U.S. unemployment was still dropping.

These are all familiar elements of the “post-Covid” world. Unless something new was happening, the somewhat confused and volatile market before Thursday had no reason to sharply sell off.

On Thursday, I attended a meeting with Goldman Sachs where they assessed the markets and Q1 developments. No expectation of a sharp selloff was mentioned or indicated. In fact, their last assessment, from Q4 2021 was still current; with some differences. Their position was that the risks in the financial markets were very close, but fractionally greater than at the beginning of 2022. They made no recommendation to adjust asset allocations or to sell anything.

So, where can we look to find an explanation of the market action we have seen for two days and continuing today?

The volume of shares transacted on Friday on all U.S. markets, as best as I can determine, was in the billions of shares. Yes, that is BILLIONs and billions are not unusual anymore. The financial press attributes all activity, up or down, to “investor” activity. Share volume of this magnitude is not the result of individual investor transactions. Very few people woke up Friday morning and decided that the world had changed and they needed to sell their shares, wreak havoc on their financial plans and hide in a cave.

In my opinion, what did happen is that large institutional investors, brokerage firms and the holders of many trillions of dollars acted to protect themselves without any notice, by selling assets now in order to secure a lower base cost from which to claim greater gains later. They create and implement a strategy that is self-serving. It gives them the opportunity to show larger gains later in the year.

Some evidence of this can be seen in the intra-day volume. During the opening 30 minutes of trading on the NYSE on Friday, volume was 122,406,948 shares. During the next 30 minutes, volume dropped 60% to 50,177,282 shares. Volume continued to drop until 2:00 PM, then rose to 30,596,623 and to 47,726,679 at 3:30 PM. During the last 30 minutes of trading, from 3:30 PM to the close at 4:00 PM the final 30 minutes, trading totaled 477,817,904 shares. The total volume on the NYSE on Friday was 1,000,647,620 shares.[1]

The opening volume was about 2.4X the mid-day increments. In the closing 30 minutes, almost 50% of the entire day’s trading volume occurred.  This acceleration indicates that a pre-programmed trading algorithm was triggered—to sell. It is not likely that individual investors waited all day, until 3:30 PM, to enter their sell trades. The automatic, pre-programmed transactions are another method to remove consciousness from investing. To successfully build the value of investments requires that we choose sound companies, serving the needs of real people and that we allow the most important ingredient, time, and our attention to work the magical transformation.

There is much to be said for the shadow side of our advanced, electronic securities markets. The bright side is the increased access they give to individual investors and speculators. This, at virtually no cost for most transactions. The dark side is that this massively increased access and speed, combined with the virtually ubiquitous financial and economic “news” has transformed investing into a mimicry of a global video game or contest, with the “color commentators” and play-by-play narrative that is designed to hold one’s attention in the same way as a sports event.  Of course, there are the talking heads from many Wall Street firms and institutions that send their gladiators to unfurl the company colors and vanquish the competition.  Oh, let's not forget the “mad man” who screams and yells at all the rest from a self-proclaimed position of omniscience.

What is an antidote to this trivializing of the human labor that brings value, in the form of currency/money/wealth, into the world? Rather than diminish the task of meeting the needs of others, it should be cultivated. If left to the speculators and game players of the money realm, well-chosen investments that support the uplifting of our fellow humans and culture would be ignored. There is little, if any lasting value in the next daily, 24-hour episode of what is better named “The Survival Game.”

As is often the case, there is a purpose and art to investing. The “masters of the universe” of each generation laugh at and ridicule this fundamental notion that investing is assigning a portion of whatever amount of wealth you have, to recirculate by supporting the creativity and dedication of others. By investing, we make it possible to create or discover pathways to our highest good as a culture and civilization.  By recognizing that investing in businesses that meet the needs of others, the future for all is improved.

The recent selling and the major disruption of life that Covid and conflict has brought will be replaced. Human aspirations to improve the lives of our families is more fundamental and stronger than the fear that grabs us from time to time.

From all of us at Arista Advisory Group, LLC

[1]. Volume statistics from Barronʻs Advisor, Market Diary April 22, 2022

Winter 2022 Newsletter

A Message from Jerry

Dear Friends,

As we begin the journey into 2022 I want to invite you to join me in reaffirming and reconnecting to what is at the heart of our mission here at AAG: helping our AAG family define what is valuable and sustaining, and continue the exploration of and encounter with the life-giving energy that is money. Just the easy stuff, right? Well, I would argue that having these ongoing conversations with yourself and with those you love has an infinitely precious rate of return.

I have been fascinated recently, for instance, with online videos from the Hubble Telescope. They remind me to shift my perspective, to spiral out beyond my internal dialogue, my daily life, the Island I live on, the Nation, the globe itself, and into the cosmos where knowns and unknowns have to co-exist in the minds of those who grapple with the laws of our universe. They remind me to reconnect with my sense of awe. So, what does this have to do with the financial world?

Have you ever heard the saying, “There is no such thing as a risk-free investment?” Well, it’s true. The funny thing is that millions are spent yearly to explain away or numb the uncertainty that lies in that risk. Risk can be reduced and moderated with experienced advisors, with constant care, with a great plan, but the uncertainty can also be delved into directly through a greater engagement with the entirety of what you are participating in when you invest. What is your money energy giving life to, and does that give you a sense of engagement in your community, or your society? Are you able to spiral out to that Hubble and now Webb Telescope perspective and see the patterns you are engaging in with pride and plan for those you love in a truly sustainable way; sustainable to mind, body, spirit, community, and the earth? It is when we get outside of ourselves and embrace the unknowns as part of the journey to expansion that we are truly able to see money as an enlivening energy that makes available that which we need to live and that which can circulate and support life in all its forms. We can connect to our awe, and see ourselves as part of something positive, full of opportunity.

We live in a world that has the ability to create an unlimited amount of anything, but the way value is too often defined in our society is through the imposition and perpetuation of a scarcity mindset. When we expand our idea of what the nature of our money is and what it can accomplish, we unshackle ourselves from the internal dialogue of scarcity. That way lies freedom, and abundance. That journey has to begin within. We are here to help plan the steps that follow, and to continue this conversation in the days and years to come.

I wish you a hopeful, adventurous and abundant New Year!

Aloha,

Jerry

Please click below to read our full Winter 2022 Newsletter, including messages from Colleen, Bernard & Kim.

Healing, Growing, Unfolding

Dear Friends,

You may have noticed a lot of volatility in the markets right now. I think it’s possible to view this volatility as a kind of inflammatory process through which healing and new growth will likely ensue, as well as an eventual stabilization. Here are a few of my thoughts along those lines.

The Nasdaq has been selling off, but I don’t think this is long term. It seems to me that this is an unwinding of the speculation that drove these companies up so rapidly. The small rise in long term interest rates, itself a speculative move driven not by the scarcity of capital but by fear of the cost of capital going up, has caused the recent selling of these companies. The ambiguity between the Fed’s position of keeping short rates as low as they have been, while at the same time whetting the appetite to push tech stocks higher based on P/E expansion (which seems temporarily exhausted) has caused long rates to jump up. Speculators initiated the above mentioned selloff when they interpreted this ambiguous Fed position as a signal that it would react to the rapid rise in GDP (as the economy accelerated out of the  pandemic) as inflationary. It didn’t happen.

Powell very clearly, strongly, recently stated that this rapid growth would not cause the Fed to raise rates, and set a time-frame of 2024 for rates to rise. A tug of war has since begun between the aforementioned speculators’ interpretation and the Fed’s recent statements. My view is that the Fed will prevail.

The $1.9T about to cascade into the economy, followed by $2T just announced as part of Mr. Biden’s “Build Back Better” agenda, will overcome all of this “inflammatory response” style volatility. This influx will push the equity market higher as it happily absorbs all of this new stimulus money as well as the release of trillions more that will flow out of savings as people break out of their COVID-19 stupor. 

Amid all of this good news, however, it important to remember that the equity markets might move in fits and starts. This will likely be the result of the battle in Congress reengaging as Mr. Biden rolls out his plans for higher taxes. Another important overriding factor to consider is that any big initial changes in the markets will soon be tempered by the already looming mid-term elections. The Senate and House could easily be affected by any misstep, like real inflation emerging, a faltering in the rise of GDP next year or persistent unemployment. So, it is my sense that Mr. Biden will show some restraint in his proposals to protect his precarious control of the Congress. Regardless, net, net, and with lots of jagged moves, the economy and markets will still tend to go higher. If GDP growth continues, with only modest threats to the Fed’s resistance to abandon lower rates, and productivity shows a real net gain, the expanding growth will be very positive for the health of the markets.

I realize that this seems like a lot of “ifs,” but remember, power is inherently resistant to letting go of its influence and this pattern is a driving force; for now. My usual disclaimers about the future still hold; markets are driven in the short term by forces other than fundamental good sense. Markets are subject to the massive power of technology most (all) of which is dedicated to the short term pursuit of profits; therefore, it is also dedicated to creating the very conditions it needs to justify them. For instance, some of the recent frenzy has actually been created by the flow of funds into the markets, thus pushing it higher through its own creation of demand. It is important to remember that the market is not necessarily driven by actual growth in earnings and other usual fundamentals. The sheer volume of money flowing into the markets can and does create the justification for higher valuations of the equity markets. So, where does this self-induced inflammatory process lead?

The deciding factor, at some point, will be the reconnection of the markets to the real economy. The market economy can only be the main causal factor for a time. Then, the real economy will either grow to support the market generated prices or decline to a lower, more authentic and sustainable price level. We won’t know which of these paths it will be for a while or how substantial the accompanying adjustment will be. Good solid planning, long term strategies and ongoing attentiveness remain the name of this unfolding game.

Meanwhile, in my opinion, the old adage still rules: don’t fight the Fed.

Warmly,

Jerry

Embarking Upon a New Year

Image by Heidi Fin

 

January 22, 2021

Dear Friends,

Our warmest greetings to you all as we embark upon a New Year.

As we look ahead, we are mindful of the lessons, milestones and manifestations of 2020, including the events of these first few weeks of 2021. Having witnessed the swearing in of our 46th President, we wanted to reach out, in the spirit of the moment, and let you know what is inspiring and informing our work at AAG this year. We hope that these opening thoughts will plant the seeds of many fruitful conversations to come.

These unprecedented times have certainly uncovered some profound revelations. The function and character of our systems have been tested. Nevertheless, this has also been a year of immense innovation, community building and for many of us a lifestyle reset. We recognize that 2021 presents us with an extraordinary opportunity to take part in the process of economic and societal renewal.

We at AAG have utilized 2020 as an opportunity for reflection and reaffirmation of our foundational values; how one’s personal relationship to money becomes the energy that enlivens the financial planning process- towards which we apply our values and goals. We have looked forward, and implemented an approach (one that has been in the works for some time) for the long term sustainability of our common endeavor: to develop and support your financial well-being.

We have welcomed additional members to the Arista team! We examined the rapidly emerging trends and dynamics in financial planning and asset management and, as a consequence, have strengthened our capacity to more effectively incorporate values alignment in investing. We have also carefully reviewed our infrastructure and implemented a platform of newly integrated technology to better serve your needs.

Our overarching message, as we walk forward into 2021, is: to deepen the realization of our essential inspiration, and to reinforce our original intentions to serve you in building wealth, abundance and more intentional stewardship of your resources. Substantial wealth is best built and sustained when we know why we are building it and when it serves our life’s intentions, rather than when the goal becomes wealth in itself. In contrast to the general trend of the financial services industry, which tends to favor higher risk short-term investing, we want to support you in building long-term sustainable financial strength as an expression of your values and to serve your life’s intentions. We urge you to engage with us this year and to take on the question: Is my financial life in harmony with my (and/or my family’s) life purpose and values?

We wish you and yours kindness, good health, abundance, vitality and clarity of purpose in this New Year.

Jerry, Bernard, Kim, Eileen, Colleen, Kira and Dave

Stewarding Your Financial Resources, Together!

Tulip and Willow, 1875 By William Morris, from Birmingham Museums Trust

July 31, 2020

Dear Friends,   

With everything that is going on right now we recognize that this may be a good time to begin assessing the next cycle in the markets and together with you, to discuss a strategy. We can’t say with any real confidence that we see the entry point yet for new money. However, we do think that this is the beginning of what it will take to have confidence in an entry point. 

Earlier in March, our sense of what the economy would have to demonstrate is now becoming the dominant view: that the devastation in the economy will be much more significant than it might have appeared at the onset of the whole COVID impact. At that time, we expected 2020 to be a lost year economically. We still do, but now we think there is a strong likelihood that it will now extend further into 2021 and not grow to new heights until perhaps late 2022. That’s the economy. 

The markets are on another path: they have reflexively and prematurely discounted the economic destruction and how much of it will be permanent. After the March ~35% market drop, it simply turned around and “resumed” 2019 assumptions from a significantly lower level. This just demonstrates that with enough institutional money, underpinned by the Fed and Congress, temporary opportunism and speculation can appear to be the same as the normal market “discounting” mechanism. It is not. It takes a much larger gain to overcome a loss. A 50% loss takes a 100% gain to offset the loss and you are only back where you started.

The Fed and congress can dump $6-8T into the economy, with an additional few $T coming soon, but it is the equivalent of vapor wear in tech.  It is economic junk food, a sugar high. The money injected does not represent human productivity and cannot actually add additional value, only survival value. Survival value is very important, but if the mechanism of human economic activity is damaged or broken, it will take much longer to surpass the economic productivity of “the day the earth stood still.”*

The earth is fortunately no longer standing still, but the extent of the damage is not yet even known. The cumulative effect of all the unemployment and bankruptcies is accelerating. Much of the landscape of business and local commerce will disappear and it will take time for the void to be filled. That is the economics. The human experience will be carried for several generations. The scale of real people suffering and dying, the loss to families, cannot be assimilated or replaced.

So, when will the markets recognize and reflect this? So far, the fear-generated self-interest of markets is ignoring the obvious U.S. and global hole that has been created. Somewhere in all this, markets will have to adjust to the loss of the essential valuation tool that generates market prices: earnings and how much one is willing to pay for the future earnings of a company. How can there be a price to earnings ratio when there is little or no way to predict earnings with confidence for the next year or so? This fundamental discounting mechanism of markets cannot really function well at this time. Only a handful of companies, fortuitously positioned to ride the wave of destruction have surfed to earnings nirvana (tech, online merchandising, pharmaceutical and healthcare, communications). The vast majority of companies have suffered greatly. An increasing number have disappeared as we have known them, or disappeared forever.

The markets are beginning to see the real depth of the underlying debris field and, even more importantly for investors, the duration needed to recover. It is a sobering sight. The U.S. will probably not break new GDP territory until very late 2022 or early 2023. However, as equities adjust to this and sort the companies that can both benefit and/or accelerate earnings growth, from those that cannot, the markets will more clearly demonstrate the smoke screen behind which the indexes hide. Only a handful of companies have generated the index “gains” for quite a while. The large majority of companies began decelerating before the COVID issue and shutdown obscured this. In general, the major indexes are dominated by 5-10 of the largest companies. The thousands of other companies, that may be suffering, do not counter-balance Apple, Microsoft, Netflix, Amazon, Alphabet (Google) and a few more.

So, in as much as the markets have jumped a few years ahead in anticipating earnings, while ignoring the present, we expect the markets to encounter a reckoning before they begin to grow again upon solid economic ground. This does not mean we should abandon the markets. Trying to time markets for the vast majority of us is more risky by far than examining our overall allocation of assets and confirming the quality of the companies owned. This stressful condition was not caused by a faltering economy. Quite the opposite. The economy at the end of 2019 was slowing from record growth, but still growing. This was caused by an unforeseen and unforeseeable, powerful, although microscopic, agent. Moreover, it induced a massive disruption of the entire global economy.

As is commonly said on Wall Street, the “bottom line” will not be pretty and it will take a few years for the landscape to rebuild. Moreover, it will. So, as market values have periods of decline over the next year or two, our suggestion is to continue to hold and build a well-diversified global portfolio with appropriate personal risk-adjusted asset allocations and, in addition, to continue to add to your holdings of high quality companies that contribute to human progress. Fortunately, these days this can be accomplished in small increments. One does not have to act impulsively or commit large sums all at once, just consistently add what you can to your ownership of the great companies of America and the world.

We have been processing a voluminous amount of information and analysis of late. From among them, we wish to share three recent pieces that we think will be of both interest and value to you as you also seek a deeper understanding and appreciation for our current situation. Each piece speaks from a different perspective; Liz Ann Sonders is more technical in this piece; David Kelly is bringing a macroeconomic viewpoint and Morgan Housel speaks more to the personal experience.

We wish everyone continued good health in the full knowledge that together we can steward your financial resources through to their ultimate service of supporting you to live the life you wish to live in bringing about the world you wish to live in.

Jerry!
Bernard

So, What’s the Good News?

 Image by Daniel Barreto for United Nations Global Call Out To Creatives

 

May 10, 2020

Dear Friends,

If this note seems a bit stylistically unpolished, it’s because the thoughts have been pieced together from parts of 4 or 5 separate newsletters we’ve begun and abandoned over the past two weeks.  News, events, observations and assessments of the virus and possible solutions have been changing very rapidly, daily.  As of today, Sunday, May 10th, this is how it seems to us.

In a time of uncertainty, spanning the spectrum of our daily activities, health, work and finances, no consensus has emerged about how the country and, indeed, the world, can regain a measure of familiar routine.  We know what has to be re-assembled: work, school, family, social and civil life, the network of local and global commerce, finances and planning and investments for the future. How do we get from here to there? As of now, no map and navigator has been identified.

Contrary to much of what has been available via the media and scholarly publications, there are elements to this experience that are common to many past events and transitions.  However, while the categories are common to previous times, the solutions may not be.  Most disconcerting is that to many, the solutions seem unclear or even impossible.

One dynamic that we expect to be reliable, as it has been in the past, is the restoration of economies and financial markets.  There have been catastrophic upheavals induced in the financial markets from events that were significant outliers: unexpected and seemingly all encompassing.  These so-called “Black Swan” events challenge our sense of continuity.

Many financial advisors serving clients today have experienced several of these.  Some of us have experienced even more. In each case, the decline in the indexes was brief and as the economy overcame the issue or event that concerned investors, the markets responded to the increase in economic activity thereby producing an increase in company profits. The market reflected that increase in activity through improving company share prices. 

The improvement in economic activity is experienced through the increase in standards of living.  Today, literally billions of people are living at higher standards than in earlier times. This is the driving force behind economies and markets.  It is not going to stop or disappear though it may be temporarily affected by the appearance of the coronavirus-19.  Many people around the world have suffered and died during this pandemic and there is a massive worldwide economic cost. The disruption of life as it was before is incalculable at this time.  There will be controversy and criticism of how the major countries responded to the threat of this virus. However, it is clear that a massive global effort is underway to implement anti-viral remedies and eventually a vaccine to minimize future impact. Already some discoveries and applications are showing themselves to be effective to some degree. 

In order to appreciate how we will emerge from this, we need an understanding of the state of the economy before we can appreciate how the recovery will take place. Several aspects of this have embedded clues within them as to how long it will take to resume a semblance of familiar life, among them are:

• Inflation:

First, the economic destruction was not the result of an economic cause.  After 11+ years of global and U.S. economic growth, a ‘slowdown’ was already occurring.  Some of it was the natural fatigue of staying close to growth limits.  Unemployment was at its lowest level for the past 50 years: typically, this is one of the main causes of a slowing economy and it is usually accompanied by rising inflation.  The economy can’t operate at this high rate of employment without a competition for labor emerging and increasing capital expenditures, which in tandem can allow for an increase in productivity at a diminishing rate of return.  This is often the spark that ignites inflation.  Up to the recent shutdown of the economy, inflation had not yet been triggered in any meaningful way.

Of course part of the reason was that the Federal Reserve Board, which has the responsibility for modulating inflation and employment has been using many indirect and creative methods to keep interest rates low and inflation low since the 2007-09 “Great Recession.”  Tight controls of immigration contributed to the diminished labor supply and added additional inflationary pressure. But that pressure hadn’t reached inflationary ignition point yet. 

• China:

In addition, there was an accommodation with China about trade that needed to be rebalanced.  The potential for a slowdown in both economies became evident and resulted in quick agreements being made, effectively setting the issue aside for the future as both countries had other domestic issues that needed attention. 

None of this meant that a recession was imminent.  Yes, slower growth, but not necessarily a contraction.  Low interest rates, low inflation and a somewhat smoother trade environment would have probably allowed an increase in Gross Domestic Product (GDP) going into the new year, which the financial markets recognized by expanding P/E multiples.  If corporate earnings were just maintained, this would naturally increase share values.

In fact, this is what was occurring into February 2020.  The threat of a global contagion was not part of this picture.  As it became clear that we were facing a very serious spread of a new, potent virus, some of the very developments that have supported the global economy (travel, trade, manufacturing) became the vectors that spread the virus quickly.  In retrospect it is clear that most of the world was unprepared for this.  As the threat was assessed, drastic measures had to be taken to reduce the rate of infection, or as the phrase became known, “flatten the curve.”

We, the planet, are now in phase four of the unwelcomed, dangerous and unfortunately deadly experience.  Phase one was denial and blame.  It was short lived as the infection spread around the world very quickly.  Phase two was acceptance, followed by mobilization, reaction and response.  We, America, were not prepared for phase three.  It was a long agonizing and makeshift process that ultimately brought the entire country to a standstill, both figuratively and literally.  The markets no longer knew how to price companies in this situation and consequently the equity markets declined swiftly and very significantly.  All these phases have been accompanied by great fear. 

However, at great human, material and financial cost we have arrived at the event horizon of phase four: recovery and rebuilding.  While in the earlier phases attention was almost exclusively on slowing down the contagion, a new problem was building and coming at us very quickly. However, we were not paying attention to it: what do we need to do, exactly, to restart the economy? We are only beginning phase four and we have no proven plan or pattern to follow. No economy has ever been shut down like this before. Fear has started to subside and anger and frustration are beginning to emerge.

This is now a ‘known unknown’: we are slowly experimenting with how to do this, as evidenced by a range of decisions from state to state and country to country.  The financial markets still do not fully know how to accurately value a company.  Most companies are currently unable to provide analysts with guidance past the first quarter.

In addition it isn’t clear that even in the best case this recovery will be smooth.  We do not think it will be.  We have to be prepared for unexpected conditions.  For example, the rehiring of millions of people likely will be considerably more difficult than laying them off, with or without the relief measures taken by Congress. Some people have said that the experience of so abruptly losing a job and having no income will result in a relatively easy time rehiring existing employees that are eager to begin earning a living again.  We don’t think it’s that simple.

First, significant numbers of workers are filing for unemployment.  The figures seem to be that between 20 and 30 million may file before the “lock-down” is fully lifted.  Those who file, particularly from regular full time jobs qualify for an extra $600.00 a week through July.  Do you think that a person who was barely getting by on their regular paycheck is going to be eager to turn down an extra $2,400.00 a month through July?  Stories are already surfacing of laid off employees choosing the stay on unemployment longer, rather than give up the extra funds.  Employers that applied and received the “Paycheck” loans that Congress made available MUST pay those funds out to an equivalent number of employees for 8 weeks as they agreed on the application.  If they don’t, they have to payback those funds to the government.  The terms of the loan are favorable, but having the loans forgiven and made a grant is much more inviting.  If the employees go back to work, they lose the extra $600.00 a week along with the base unemployment check.  Both of these cannot happen simultaneously  And there is the problem.

Further, if a person was not thrilled with their job, right now there are hundreds of thousands of businesses they can approach for a different job.  They are in great demand.  This will not be a case of the laid off employee simply picking back up exactly where they left off and this may be true for the employer as well.

So, what is the good news?  There is GOOD news.  The markets loath surprises.  What we just described above about re-opening the economy should not come as a surprise.  We all knew it was coming and could be discounted by the markets to some degree.  The recent increase in the value of the markets is an expression of this. Even companies that show a terrible, but better than expected set of numbers will be rewarded by eager investors.  Those that have disappointing numbers will be hurt, perhaps to the point of going out of business, for example, Niemen Marcus. There will be mergers of weaker companies with stronger companies that can strategically help each other.  New products and services will be invented and discovered.  If they genuinely have a benefit, they will be able to prove themselves in the marketplace.  Remember, there was a time, really, when there was no smart phone, video streaming, cloud anything or personal, desktop computers. 

The future is open-ended and that space will be filled with many imaginative possibilities.  If…

And here is the final caution.  The virus and the way we have dealt with it, has been like an earthquake.  It has shaken the very foundation of our economy. We apologize for mixing metaphors, but we have spoken for a long time about the “ballast” that the U.S. economy has.  It is massive, has depth and hidden resources, not the least of which is a base of knowledge, skill and creativity that has taken on major challenges and found solutions.  At this time our economy is the largest, most productive, stable and dynamic there is.  It may not be so forever, but it is now.  If the economy is quickly restored and if this reboot is done well, we can accelerate out of this inertia and confusion.  Perhaps it will take a year to see the momentum build, perhaps longer.

Let’s agree that 2020 is a lost year and devote whatever it takes to clear the debris field from the earthquake and reestablish the base of our economy and culture on a more secure, enlightened, just and open basis.  A dilemma that we as a country are now facing is that the Federal Reserve and congress have provided tremendous support to our economy. The dilemma is that this support may have the effect of continuing to prop up what should be allowed to find its own more sustainable growth trajectory. Until it does, the market will likely be more susceptible to ups and downs. Given this mixed scenario, our best assessment, based on the current situation, is that more reliable growth in the economy will emerge in 2021. 

Impact of the above on your investment strategy:

In the course of this coming year we see this as an appropriate time to jointly review your financial plans, your goals and investments. The goal of a regular review is to adjust wherever is necessary to help increase the probability of your success over the long term.

As always, we welcome and thank you for our collaboration.

Here’s to your continued good health and good wealth.

Jerry! Bernard, Kim, Eileen and Colleen

We Are All in This Together

Image by Fernando Cobelo for United Nations Global Call Out To Creatives

 

March 19, 2020

Dear Friends and Colleagues,

There certainly is a lot to digest and adjust to these days.  We are all experiencing the many ways this virus has upended life. Our intention with this note is to provide some commentary on how we see the way forward through this significant disruption in the economy and your investments. 

• The big elephant in the room is the question of whether there will be a recession resulting from this and, if yes, what are the steps we should take. Our response is ‘yes’. It is now virtually certain that the economy will experience a relatively brief, but significant decline in activity. The current estimates range up to a 2.5% annualized decline in the gross domestic output (GDP) for the second quarter (April through June) and possibly improving into the 3rd and 4th quarters.

• A major ‘unknown’ is when the spread of the virus will peak. The national response right now, through ‘social distancing’, is to expand the amount of time it takes for the virus to spread, thereby potentially reducing both the numbers infected and the stress on the medical services for those who will require hospitalization. While this is a positive for the containment and medical management of the virus, this could likely lengthen the time where we will experience the decline in economic activity and the potential effects on the financial markets.

• The numbers of new virus cases needs to start diminishing before the seeds of confidence can sprout. Once it becomes clear that an end is in sight, most likely through the effects of ‘social distancing’, newly introduced treatments and a potential vaccine emerging from a very engaged bio-tech industry, it will be easier to assess the present and likely future economic consequences. At that point we will have a more reliable appraisal of how the earnings for US and global companies will rebound and begin generating increased market values for U.S. companies.  As they have historically, increasing equity values may begin several months in advance of the actual earnings improvement, leading to the higher valuations that the markets make possible. 

• We fully expect the U.S. and global economies to recover and expand from this very difficult and challenging, but temporary, situation. The current and anticipated economic responses by the government, both monetary (Federal Reserve Bank) and fiscal (from Congress), are analogous to ‘suspended animation’ for the most deeply affected businesses in the country such as entertainment, leisure, hospitality and travel. These industries have very large numbers of employees (estimates in the double digit millions) who will suffer as a result of the ‘social distancing’ containment measures.  Unemployment estimates by JP Morgan are that the unemployment rate, which before the spread of the virus began was 3.5%, the lowest in 50 years, may rise to at least 6.5% before the rate of contagion plateaus.  The net effect of the government programs being enacted now, on those and other industries, is to maintain their viability as the recession comes to an end. This should allow for a more rapid recovery of business activity in these sectors. This has been described by economists as a ‘U-shaped’ recovery, which is one where things drop rapidly, remain depressed for a short period and then recover rapidly. 

• Our advice is to remain invested with the allocation designed to meet your specific goals. There may be opportunities where we will propose to individual clients, tactical adjustments designed to take advantage of specific sectors of the economy during the recovery. These will be recommended on an individual basis.

• We recognize that 2020 is the year of the virus. We also anticipate that 2021 will be the year of the recovery.

We are all in this together and look forward to our continuing conversation. Should you have any questions or insights, please be in touch. 

In the practice of social distancing, we wish you good health and good wealth.

Jerry, Bernard, Kim, Eileen, Colleen

P.S. Our main office is fully and securely operational, as are our remote locations. Currently, we are primarily working from our respective home offices. The Albany office is presently staffed on a daily basis by Jerry, who is in Albany for the next month. Kim and Eileen rotate physically to the office as needed. All calls to the office can be fielded in any of our locations.

This Too Shall Pass

Image by Heads Up (Madwell) for United Nations Global Call Out To Creatives

 

March 9, 2020

Dear Friends and Colleagues,

Today – March 9 – is the tenth anniversary of the crescendo of global panic that marked the bottom of the bear market of 2007-09.

It is to us a thing of the most wonderful irony that the world has elected to celebrate this iconic anniversary with – you guessed it – another epic global panic attack.

At this morning’s opening level of 2,764, the S&P 500 was down over 18% from its all-time high, recorded on February 19. Declines of that magnitude are fairly common occurrences – indeed the average annual decline from a peak to a trough since 1980 is close to 14%.* Such a decline in barely a month is noteworthy not for its depth, but for its suddenness.

As we all know by now, the triggers for this several week decline have been (a) the outbreak of a new strain of virus, the extent of which can’t be predicted, (b) the economic impact of that outbreak, which is equally unknown, and (c) most recently, the onset of a price war in oil. (That last one is surely a problem for everyone involved in the production of oil.  However, a decline in oil prices is usually seen as a great benefit to those who use oil and a significant benefit to our economy.  It has often been equated with a “tax cut.”)

The common thread here is unknowability: we simply don’t know where, when or how these phenomena will play out. And in our experience, the thing in this world that markets hate and fear the most is uncertainty. We have no control over the uncertainty; we can and should have perfect control over how we respond to it.

Or, ideally, how we don’t respond. Because the last thing in the world that long-term, goal-focused investors do when the whole world is selling is – you guessed it again – sell. Indeed, we welcome your inquiries around the issue of putting cash to work along in here.

On March 3, the well-known and very successful investor, Howard Marks wrote, “It would be a lot to accept that the US business world – and the cash flows it will produce in the future – are worth 13% less today than they were on February 19.” How much more true this observation must be a week later, when they’re down 18%.

Be of good cheer. This too shall pass.

Here’s to (y)our “Good Wealth!”

Jerry Schwartz, CFP®, Bernard Murphy, CFP®

*JP Morgan Asset Management’s Guide to the Markets, page 13

We Are All People of Courage

 

March 3, 2020

Greetings all,

I think everyone knows that I don’t have a crystal ball, but just in case, I really don’t. The future will emerge out of the intentional will that is placed in the service of bettering our individual and collective lives. What I know, is that human creativity cannot be subdued: there is always a way forward.

All times are interesting times and the past few months have certainly, if nothing else, been interesting. We only have to look around the globe to see how much change is occurring, politically, economically, socially and spiritually. The river of life continues its flow through time and space. There is a lot happening that could drag our spirits into a downward spiral and the forces of ‘fear’ are hard at work seeking to do just that. But vision-inspired ‘hope’, supported by the courage to engage, have and always will, triumph. It may take time, perhaps longer than is comfortable, but triumph it will.

It is certainly not perfect and it is certainly not by any stretch of the imagination, better for everyone. The changes we seek as individuals will require time – more time perhaps than our current lives will allow for us to see. With every change that we initiate, we are planting acorns for future generations. Not every acorn will take root and not every sapling will become a tree. Storms, disease and you-name-it, will take their toll, but the trees that grow will be transformative. I know this, not because I have the crystal ball, for as you now know I don’t have one, but because I see and benefit from the Oak trees of today that were planted many years ago: the river of life continues its flow through time and space.

Our economy is strong and all leading economic indicators have been pointing to further strengthening not only here in the US, but also in Europe and emerging economies. And, so we might ask, why did the market drop so precipitously last week? What happened that fear gripped so many so quickly? I really don’t have an answer to that nor do I accept that anyone has at this point, but what I can say is that Monday’s positive market rally was based on investors who know that the fundamentals of our world economy are strong, while simultaneously also knowing that  tomorrow or the next day fear may again raise its head. This is out of the recognition that an economy is comprised of the goods and services provided to support and improve the lives of billions of people worldwide.

We, the people, seek to improve our lives in many ways every day. Whether it is to provide shelter and a stable food supply for a growing family in an emerging economy such as Kenya or to shift from coal-fired electricity to a renewable source of electricity here in the US, we are all seeking to improve the quality of our collective lives. This will not be ground to a standstill due to a new virus such as the corona virus, or a new declaration of war such as just happened between Turkey and Syria. These are painful and will cause hardship and sorrow for many, but they are temporal. We can look to the SARS and MERS outbreaks for examples of how we as creative humans, respond. It may take time, but we will respond.

At the risk of overstating it, I don’t have a crystal ball and as such I cannot say that the current market downturn is over. Nor can I say that there will not be a slowdown in global or US economic growth as a result of the quarantines that are in place in efforts to contain the spread of the virus. What I can say though, is that this too will pass. Fear is the enemy of creativity – courage is the antidote. We are all people of courage.

And how does this relate to our portfolios you may well ask and my response is that we must stay focused on the horizon – our vision, the purpose for which we are invested. If we pull out of the market when it drops 10%, will we know when to get back in? If we sold last Friday, would we have known to get back in at 9:30am yesterday morning?

Our approach is to invest in high quality companies providing the needed goods and services to better the lot of all living on this planet. Those companies will continue to provide those goods and services even if the price of their stock drops 10% and it will not be long before their value is again recognized and the stock price is realigned to that value.

My advice to everyone I work with is to stay invested and ‘stay the course’. We are investors – investors in the future.

I welcome your calls and emails so please do not hesitate to reach out to me with any follow up questions you may have about your specific portfolio and financial plan.

I look forward to continuing our conversations,

Bernard

Whatever “Is” Is Always Changing

 

February 28, 2020

Dear Friends and Colleagues,

I can distill my message down to a short sentence or two.  I’m sure you can anticipate them and even speak them to yourselves before I do.  And I hope you can live in the meaning found there.  But to more extensively assimilate the antidote to the combined force of what the markets and the actual virus are presenting, requires a more extensive description of phenomena currently occupying much of our attention.

Why is the “market” doing what it is doing?  Because it can.  Really.  And understanding this capacity provides the opportunity to understand a critical lesson, critical to your financial success. I will review this lesson later on. Right now it is important to separate the more and the less likely outcomes of what has become the meta-virus of the financial press itself, the complicity of major financial institutions and governments.

I don’t think the actual effect of all this will become nearly as extensive as the deliberately generated fear that has become the currency and measure of the artificially earnest relevance portrayed by the news outlets, specifically the financial press.  This fear is crafted to build on itself to create the appearance of authenticity.  Of course this is with a great deal of help from the merchants of fear and desire, the media, and the Wall Street firms that supply the authority figures, before whom we are expected to surrender our sovereignty and common sense, embracing the “end of the world as we know it” virtually day after day.

This virus, the actual virus, is serious and is having a real effect on normal life activities in many areas of the world.  And it has the potential to spread.  However, there is also a meaningful and growing counter effort to contain the virus, understand its mechanism and methodology and find a medical response that will bring it under control.  So far it is fear, not actual realities that are driving everything.  And when/if the fear dissipates, as I believe it will, then what?  Then markets begin to actually reflect the underlying economic conditions which are far more positive than the market activity is currently reflecting.  It means that, as the economies normalize, the markets will follow, which means they reflect the increased value that is being ignored now.

Many phrases are used in presenting financial news/information which, if even given a cursory examination, crumble into meaningless jargon.  The gestalt of financial news has become severely warped, shaped by questionable assumptions and jargon.  From my perspective it has become painful to experience.  After living through 43 years in this profession, I have acquired X-ray vision and can clearly identify the manipulation of it all.

There are three dominant metaphors used to structure financial news:  gambling, entertainment and sports.  The gambling metaphor rests on the uncertainty or risk associated with investing.  What is left out is that with gambling the essential structure of the “game” from the outset is designed to favor the house and for the gambler to inevitably lose.  If one gambles long enough in the casinos, one is likely to lose any gains made along the way and your own money as well.  In the end, the house always wins.  That’s why they exist. 

The entertainment metaphor speaks of “the markets” putting on a show.  These are not programs, they are “shows.”  We are to be mesmerized and fascinated by the drama of it all.  But the sports metaphor has risen to the lead.  Each day the titans of business battle it out to determine the winners and losers.  The “talent,” which is what the inside language of media calls the program hosts, take one of two roles.  One role is the play by play commentator and the other is given to the “color” commentator who analyzes, fills in the explanations of the strategies and nuances of the confrontations.  This role is often filled with a Wall Street titan who by definition is expected to generate controversy and argument.

If you can remember the days of “Wall Street Week with Louis Rukeyser” on PBS years ago, what was once a slow paced discussion of Wall Street activity, the examination of companies and investment strategies, which included significant content and educational value, has now become a mashup of personality, soundbite structured hyperbole, disagreement and promotion.  In short, the” X $Games!”  Still short of the Hunger Games, but moving in that direction.  It reminds me of the fear of terrorist attacks following 9/11.  An often used phrase then to justify the massive response domestically and internationally was, “We have to succeed 100% of the time to prevent more attacks.  The terrorists only have to succeed once.”  In retrospect, while having significant meaning, this extreme evaluation was very much a way to, and a product of, the needed preparation to confront the unknown, the fear of the unknown. I wonder who benefits from the current unknown!  Follow the power and money.

Now, what has been going on since last week?  I have a different read on this from what you are hearing almost without variation in the financial news.  I don’t think the significance of this is mainly due to the virus or to the effect on the global economy.  That answer it is too obvious, immediate and extensive.  The virus issue is a trigger for two other, perhaps unconscious issues.

First, the spread of the virus.  Yes, there will tragically be increasing deaths for a period. Yes, there will be (some) economic dislocation.  But even if the negative economic effect of the virus is greater than it now appears, it is a consequence that can and probably will be recovered fairly quickly.  China, especially, has something to prove here.  They failed their people and will fail them again if the economy tanks.  They cannot afford to disrupt the growth of prosperity significantly without facing the risk of deep social unrest.  That is their biggest fear.  Not the U.S.  Not becoming a world player.  They fear that social unrest will undermine the power structure.  In my opinion, that’s why the central government did not crush the recent riots in Hong Kong.  They cannot allow the internal and external condemnation they experienced which led to and intensified after Tiananmen Square.

This is not and will not be an illness that results in 50 million deaths, including 675,000 in the U.S. as did the H1N1 virus of 1918-1919.  That epidemic killed more people than WWI.  Nor will it result in 300-500 MILLION deaths, as did cholera, bubonic plague, smallpox and flu in the past.  And it will not result in the 60-80,000 deaths from the flu LAST YEAR in the U.S. alone.  Nor will it come close to the millions of people who die each year from being political refugees exiled to horrific camps, or malnutrition, mosquitos and diarrhea.

Further, no significant actual economic or supply chain effects have happened yet.  They may, but they haven’t yet.  This outcome, as if already true, has been relentlessly expressed by the financial press for days.  It has been declared the end of growth in the global economy, the start of a global recession.   It is all a worst case projection.  I heard one Wall Street CEO, from a major financial firm, say on Bloomberg TV this (2/27) morning, that this will probably be the worst event he has ever experienced!  What??  He needs to first get a life.  Would he yell “fire” over “vaping” in a crowded theater?  Why would he make so reckless and incorrect a statement as that on a nationally available major financial news outlet?  He should be thrown out of the financial markets.

Second, in my opinion, the real reason for all this hyperbolic expression is a combination of human nature and human nature.  Huh?  The first instance is the very significant cumulative gains that have been accrued over the past 10 years.  This is a case where the first one who acts induces all the rest to head for the exits, or grab a (musical) chair, etc.  It is not rational.  Fear never is.  But it is a deep aspect of human nature that causes many bad decisions.  Yes, it occasionally saves you from the tyrannosaurus.  But mostly it just causes you to repeatedly run from phantoms.  However, the bad decision is not understood until after the fact.

The second aspect of human nature at work here is the other form of fear—greed.  Psychologically many folks fixate on the financial numbers, especially the highest number they receive personally.  It is another irrational aspect of humans and money.  And it is being intensified by our frictionless, speed of light, computer driven financial system.  The fear of losing what has been fixed in the mind and “owned” is a fear right up there with starvation.  Whatever the number is, it is a phantom conjured up by our desires.   There is no number that has duration.  Financial numbers on statements are like wisps of cloud on a day in the desert with no humidity.  They’re gone before you can focus on them.  Values are changing constantly, even at night, weekends, just like time.  In nature there is no “second” “minute” “hour” or “day.”  We created them for many reasons.  Time not only flows, but accelerates, slows, takes on the appearance of stillness or being so fleeting that we wake up 20 years later and wonder where it went!

There is a well-worn quote or paraphrase from the Pre-Socratic Greek philosopher, Heraclitus.  He is credited with saying, “You can’t step into the same river twice.”  With some trepidation, I would rephrase that to, “You can’t step into the same river once.” 

In other words, there is no fixed entity.  Whatever “is” is always changing.  If we fix on a number applied to our investment values, we are always about to be incorrect.  Either the value has gone up or it has gone down, even if it’s by virtue of the passage of time.

We need to recognize the human emotional and psychological tendency to “own” these elusive numbers.  When we “own” them we take them into our universe as an aspect of ourselves.  Of course, in a capitalist economy, based on the rule of law, particularly property law, we do own things.  But existentially we own nothing and it is the emotional and psychological ownership that brings us the sense of well-being and the sense of anxiety associated with money and wealth.  There is a lyric in a Don Henley tune (“Gimme What You Got”) that sums it up:  “But you don’t see no hearses with luggage racks.”  The Egyptians had a different view.  They filled the pyramids with all the possessions, including some people, to be sealed in with dead Pharos, to accompany them to the next world.  But, we understand that ultimately we own nothing.  We have the privilege, opportunity and responsibility to use and care for the things of this world while we are here.  Then others may have that same opportunity.  If we fuse our identity, our “self” to things, we are asking for a heap of suffering.

Finally, I alluded in the beginning of this essay to the less conscious aspects of the current turmoil in the financial markets over current events.  I would like to add another, less obvious event to the conversation.  To be clear, what I am about to write is not personally political.  It is only an observation of the apparent confluence of events.

Over the past few weeks the Democratic Party has held a series of debates, caucuses and primaries as part of the process leading to the choice of a candidate to represent them in the upcoming presidential election.  The large field of contenders has diminished overall with one addition.  Michael Bloomberg has entered the contest.  The candidate that has strengthened the most has been Bernie Sanders.  Bloomberg has made it clear that he does not agree with Sanders’ economic agenda.  Bloomberg, who is a mega-wealthy business person, media owner and former mayor of New Your City was hoped by  many who disagree with Sanders to be the “moderate” democrat who would have a better chance of taking on Donald Trump and winning the Presidency.  The recent results have severely weakened that possibility.  Sanders has strengthened and Bloomberg has weakened.

As this was unfolding and the possibility of a Sanders nomination became more likely, the financial markets began this large decline.  I think that the virus scare was the trigger needed to create the excuse by many influential very wealthy Wall Street people to express their fear of a Sanders nomination by massive selling, realizing some of the very large profits accrued over the past 10 years.  I asked up top, why this market is doing what it is.  I answer because of the fear of losing power and money if Sanders succeeds and if he is actually elected president.  The virus (and other of the constantly present fears affecting the markets) became the trigger, but not the cause of the instant and massive pre-programmed trading protocols built into the major Wall Street wealth and power structure.  It has been said that one never goes broke taking a profit.  With a Sanders presidency and a compliant congress, much of that wealth would be gone.  Might as well take it while it is there.

The U.S. economy, after ten or more years of growth and expansion is still growing.  Most economic indicators remain positive: lowest unemployment in 50 years and without serious inflation, super low interest rates, companies slowing but still producing more than ever and still earning profits.  Increases in housing starts and mortgage applications.  This list goes on.

So the sum of this is the money still being earned and the money being taken out of the equity markets has few alternatives that can rival the productivity and endurance of the U.S. economy.  It will have to find its way back in, regardless of who is president.  My advice is to stay invested in the most productive wealth machine the world has ever created and while this periodic Wall Street “sale” is going on, add to the ownership and stewardship of companies that bring the material future into manifestation.

As ever, here’s to (Y)our good wealth!

Jerry!

Happy New Year!

 

January 1, 2020

Warm Greetings and a Very Happy New Year,

Together with Szilvia, I took a ‘New Year’s Day’ walk this afternoon along the cliff overlooking the Pacific here in Capitola. The surf was ‘up’ this afternoon with a Northwesterly swell that was not for the faint of heart.  Indeed, there were warnings in the papers to stay out of the water today. Well, that is like honey to a bee for the experienced surfer. And there they were, many very skilled women and men of all ages, skilled surfers all, catching and riding some very beautifully formed big waves.  The pounding of the surf as it crashed upon the shore added to the power of the moment. And then there was a stillness…the stillness that is there between the ‘sets’ – for waves move in ‘sets’. The waves arrive and the power is unleashed, the surfers catch and ride for as long as it lasts…until again all is still. The contrast is in itself also powerful to experience. If you didn’t know it, you would think it was all over, but wait a while and then the swell starts again – ever so gently and ever so powerfully.  If you didn’t know, you might have gone home, but if you did know, well, then you were patient – you wait, you thread water and you look for the signs.

Looking out into the future I lay claim to no crystal ball. I see a blank canvas upon which to paint – to live. Like many of us, I have imagined what the coming year may bring. Indeed, I am even planning for certain events on both coasts. But truth be told, plans are not defined outcomes – they are a guidepost and a starting point that indicates the direction we have determined to walk. Like all good plans, they are not fixed – they will need to be malleable. That is not to say that we will be ‘will-of-the-wisps’, jumping from here to there as if blown about in the wind. We have determined our direction, our ‘red thread’. We have the ‘goal’ before our eyes. It is in the process, the journey, of achieving this goal that we may need to be flexible. It is in the journey that we will on occasion catch that wave that propels us forward as much as when in the calm between the sets it can appear to the uninformed that we are going nowhere. The experienced surfer knows to wait for the next set. Knowledge and experience can guide us.

And so it is with our life. We plan, we catch a wave, we live in the quiet, we wonder, we question – but most of all, we live. It has been, and continues to be, my privilege to walk beside you as your financial advisor as you live. I look forward to continuing our journey together into the next decade…the ‘20s.

May the coming year bring you and your loved ones fulfillment.

Bernard

We Are One Humanity & One Planet

 

August 14, 2019

Dear Friends,

As I write this on August 14, 2019, the U.S. market averages are still positive for the year, despite recent ups and downs.  You wouldn’t know it from the financial press commentary.  Some thoughts:

There are several observations, perhaps truisms, that are being demonstrated now relating to economics and financial markets which can help us to better understand much of what is transpiring. 

The first of these truisms is that where we put our attention is where our reality manifests.  In other words, what we give undue prominence in our minds and feelings filters what we experience and tends to only allow what we focus on to fill our perception.  This psychological subjectivity fills us with that which we expect.  When we fear something, our senses are acutely attuned to the presence of threats…whether or not those threats are actually present in our environment.  For example, when walking alone down a dark street, late at night, in an unfamiliar location, our senses are acutely attuned to potential threats.  There may actually be threats, but we are likely to perceive threats where none exist.  For example, we hear the sound of a tipped over trash can and we are startled, the adrenaline pumps, heart rates increase, blood pressure rises and we ready ourselves for “fight or flight.”  At the end of the block or alley, we see a cat jump and a rolling trash can and we realize that there was no threat, only the appearance of one.  But I guess that old amygdala did keep some of us out of the jaws of the sabre toothed tiger back in the day.  It has its uses.  However, much more often than not, our fears dissipate and do not materialize.

It has been said that the past does not repeat itself, it echoes.  Well, there are patterns in the economy and markets that recur in principle.  Economic growth phases are usually followed by a pause or even a decline.  The declines have been temporary in the economy and in the markets and the advances have been permanent.  This explains why the size of the U.S. economy was $14,713,000,000,000 at the end of 2008 is now $20,000,000,000,000.  We have had more than 10 years of economic expansion.

There will probably be an eventual slow down and pull back in economic activity at some point in the future, as there has been in the past.  It isn’t likely that the last economic and market decline will repeat the same pattern as the last one.   That decline was induced by an extreme structural dislocation in our economy that resulted in very high unemployment and a decline in corporate earnings to zero in 2009.  The housing and mortgage markets had gone to an extreme which was reinforced by human nature, government policies and corporate exploitation.  And, this was not just in the U.S.  It was true in Europe and in Asia as well.  Market sages have observed that declines happen when euphoria characterizes attitudes and expectations, not when fear rules.  Pessimism is the theme of today, not euphoria or even confident optimism.  In my opinion, the global economy is too interdependent to actually fracture.  While we cannot rule out unseen risks, what is going on now is a rebalancing of power, economic and other, in a world of prosperity where once poor countries will become, or have already become, affluent. 

We are a problem creating and problem solving species.  We may not be addressing the issues of the day at the rate you or I would desire, but self-interest by all humans tends to ultimately discern solutions to even dire circumstances.  Let’s not participate in the drum beat of economic peril.  Millions of people go to work every day.  The great companies of the U.S. and the world will continue to provide increasing material prosperity.

Prosperity is not a zero sum dynamic.  It would take many pages to outline all the ways we are addressing ancient realities of scarcity.  Communications and travel have so enhanced our awareness of world events, constructive and destructive, that we seem to find little escape from it all to contemplate how much good has been created in the last 200 years.  Yes, many have paid and are still paying a terrible price.  Yet billions of humans are living lives that even the wealthiest people on planet earth could not have imagined 200 years ago.  When we look beyond the artificial separation, we are one humanity and one planet.

As always, here’s to Y(our) Good Wealth.

Jerry! 

New Years Greetings

 

January 2, 2019

Dear Friends,

Warm greetings and a Happy New Year. I trust that your time over the holidays has been both enjoyable and refreshing.

So here we are in the first days of 2019 when a review of the past year allows for a more objective perspective on events. The initial tendency to seek for simple explanations to understand significant events is usually, upon further pondering, over-ruled by the recognition that more likely no one event was really responsible, rather it was a confluence of events. How wonderful is that? Our lives are not simply understood. We have complicated lives that require considered thought for a full appreciation for who we are and why we act.

Recent volatility in the financial markets has given pause to many investors as they have wondered if their asset investment plan is at risk. Too often and too quickly, market pundits seek to explain this volatility in ten words or less. But it is not so simple and our response should not be so simple either. While it is good to pause and seek to understand what is occurring, it is also time to place all that we see and experience into the context of our overall financial plan and asset management plan.

The past decade has been relatively quiet in terms of downward volatility. We have had plenty of upward volatility, but this has not been spoken of too often. The “market” is in a constant flow adjusting to many millions of decisions by investors on an hourly/daily basis. In the short term there will be ‘pull-backs’, this is normal. That we have not experienced too many of these ‘pull-backs’ over the past decade is more the abnormal. 

One thing is for sure: all times are times of transition. One current transition is the Federal Reserve’s decision to move away from ten years of low (zero) interest rates and very low inflation. A primary reason for this move is that the “real” economy is by most measures doing very well and likely to continue to do well into the near future. So why is the stock market apparently reacting negatively to this news? Well, for one, it is not the only transition taking place at present. Around the world there are any number of activities occurring, from the US Government shutdown to US Government debt to Brexit to the new USA trade agreement with Mexico and Canada to the strong US dollar to trade talks with China, to mention a few. Uncertainty with how and when these transitions will settle into their next phase can influence how investors respond in the short term.

Our portfolios are globally diversified in quality funds of quality companies operating in economies that in large measure are still indicating positive economic growth providing goods and services to support the needs of a world population that is slowly and steadily being lifted to higher standards of living. This economic activity is rhythmic, not linear. As such, we will experience periods of growth interspersed by periods of contraction. Market prices for our investments will over the long run mirror this expansion and contraction. Understanding the nature of the financial markets is really important - remember that the direction of the stock market is biased in the upward direction over 70% of the time and that for us to participate in that upward bias it is crucial that we stay invested during what some may imagine are days when the sky is falling.

It is suggested by tradition that we make some New Year’s resolutions. Resolutions fail for many reasons, but I believe that they fail primarily because we have not articulated clearly enough to ourselves the reason why we make the resolve in the first place. So it is with our financial plan, including the active management of our financial assets. The ‘why’ we build up a financial plan is the essential ingredient. Knowing this reason(s), this intention, is the key to success. A financial plan is in the service of this reason(s), this intention to live the life we want to live. Our outlook is intended to support both our short and long term goals over the course of our expected lifespan at a minimum. It can also include looking beyond that as we develop our estate plans for our spouse, our children, our favorite charities etc. Managing our financial assets requires this same long term perspective. Each individual and family portfolio is designed for this long-term outlook.

On the one hand this sounds quite simple, however, as we know, our lives are complex and as such our approach to life must take this complexity into account as we plan for the future. So, as we look into the coming year I suggest the following: stay true to your plan.

Thank you for inviting me to provide you with long term financial planning including management of your portfolio.  I look forward to continuing on this journey with you into 2019 and beyond.

With all my best wishes to you for 2019.

Bernard

Wishing You a Wonderful Season of Light

 

December 24, 2018

Dear Friends,

This is a short note to wish you all a wonderful season of Light, as it is celebrated and observed through many traditions at this time of year.  Of course, we also observe another important cycle and event next week on what we call New Year’s Eve and Day.  There are many descriptions of the significance of these days, each with a facet of an important natural cyclic significance and each informing a meaningful aspect of human experience.

The key is that these are naturally, humanly and historically meaningful experiences observed, particularly in the Northern Hemisphere.  But also recognized in some manner throughout the world.  Where the Light of the sun grows longer and stronger in the Northern Hemisphere its opposite, just as natural, human and historical counterpart appears in the Southern Hemisphere.  And the Hemispheres take turns.

This is my long way of introducing a process that we, human beings, who, living in an era deeply, and for the historical moment, essentially qualified by the economic realm, are also experiencing.  In our world for now, we tend to characterize or evaluate everything, including people, through the economic lens of interpretation.   It is hard, if not impossible to identify human activity that is not made possible or constrained by economics.  Why this is so is a musing for another, far longer, essay.  Perhaps I’ll get to that in the future.

For now, let me mention me some specific observations about the recent dynamics of the financial markets.  These are my observations and opinions.  Take them for what they are worth to you and to our common commitment to “Y(our) Good Wealth.”

1. We are in a period of change.  The changes we are experiencing are natural results of 10 years of very predictable consequences of a long period of unusually low (zero) interest rates and very low inflation or slight deflation, globally.

2. However, what we are now experiencing with all the ups and downs in the markets IS the nature of markets.  They fluctuate, as a very distant relative of mine, Bernard Baruch, an influential financier and significant stock market investor, famously observed many years ago.

3. The ten years from 2008 to 2018 have been the aberration, not the norm, brought on by a serious financial dislocation.

4. Interest rates at 0.00% and negative interest rates in Europe and Japan are not only counter intuitive, even accompanied by a very low inflation rate, they are not sustainable at the same time as the economy is growing.

5. Now the change to more “normal” interest rates, with still very low inflation is being pursued by the U.S. Federal Reserve.

6. On a daily and short term basis, traders and speculators rule the markets.  Warren Buffet, with a shout out to his teacher, Benjamin Graham, has said that the daily pricing of the markets is like a voting machine or a popularity contest, but on the longer term the markets act like a weighing machine.

7. On average, the equity markets have had a 14.8% decline annually, at some point.  This is true even in years when the markets end with a net advance.  There still is significant fluctuation during the year.

8. In my opinion, the markets, moved by the short term traders and speculators, are out of sync with the “real” economy, the locus of the actual activity of business:  making things and providing services.  The “real” economy is doing well right now by most measures and likely to continue to do well for the next year or more.  The many analysts whose material I read daily do not see a recession ahead.  They see some eventual slowdown in economic growth, from the recent higher growth rates of GDP and earnings, but no recession.

9. So, why all the stress, heartache and extreme market moves with high volume?  Well, I think this happens because it can.  Technology has significantly enabled very large buy and sell programs to be executed in nanoseconds.  Yes, nanoseconds.  Last week a Federated Investors Senior Equity Strategist on Bloomberg TV said, “It has been said that 80% of the volume on Wall Street is “algorithmically traded.”  That is, preprogrammed high speed computers talking to other preprogrammed high speed computers.  No people involved once the computers are set.  The strategy is already programed and, increasingly, the conditions that trigger buys or sells on a massive scale operates on its own.  Computers “talking to computers.”

10. Financial news keeps referring to “investors.”  WE are the investors.  These billions of shares being bought or sold daily are not “investors.”  They are pre-programmed machines competing for fractions of pennies on billions of shares.  And they have been programmed to shoot first and ask questions later.

11. In my opinion, much of what we have seen in the markets in recent months is out of sync with the real economy and these trading tactics compress the future into a nanosecond, devoid of the enormously valuable thoughtfulness that time allows real human beings to assess their choices.

12. Don’t be tossed and turned by this aspect of the markets.  Remember the long term “weighing” function of markets.  Ignore the speculative, short term popularity contests that furiously demand the stage and are willingly given the stage by the equally short term mindlessness of the financial press.  The financial press only wants your attention, every second and nanosecond of every day.  It is only committed to stealing your attention (if you let it) and holding it by any tactic possible.  Financial TV particularly uses the football model:  calling play by play around the clock in every time zone, color commentary, “deep” panel discussions to try to wrestle the most important aspect of your being:  your conscious attention.  To them it is a game, played continually.  They feast on your attention and demand great sums to provide it to advertisers.  Facebook, et. al., isn’t the only thief prowling this neighborhood.  This is more like the “hunger games,” not the substance of what circulates in your life and feeds your aspirations-the value of your labor.

Stay true to your plan.  Understand the nature of markets and that, the direction 70% of the time is up and sunny, with an occasional rainy day.  People, you and I, make that happen through our labor to produce a better life for our families and the world.

So, as ever, Here’s to Y(our) Good Wealth!

Jerry!

Seeds for the Future

Image by Adam Niklewicz

 

September 17, 2018

Dear Friends,

My warmest greetings to you on this mid-September day. This morning was a bit cooler than usual reminding me that autumn is just around the corner. Summer’s final days are both an ending and a beginning: for our children it is the time to return to school to begin learning anew; for our farmers and gardeners it is the time to not only harvest the fruits of the growing season, but also the time to save the seeds for next year’s planting.

It is also the time for me to meet with many of you for a comprehensive review of how your financial plan is supporting you to realize your life’s intentions. These meetings are at the heart of our work together and I very much look forward to them. My ‘little-bit-longer-than-I-imagined’ note below is intended to share with you some of my current thinking about the world we live in today and its potential impact on our financial plans. I look forward to continuing the discussion with you when we meet.

I think that many of you know that in my younger years I was a farmer. During those 15 +/- years, I came to learn and respect the many lessons that nature in general and farming in particular provides us. As a Financial Planner and Asset manager, I see how these lessons spill over into this field. The parallels between the life cycle of the year in farming and the financial planning process are perceivable. Before a crop is ever sown, the farmer has already visualized all the stages of the growth of the crop right up to the harvest. This visualization informs the farmer of the resources he will need to produce a healthy harvest including the amount of seed s/he needs to hold back.

So it is also for us ‘non-farmers’ as we too look ahead and visualize our futures. To realize our vision becomes the motive for our actions. Knowing the resources we will need to bring this vision to reality is an important first step. These resources comprise our wealth. Our money, though only one of our many resources, often plays an outsized role in the successful realization of our vision, which is the main reason you invited me into your life – to support you in your financial life including the management of your financial resources. The importance of developing and implementing an income, spending, savings and investment plan that is in the service of the fulfillment of your vision is at the heart of your success.

As good stewards of our financial resources, we must be awake to what is going on around us on a micro and a macro level and be prepared to adjust if, as and when needed.  Both levels are organic in that they are in constant movement. I make a few macro level observations below and look forward to integrating them into our discussion around your specific situation in the weeks and months ahead.

Both at home and abroad, despite changes in the political landscapes, world economies with some exceptions continue to grow steadily. There are literally billions of people worldwide seeking a better standard of living. This alone creates demand for goods and services, which in turn gives rise to our economic activity. As we all know, it is not a straight line of growth and development. Like the cycle of the year, there are also economic and business cycles.

Since March of 2009 our economy has been in a growth cycle – an expansion. It has most certainly not been a straight line of growth, but on average, our US economy between 2009 and 2017 has been growing at the rate of about 2.16% per annum. The 2018 tax law changes have supported a recent surge in this growth though this is expected to taper back in 2019 as the short-term impact of the tax changes on corporate profits diminishes. Economic growth in emerging economies has been significantly higher in places like India (+7%) & China (+6.5%).

As we complete our 10th year of this recent economic expansion we are hearing a lot of talk today, (TV, Internet, News media etc.) about how it all must come to an end. Increasing corporate & government debt, the risk of higher inflation and the potential impact of tariffs are to mention but a few of these concerns. Together with my colleagues in Arista, I am certainly paying attention to these issues. In the course of the next 18 to 36 months however, it should not come as a surprise to us if these and/or other issues not so immediately on our radar screen combine to bring about a contraction in our economy.

These concerns of today are a component part of the rhythm of the business cycle – the rhythm of expansion and contraction. Business contractions allow for a ‘breather.’ They are an opportunity to let go of what is not helpful or needed for the future. Every successful business plans for this cycle of expansion and contraction through investing in Research and Development (R&D). Even as a business grows though meeting current need and demand for its products and services, the seeds for the next phase of the business cycle are emerging as new initiatives to meet the growing needs of people throughout the world. As these new seeds grow, they will unite with the elements of the business that are still needed in the world and then in turn will let go of what is no longer needed.

Our task as investors is to invest in the businesses that have a long-term perspective and are looking towards meeting the needs of their customers and not just their shareholders. These companies will not avoid a short-term drop in the value of their stock price during the next downturn or recession. What we also know is that over time these ‘losses in value’ will recover over time in a line always trending higher. The businesses that will breathe in the fresh air from the next cycle are those that have invested in R&D and have a long-term commitment to providing needed services and products in a manner that is sustainable for the company and for the harmonic relationship between people and their environment – our ecology. I have attached a chart below to illustrate.

As we have discussed in our personal meetings, our investments are for the long term. They are in the service of your visualized future. I look forward to meeting many of you in the coming months to discuss your investment portfolio in the service of your financial plan, a living plan intended to support you to realize your vision of the role you wish to play in bringing about the world you want to live in.

In your service,

Bernard 

Growth Against Resistance

 

February 6, 2018

Dear Friends,

The financial markets always provide an interesting lesson in human nature.  What we are experiencing is a very natural process that has been compressed by technology.  Yesterday, I observed quite a number of TV, internet and print financial press reports misrepresent what is happening in many ways, all to increase the emotional (read: fear) element and distort the selling.  For example, almost all financial news outlets characterized the selling yesterday as the “largest one day loss in market history.”  Huh??  Well, if you count shares exchanged and index points, maybe that works.  But in terms of the size of the move, it was unremarkable, except for the time compression.  As I said in the last message, markets regularly have 5.00%, 10.00% and even 20.00% cycles.  If the index is at 10,000, a 10% selling cycle is 1,000 points.  At 26,0000 that is 2,600 points, not close to what we saw yesterday.  We haven’t had a 10% cumulative move so far.  It’s actually been a mild change, given the extent of the gain, particularly over the past year or so.  We forgot.  We always forget.  We secretly like the thrill.  It momentarily justifies our anxiety.  The overall change may yet accumulate to a normal cycle.  But it does not seem to be an indication of the end of the positive business cycle we are in, much less the end of the world.

What is operating here, beyond the usual, is a “new normal”: technology running economies and markets.  The compression of market cycles, especially selling periods, is only possible by taking human consciousness out of the immediate process and delegating it to pre-programmed computers, operating on their own.  Set it and forget it!  The ultimate market appliance.  This, and the overall effect of “indexing,” which uses no discrimination in buy and sell decisions, has introduced elements that have compressed market cycles and removed the element of immediate human judgement and flexibility from the process.

Is this a “good” thing?  Well, if your goal is simply to trade as many shares as possible, then, “yes.”  If the goal is to confidently own the great companies of America and the world, then probably, “no.”  The speed and compression requires a deeper understanding of what an economy is and how to support and direct the process to the betterment of humanity.

Yet, this delegation to technology is the world in which we live and we have to adjust to this.  It doesn’t preclude investing in the great companies.  But it does require us to more clearly look beyond the immediate intensity and understand more clearly that markets have cycles, on an ever upward advance, that reflect the fundamental desire of billions of people to live better material lives.  Declines are temporary, advances cumulatively permanent.  As the proverb goes, “Let the dogs bark,” (speculators, traders, financial news) “the caravan moves on.”

People will always seek to improve their lives.  We are only beginning to see the elevation of all humanity beyond basic subsistence, to a world where billions and more billions will not only have more than enough, but in this pursuit, increasingly solve the most vexing and fundamental problems of our world.  We know, intellectually, that it is one world and one humanity.  We are still treating the world as the center of the universe and not as part of a wondrous opportunity and responsibility to fully Live.

We humans only grow against resistance.  Right now in our civilization, the focus of all valuation is financial.  At this time in world history, the economic lens is the dark glass through which we experience all things.  It won’t be the lens forever.  It is for now, and even with all the negativity we experience in human affairs, we are raising more people from material scarcity to material abundance. 

The next big challenge will be how we direct this abundance to elevate human experience, not just prolong it.  Life is not an endurance event.  It is an unfolding process, an opportunity to experience, learn, grow and celebrate.

As Always, Here’s to (Y)our Good Wealth!

Jerry!

What’s Missing?

 

February 3, 2018

Dear Friends,

First and foremost, periods of selling in the financial markets are normal.  Frequent selling periods of 5.00%, 10.00% or 15.00% within a year are the rule.

What has been abnormal is the length of time that has transpired without a significant period of selling beyond 3.00%. During 2016 we experienced many days of up and down motion in the indexes of 1.00% or more.  During 2015 we had a significant period of selling pressure and periods of declining indexes.  In fact, 2015 was, overall, a slightly down year for the S&P 500 index.  2011 was a flat year for the index, which, at one point, was down virtually 20.00%.  2017 seemed to be a relentless increase in the indexes by which we measure markets. It was an unusual year. Good to be sure. But unusual. 

Most of the market commentators were completely incorrect in their forecasts of what would transpire in the economy and markets with the election of Donald Trump.   They allowed themselves to be conditioned by the political lens that seems to have infected our public discourse.  This can be and was a significant error.  The politics of our times surely affects the economy.  But it doesn’t always affect it the way that our own political viewpoints suggest.

“The economy” is an abstraction, a conceptual construct employed for simplicity purposes.  Our economy, not withstanding the attempt to isolate it from the rest of the world, is deeply embedded in the economic and financial realms of the entire planet.  The economy is the sum of every financial and economic decision made on earth every day.  Billions and billions of individual, sometimes interdependent decisions, by billions of people, accompanied by some collective decisions by governments and institutions.  Every day, all day and night, no matter where on earth you are.

Each day, when markets close, here and in other places, economic activity and decision making continues, around the world, initiating trillions (yes, trillions) of dollars of constant circulation of money and the goods and services that are consequence of this process.

The selling in the U.S. markets the past few days is long overdue.  When large profits are embedded in short term commitments, as opposed to long term investments in real companies, it is bound to be harvested.  This often happens rapidly.  Speculators have a role in the ecology of markets.  But they are not investors.

As economic conditions change, the surface of the market changes to accommodate the developments.  Conditions are changing, and markets are adjusting.  We have had a growing economy for 9+ years.  Even before the recent tax legislation, economic activity seemed to be accelerating.  This is very unusual after an expansion this long.  Unemployment is extremely low.  The Federal Reserve has embarked on a course of gradual interest rate increases.  The global economy has been rebounding.  Markets will inevitably adjust as these conditions are observed, understood and incorporated into economic, investment and speculative decisions.  This is natural and has always been the case through the many business cycles of our nation and the world.

So, what is missing?

In the market decline of 2000, it was a case of coming to see that “the emperor had no clothes.”  Tech stocks were being valued by the number of “eyeballs” (clicks) that could be assigned to their websites.  Earnings?  Who cared about earnings!  This was the future!  It was the classic greater fool, intensely at work.  As soon as the question was raised about actual earnings, the sector imploded.

In 2007-2008 it was mortgages.  Who cared if folks could not afford the home they bought and could not sustain a mortgage with any actual interest rate, especially an adjustable rate.  Banks were eager to make mortgages for marginal and unqualified buyers. “Hey, let’s just make it a no down payment, negative amortization!”  Add the unsustainable interest to the principal of the mortgage and let folks pay forever!  Equity?  Who cares?  You own a home!  And, let’s also allow Fannie Mae and Freddie Mac to give these mortgages a AAA rating, package millions of them, slice them into billions of pieces and sell them around the world!  I’ll guarantee that you don’t default.  And when you do, I’ll default also, since I have no reserves set aside to cover the insurance I sold you!  No one will get hurt.  The government will save us all! (It did, primarily in the form of the Federal Reserve Board.  Was that a good precedent?  Someday, if we let it happen again, we will find out.)

So, what’s missing?

What’s missing is the economic dislocation of those earlier declines.  It is inevitable that markets will go through “normal” selling periods.  They usually happen very frequently.  In fact, we usually don’t even remember them.  This selling period, in my opinion, is a market event, not an economic event.  Our economy and others, can function very well and grow with higher interest rates.  We have almost always had higher interest rates than we have now and are likely to have for the next year or two.  In 2018 we are likely to have record revenues, record earnings and very low corporate taxes.  The current tax legislation has seen to that.  If this is the case, markets will generally follow the economy.  The markets may not go up at the unusual rates we have lately seen and they most likely will have more ups and downs, on an upward slope.

And it is quite likely we will have a recession eventually.  Most recessions come and go before they are even recognized.  The one factor that will be obvious and can undermine confidence is inflation.  It is emerging.  Will it be the factor that temporarily slows things down?  Maybe.  But we aren’t there yet.  This is not that.  Maybe in a year to two.  Let’s save that for another communication!

For now, here’s to (Y)our Good Wealth!

Jerry!