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.”
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.
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.
The ten years from 2008 to 2018 have been the aberration, not the norm, brought on by a serious financial dislocation.
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.
Now the change to more “normal” interest rates, with still very low inflation is being pursued by the U.S. Federal Reserve.
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.
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.
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.
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.”
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.
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.
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!
