The holiday season is upon us and for many this means spending time with family and friends. At parties and gathering this time of year we naturally find ourselves reminiscing about life’s various milestones, both joyous and sad. My favorite stories are those that touch on the follies of youth.
With the markets responding to the threat of declining liquidity, the value restoration process is underway. The Federal Reserve has been raising interest rates since December of 2015 in a gradual, measured manner which is finally starting to bite.
August days in financial markets tend to be quiet. Volumes contract as many investors take to the sidelines. This time offers a chance to spend time with families and friends, read a book, enjoy a beer; in short, it’s a good time to sharpen our axes for the fall.
Just a month ago markets appeared enamored with President Trump’s agenda for deregulation, tax reform and fiscal stimulus. The prospect of protectionism was viewed as mere rhetoric from a president in perpetual campaign mode.
Like greenskeepers carefully tending to the needs of golf course greens with the arrival of spring, central banks face an equally delicate task of restoring national economies showing slower signs of life without killing off healthy ones, and seek stability over wild undulations.
In his new book, psychologist Steven Pinker details how the human condition has steadily improved over the past millennia. His data suggests that we enjoy longer, healthier and happier lives than our ancestors; that we have made significant progress against disease and starvation; and we have experienced a steady decline in deaths resulting from wars, natural disasters and crime.
Markets are known for offering investors lessons in humility. On the one hand, Warren Buffet suggests that “humility can make you rich.” On the other hand, a lack of humility, typified by chasing unsupportable gains (aka Bernie Madoff), can lead to ruin. The difference in outcomes rests on the ability of investors to gauge the market.
Humans have an innate tendency to discern patterns and connections between otherwise unrelated things. Psychiatrists have termed this ability as apophenia. It’s an essential trait to make sense of an otherwise random world.
These days it is easy to be cynical. Writing this on the eve of a U.S. government shutdown, it seems that our leaders and institutions too often disappoint us. Perhaps the truth about our leaders and institutions was always oversold, yet we chose to believe differently.
As 2017 ends, investors are fully engaged in a seasonal event as much a tradition as eggnog or caroling this time of year. It’s forecasting season.