March 14, 2019
The Genie and the Market
When I was in the 6th grade, I remember writing a report on John Calhoun. He was the vice president under John Quincy Adams and Andrew Jackson from 1825 to 1832. He wouldn’t make it as a pillar of society today because of his views, but he made an interesting observation that I want to share:
He said, “Our government is deeply disordered; its credit is impaired; its debt increasing; its expenditures extravagant, and wasteful; its disbursements without efficient accountability; and its taxes, for duties are but taxes, are enormous, unequal and oppressive to the great producing classes of the country.”
That sounds familiar to me. The point, of course, is that the wackiness we are seeing today, while it’s alarming, is really nothing new. And the fact that we are all talking about it and are aware of it, tells me we’ll get through it. That brings me to the market. Remember to not mix politics with investment decisions; it’s a bad recipe. The selloff we saw at the end of 2018 has been met with a huge rally in the first two months of the year that has brought us within a whispering distance of the highs back in September when everybody’s portfolios looked great.
So what’s changed? I think the biggest change is the perception of what the Federal Reserve is going to do with interest rates. Instead of saying for sure that they are going to raise rates two or three times in 2019, they said they will look at the data and be patient. The market took that as a signal they’re not going to raise rates and cheered that expectation.
Let’s be clear here, they said they would watch the data; they didn’t say they wouldn’t raise rates. Who knows how the market will react if the Fed actually raises rates. I have a feeling, but we’ll see. When you invest in the market, you are investing in businesses; preferably profitable businesses that over time will grow, thus growing your investment capital to stay ahead of taxes and inflation, which is why we invest. Quality and value are where you want to put your money. And always understand the difference between speculative trading and investing.
I’m going to close with this old story about the rhyme and reason of the stock market’s gyrations: A man was walking on the beach one day and see saw a corked bottle wash up on the shore. He picks it up, wipes it off and the cork pops and out comes a genie. The genie says “thank you for releasing me from my prison and for that reason I will grant you one wish.” ….
So next time you see someone on TV explaining why the market goes up or down, remember the story of the genie. But more importantly, remember why you invest. Until next time, I’m Phil Albitz, thanks for watching.