Abandon Political Correctness, All Ye Who Enter…

Despite all the media palava and horror headlines, after a near record-setting period of low / no volatility, the last eight weeks have been what you might describe as “normal market behaviour.” 

Sure, the chop and the anxiety, the two steps forward and 1.5 steps back, the "uh-oh, what about xyz..." stuff is all very uncomfortable at times, but also a necessary part of the investing landscape.

And more is coming.

In fact, operating on the basis where it’s perfectly normal to hit patches that cause investors to pause and / or panic is should be the expectation and not the unusual.

"Sure Things..."

Simply put, there are none.

That phrase “sure things” is as over used as it is expensive, much like “It's Never Been This Bad...”

You know, the longer I work in this business, the more cyclical these episodes of pricing, psychology, perspectives, fear, greed, politics, media, etc., appear to be.

And with them come the “obvious conclusions” that are neither obvious nor true, like: "If Trump wins, the world as we know it ends."

In fact, pretend Trump was the CEO and not the President.  If he ruffled the feathers of a few other CEOs, but in doing so got what his company needed to get done to ensure its own success in the long run, then he would be deemed a great CEO.  Shareholders would fawn over him and praise his "hard-line, tough minded, battle ready" approach.

There’s the difference between politics and business in a nutshell.

So, why do we now think it's "bad" to play hard ball with dictators, communist countries and leaders of other nations who have, for years, taken advantage of the US on many fronts.

It’s a bit amusing, really. I mean, there’s a fine line between being nice and being a patsy. We all (should have) learned that the hard way in grade school. Being nice and professional at all times is not how the world ticks, at any level.

Like it or not, the things that Trump has been accused of as being "un-Presidential" may indeed be getting lost in the media cycle.  And it may well be that we’ve taken political correctness of previous Administrations as, well, being correct. 

And in doing so perhaps we’ve forgotten, or overemployed our confirmation bias where the actions of those other leaders really didn’t work out very well either.

A good friend of mine once told me: "Mike, don't confuse activity with accomplishment."

What I can see is that same process unfolding today. 

Just weeks ago, the mere mention of North Korea sent jitters down our collective spine; Hawaii was placed on an incoming nuclear bomb warning, people were fired over the mistakes, every whisper, movement, facial expression and millions of gigs of video were used to create opinions of the "sure thing" that was next.

But it wasn’t.

Gallons of ink were spilled on stories about nuclear war, the loss of the Korean Peninsula, military steps underway, how many thousands would be killed, war-room planning antics and the re-hashing of age-old waves of hatred. 

So what actually happened? 

It was just good, old-fashioned, boardroom brawling and straight up hard ball negotiating tactics.

The difference is that this process has long since been kept behind closed-doors and away from the spotlight because it was not deemed to be “Presidential.”

My Hunch?

A few months from now, we will likely see that NAFTA will have been repaired, upgraded and better fashioned for the US.  And in return, the tariffs announcement will have softened and in some cases disappeared altogether; fashioned only as a ploy in order to get a better deal.

And politics is ALL about deals.

The dirty little secret is that once you abandon "political-correctness" and the soft, polite, nice way to get things done all the time, you suddenly arrive in the real-world, and you’re no longer fearful of it.

It’s been this way since the beginning.  

With investing, political correctness has no spot in the game.  There is very little grey over time. In fact, trying to keep it grey is what gets very poor results, usually.   

More “Sure Things”

It's a sure thing that we are to fear inflation and high interest rates if growth continues, right? 

Yet, one hundred days ago that was not the case.

Now the experts are suggesting we cower under the weight of a 3.00% bond yield. 

Hmmm…maybe not such a sure thing at all. These are the same folks who told us that gasoline below $2.00 a gallon at the pump was bad for us.

This 5-year bond chart shows the market has "paused" almost precisely where we suggested it would.

And this week the two snapshots below awaited the nervous nellies on bond rates. 

I had to chuckle when I saw the "expert reason" in print:

Rates fell 4bps in about 24-hours, given the inflation data is not supportive of all the fears engendered in recent weeks. 

Just more of these sure things dashed against the rocks.

A Reality Check

Let’s not forget about 2014 – 2015’s record long trade range, described as follows:

"Trade ranges don't break down - they break up.  Markets don't take time to go down - they just go down.  They hit trade ranges because they are digesting, pausing, pushing back from the table so sot speak - in order to gain the energy needed for the next leg up the mountain."

The markets this first quarter of 2018 have been far choppier than the previous two years or so. 

Again, you should expect that, not fear it.

That’s why long-range planning is the reason wealth management plans tend to work well when followed and updated as the road-map of time endures.