The Fed stands tall

Sometimes it takes a while, but financial markets almost always test a new incoming Federal Reserve Bank Chairman. On Wednesday, Jerome Powell faced his test and passed with flying colors. Of course, a glance at the stock market averages at the end of the day on Wednesday, would have the casual observers scratching their heads. As most readers know, the stock market has been declining since October. One of the reasons for the sell-off is the fear that the Federal Reserve Bank’s gradual tightening policies have gone too far. Their continuous interest rate hikes coupled with the selling of $50 billion of U.S. Treasury bonds every month had started to reduce the excess liquidity from the financial markets. Investors fear that these actions will slow the growth of the economy and tip the country into a recession as early as next year. No one is sure that this will happen, although most economists are already ratcheting down our forecasted growth rate to somewhere around 2-2.5% for 2019. That is by no means a recession, simply a slowing of growth, but nonetheless, investors have decided to sell first and see what happens as events unfold. The continued losses in the stock market, after so many years of gains, have driven the level of angst to a point where the markets (and the president) have demanded that the Fed stop tightening—now. The media and Wall Street, coming into Wednesday’s FOMC meeting, were convinced that the Fed would cave-in to their demands and announce a cessation of their tightening policies. Investors wanted him to say no more rate hikes and possibly a...

The origin of Black Friday

As you finish your turkey and prepare to get an early start on Black Friday shopping, you might wonder how shopping became such an integral part of your Thanksgiving holiday. The term has followed a circuitous route through our financial history. Although the term “Black Friday” is a new phenomenon, its origins date back to the late 19th century. The term was first associated with a stock market crash on September 24, 1869. Two speculators, Jay Gould and James Fisk, tried to corner the gold market. This created a boom-and-bust atmosphere in gold prices. That volatility spilled over into stocks. Before it was all said and done, stocks lost 20% of their value, while commodities fell by over 50%. Neither speculator was ever punished for their deeds (sound familiar?) due to political corruption within New York’s Tammany Hall. The term Black Friday, however, was used to describe that period of our financial history for the next century. It wasn’t until 1905 that the day after Thanksgiving had anything to do with shopping. It was in that year that a Canadian department store, Eaton’s, launched the first Thanksgiving Day parade in downtown Toronto. Santa lead the parade in a horse-drawn wagon, while Eaton’s benefited by seeing an uptick in shopping at their store the following day. But it wasn’t until 1924 that Macy’s followed the Canadian lead by announcing their own parade. A similar increase in holiday shoppers convinced Macy’s and soon other retailers across the nation, that Thanksgiving parades were good for business. Retail sales on the Friday after turned out to be so good that the government got...

The apple of our eyes

Go into just about any supermarket right now and what do you see? Bins and bins of gorgeous red, green, and golden apples. The harvest is overwhelming, but some apples are worth more than others. If you are like me, an average consumer, it takes about 23 minutes to do my grocery shopping, according to Proctor and Gamble. During that spate of time, I buy an average of 18 items out of maybe 30-40,000 choices. I have little time to browse and, most of the time, I don’t even check the prices, which brings me back to the apple cart. You see, I value my fruits and vegetables. The more local, the better, because to me, the taste is everything. Until recently, I was partial to certain kinds of apples depending on whether I was baking, cooking, or just chomping down on one freshly picked from a local orchard. That’s until I encountered the Honeycrisp. If you have sampled one, you know what I mean. They are everything an apple should be: crisp, with an electrifying mix of acidity and tangy sweetness. It is an apple worth buying, even if the price is two or three times the cost of the next best thing. Why is the Honeycrisp worth so much more than the Fuji or Gala? Is the taste really that different, or is it all a clever marketing gimmick? To understand the difference, let’s look at the apple business in general. This year the industry expects a nationwide apple crop of 256.2 million, 42-pound bushels of apples. That is about 6% lower than last year’s crop. Washington...

Mid-term results take investor focus off Washington

True to form, the opposition party regained control of the House, while the ruling party, in this case the GOP, retained control of the Senate. If history is any guide, this means that little in the way of legislation will be coming out of Congress for the next two years. In the past, investors and the stock market alike did better than you might expect under this kind of political paralysis. That’s because financial markets abhor the unknown. Given the unpredictability of politics and legislation, investors are far more content with inaction than action, unless of course, those actions are favorable to the markets or the economy. Take for example, the tax cut of 2018. That sent the markets higher because most investors expected the cut would fuel additional growth in the economy. In turn, that would generate higher earnings for public companies and provide a reason to bid the stock market up even higher. While expectations for any additional tax cuts over the next two years are remote, there could be some surprises. There is some conjecture that the Federal government could undo parts of the tax cut. They could reinstate, for example, the federal tax deductibility of those states with an income tax. In exchange, the corporate tax rate might be raised a few percentage points. Of course, it’s early days and any quid pro quo negotiation on taxes between the two houses and the president could drag out until 2020. The unfolding disaster that is the Affordable Care Act (ACA) over the first two years of Republican rule was not lost on voters. Health care was...

Time to check your risk tolerance

It is a good time to take a reality check on how aggressively you are invested. The 6.9% decline in the S&P 500 Index over October was gut-wrenching. But entirely within the realm of probability given the historical data. Here are some questions to ask. Did you find yourself checking your investment portfolios every day? How about every hour? Did you have trouble focusing on other, possibly more important, things like your job, or your family and friends? Was it more difficult to sleep at night, or did you lay awake worrying about the markets? How much time did you spend checking the averages and listening to the talking heads on television or in the print media? Did you call your broker or investment advisor and, if so, how many times? Did you want to blame someone for the market’s decline? Did you need that money for something immediate? If you answered yes to any of the above questions, you are probably invested too aggressively. That’s not to say that a sell-off is in any way pleasant. Everyone feels the disappointment, the pain of losing money, and the fear that tomorrow will bring more of the same. And even though your losses are only on paper, you still feel some anxiety. The question is how you handle it. By now, most of my readers understand that the stock market is not a one-way street. Investors should expect at least three declines of around 5 percent and one decline of 10% per year in the stock market. That’s on average. There have been plenty of times when the averages have...

The “Fortnite” Addiction

Chances are, if you are over 50, you have probably never heard of “Fortnite,” a video game that boasts over 40 million players worldwide. Those with children, however, may not only know it, but are playing it themselves. Epic Games, Inc., the creator of “Fortnite,” and its most recently released version, “Fortnite: Battle Royale,” is raking in the money. That’s a remarkable trick, given that anyone can download and play the game digitally for free on a variety of different devices. It is so accessible that anyone can play it on their PC, iPad, smartphone, Xbox, or PlayStation. So, what exactly is the Fortnite game about? Picture yourself in the air, along with another 99 players, approaching a small island. There is a rush to deplane. You run for cover. Bullets snap and whiz by your ear. You hunker down in the dirt, desperate for protection. The object is to eliminate all the other players before they get you. Hidden around the island, which shrinks every few minutes of play, are all sorts of weapons and items that you can use to defend yourself and build forts, traps or whatever else you might need to survive and go on to be “the last man standing.” While the game is free, the player can purchase a Premium Battle Pass, which gives you access to exclusive clothing and other items. You can also earn points, or just buy them in the store, but none of the money spent will give you an advantage in playing the game. The add-ons are just “cool,” like getting the latest pair of Nikes, only in...