Stay Rational My Friends

It’s hard to know what to believe these days.  Did Trump campaign members conspire with Russia to help win the election?  Did Susan Rice and others in the Obama administration abuse their power to unmask the names of Trump supporters uncovered during sweeps of foreign intelligence data?  Will there ever be any changes to current healthcare laws?  Is Trump’s tax plan dead in the water?  Will the Senate adopt the ridiculously named “nuclear option” to confirm Judge Gorsuch?

Though these are all important issues, they pale in comparison to what I consider to be the most pressing and confusing issue today: exactly WHO is The Most Interesting Man in the World?  Is it the man on the right, who “can speak Russian . . . in French,” whose “signature won a Pulitzer,” and whose beard has inspired “no less than 25 Mexican folk songs?”  Or is it the clown on the left, who kicks a coconut-football between two giraffe uprights like, well, like the Frenchman that he is in real life?  (And do coconuts even grow where giraffes live?)

If anyone can answer these important questions, please email me at And while I’m at it, is there a secret cabal that has been working for decades in major corporations to destroy TV ads that people actually enjoy watching?  Maybe it’s the work of the DVR manufacturers, since one of the main uses for their product is to avoid ads.  But come to think of it, this goes back to the last days of “when EF Hutton talks, people listen,” which predates the digital era, so I guess that’s not the answer.   (If you want the inside scoop on how the greatest slogan in the history of financial services met its end, let me know.)

With all this uncertainty in the air, it’s more important than ever to remain as rational as possible regarding the investment markets.  First and foremost, stay focused on the long-term.  Our Chief Investment Strategist, Jeff Saut, believes that we are in a secular bull market that started in March of 2009.  As you can see from the chart, the last four bull runs of this type (blue lines) have lasted anywhere from 9 to 29 years, and the total gain has been between 266% and 466%.  This one is currently in year 7 with an increase of 177%.

One of the reasons I believe the current advance has longer to run is because this has been an unusual, slow-growth recovery, as you can see from U.S. Real GDP chart.  GDP would be $3 trillion higher today if the economy had advanced at its 3.1% average annual historical rate during the past seven years.  The recovery has been stretched out, without the typical surge in the first few snapback years, so I think there is a good chance that this could prolong the stock market advance.

I like to focus on leading indicators that have had a fairly consistent record foreshadowing recessions and bear markets.  The one below is my favorite, and is usually called the “Fed Indicator.”    “Real Fed Funds” is the difference between inflation and

the Fed Funds rate, and the “1-10 Slope” is the difference between the 1 year Treasury note yield and the 10 year Treasury bond.  Before each of the last 6 recessions, money was “tight,” with a negative 1-10 slope and Real Fed Funds above 2%.  Neither indicator is close to those levels today.

Each of the last 4 recessions has been preceded by a decline in small business optimism.  As you can see, since the election small business optimism has taken off like a rocket. Since 1975, the only time similar trajectories have occurred has been immediately after recessions and not at this stage of the cycle, which probably says a great deal about how the typical small business owner has viewed the “recovery” of the last 8 years.

So please stay rational, my friends.  Focus on what’s meaningful, and do your best to ignore the media fear mongers.  They will never cease ginning up doom and gloom to sell their advertising.


Don Harrison

The information contained in this report does not purport to be a complete description of the markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Don Harrison, and are not necessarily those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice.

Investing for the long-term does not ensure a profitable outcome. Investing involves risk and you may incur a profit or loss regardless of strategy selected. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor’s results will vary. Past performance does not guarantee future results.

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