The Decade

There are things in life that absolutely blow my mind. One of which is just how much being a father changed my life, but there are other things like:

 There is one fact however that, if I sit and ponder it, seems like it was an incredible long shot. Unless they dramatically revise Q3 2019 GDP lower (it would have to go from 1.9% to negative numbers AND Q4 2019 would also have to be negative) this will be the first decade in United States history without a recession. If I just jinxed it then so be it, I’ll be content with the fact that I’m the most powerful force in economic history, but I doubt I did.  Isn’t that crazy? Does that not seem extraordinary to you knowing where we just came from? 2008-2009 was one of the harshest economic periods for our nation ever yet as we sit on the eve of a fresh decade it spawned not only the longest expansion in history but also a 10-year bull market. 

Here is the S&P500 since the end of WW2 (using my new favorite service YCharts). There are 10, count ‘em 10 recessions on that chart. Good Times Bad Times as my friends from Led Zeppelin would say.

The biggest worry over the past year or so was that a recession was imminent. A Trade War hit business confidence, the industrial sector slowed, the S&P500 not only fell 20% but essentially went nowhere for over a year, the Fed was hiking, and earnings were slowing.  In fact as of Nov 15, 2019 the Atlanta GDP Now estimate is only 0.3% so the slowdown is real. Strategist have been coming out of the woodwork lowering their equity weights and calling for the end of the expansion, the curtain felt like it was falling. 

Yet a recession didn’t happen. Why? Because of you (ignore people who say this is all Fed driven) and our technologically advanced, service-based economy. The resiliency of the US Consumer has kept us growing these past 10 years. Everyday Americans and their consumption are not only 70% of the US economy but 20% of the entire planet’s economy and they’ve forged ahead. Now look, that doesn’t mean this current economic slowdown won’t eventually end in a recession. If there’s one thing I’m sure of it’s that there WILL BE another recession in the US one day but that doesn’t change the fact that we didn’t have one this past decade, the first time in our nation’s history. 

So, what was the goal of this piece, other than to get you to stick your finger in your ear to see if I was right? First, it’s to remind you that no one knows what the future holds. No one. If you fell prey to pessimism, doubt, or political noise in the past 10 years you potentially missed out on an incredible run.  Bad times, like recessions, don’t last forever, and good times DWARF the bad times (credit First Trust). Second, more people wake up every day trying to make the world better than worse, especially in this great nation. That is super hard to bet against. Finally, it’s to remind you that as wealth managers and stewards of our client’s capital, we help keep them on track so they can benefit from decades like these. If we don’t know where the economy or the market is going then the most important thing is how we act in them for that will determine your level of success.  Focus on what you can control, ignore the noise, reap the rewards of patience.  

What does the next decade hold? I don’t know, but I’m excited to find out and will enter it with optimism about the future as my default setting.

Yacht Rock

A casual chat about music and Behavioral Finance by Michael Antonelli and John Taft. 

Mike: John, do you love Yacht Rock and all the smooth, silky songs from the late 70s, early 80s?

John:What the heck is Yacht Rock?

Mike: Well my friend, Yacht Rock isn't an official musical term so there's no strict definition of what qualifies. It is generally defined as the kind of music that everyone would love hearing if they were out with friends on a boat and the sun was setting and warm breezes were wafting over you as you sipped on cool, crisp chardonnay. (IGN did a decent job explaining it in this article, click here). The kind of songs that come to mind are classics like "Sailing" by Christopher Cross, or "Brandy" by Looking Glass, or the quintessential Yacht Rock song "What a Fool Believes" by Michael McDonald. 

Michael McDonald was a legend in the late 70s, early 80s and is the undisputed king of Yacht Rock. Between his work with the Doobie Brothers and his solo performances McDonald has come to epitomize a time when music wasn't produced on a computer, it was hand crafted in studios and jam sessions and enjoyed on tapes and records everywhere. 

John: I'm not a big sailor. And I don't particularly like chardonnay. And I can't figure out what your love of mellow elevator songs from the late 70s has to do with me? Or, for that matter, with the markets, investing and behavioral finance, which is supposed to be the topic of these blogs. 

Mike: Allow me to tie this together for you. "What a Fool Believes" is not only a top 10 song of ALL TIME, it also describes a number of things individual investors should remember in turbulent times like these. 

A fool believes they can time the market: You've seen these stats a million times but if you missed the best 25 days from 1990 to 2018 your return would look no different than that of a 5 yr Treasury bond. Time in the market is better than timing the market. You can't do it. Don't even try. 

A fool believes that daily noise matters: I promise you there's an inverse correlation between time spent watching financial news and your investment performance. On a day to day basis, the market is a coin flip to be positive or negative but, as you extend the time horizon, the odds of success move in your favor. Try not to get distracted by noisy headlines and a daily drumbeat of TV "experts" who know nothing about your personal goals and risk tolerance. 

A fool believes it's easy to go it alone: Bull markets make everyone feel like an investing genius, you can make bad decisions and the market bails you out. The past ten years have been some of the best in history and while no one knows what the future holds, having someone by your side if things get rough will be extremely valuable. 

John: I'm starting to tack with the breeze (to use a sailing term). Here are two things investors should remember:

A fool believes they can get to where they want to go without a map. Disciplined financial planning is the key to identifying and achieving one's lifetime goals. As the saying goes, "If you don't know where you're going, any path will get you there."

A fool believes added returns come without added risk. In this low-interest-rate environment, it's easy to be tempted by the prospect of 7% of 8% yields. Just remember, those kinds of returns are likely to come with substantially higher risks, particularly at a time when stocks and bonds are fully valued. 

Mike: Let me hit you with one more before we dock this boat. 

A fool believes that investing is more important than personal finance (inspired by my friend Morgan Housel): Control what you can control. In fact obsess over it. You can control your savings and spending but you cannot control what the stock market does. Like my blogging partner said, don't chase risk in the market. Instead focus on your side of the equation where you can get immense leverage. Don't neglect the things you have DIRECT control over. 

Well John, I hope my love of Yacht Rock convinced you to give it a go. Not only does the music inspire me but there's lessons to be learned from its lyrics because "it's not far down to paradise, at least it's not for me. If the wind is right you can sail away, find serenity". 

If you enjoyed the conversation, you should check out Mike and John's discussion about the most important question Baird's wealth management clients ask.

You can follow John's Blog "Finance for the Greater Good" here:

Maximum Frustration

There are certain things in life that frustrate me to no end. Someone writing a check at the supermarket. The Chicago Bears. When I’m in an elevator and 6 people push 6 different buttons. That table in a coffee shop where people make up their drink and spend two hours tasting and mixing and tasting and mixing and I JUST WANT THE CREAM. Wait, where was I going with this? Oh yea, things that frustrate me. Those 4 are certainly high on my list but you know what else is way up there? Sideways markets. The S&P500 has basically gone nowhere for over a year now and all along the way we’ve tried to craft narratives explaining why it’s doing what it’s doing. Trade Wars, Brexit, Asia, Politics. But here’s the thing, those narratives are pointless, stock markets love to frustrate the maximum amount of people they can and holy cow are they succeeding.  

If someone were to ask me “which way are people positioned right now: for the market to rise 20% or fall 20%” I’d probably say the latter based on sentiment and positioning (check this tweet). I wonder….does the question need a third option? For the past year we’ve been stuck in neutral because growth has slowed to a crawl. Earnings growth, economic growth, my IQ growth, all of them are at idle speed and thus so is the market. There are hints that things are getting better (action in banks) but also signs of concern (action in software names). However, the US consumer is still consuming and that, more than anything else, keeps me in the optimistic camp. Has consumption slowed? Probably, there’s no doubt this endless Trade War has bled from businesses confidence into consumer confidence, but it hasn’t yet reached a tipping point. Baird’s strategy team still isn’t concerned about an imminent recession primarily for that reason.      

You know what being stuck in neutral reminds me about? That “time in the market” is better than “timing the market”. If you thought you could jump in and out of the market (you can’t) you’d be selling what looks like break downs and buying what looks like breakouts all while missing dividends and interrupting compounding unnecessarily. Dividends are a HUGE part of total return and if you’re jumping in and out you aren’t getting them. Look, this could go on for years, this doesn’t have to resolve itself on some arbitrary timeline. From 1976 to early 1980 the S&P500 went literally nowhere which is why sticking to a mediocre plan is better than a complex one you bail on because you think its not doing enough. Sideways…it’s not just a movie anymore!

News Highlights:

So I’ll admit I love the Tube in London. I don’t mind the heat and cramped quarters especially when I can get a front row seat to a live concert! I mean who among us HASN’T wanted to belt out those lyrics? WHOA OH…..

Have a good night

The Best Month

There’s one immutable fact about our calendar: October is the best month. There is no argument here, don’t even try to email me about this take, it is the best month by far. The front half of it is usually warm, the back half is crisp, leaves are turning into spectacular colors, and it ends with the best holiday of the year (yea I said it.  Halloween). Apparently the stock market didn’t get the message though because holy cow what a mess. The first two days have seen the S&P500 fall roughly 3% which is the worst start to the month in over a decade. Does this mean we’re going to experience a repeat of last years disastrous drop into the Christmas Eve massacre? I doubt it, primarily because the Fed is easing not tightening. Last year was a toxic brew of a growth scare + Fed hikes and right now we only have half of that in our cauldron. On Monday I said that the stock market was holding its ground primarily because consumer data remains firm. Today we saw ISM Services whiff and you don’t have to be a CMT to notice the downtrend. This bears watching, it really does, if other consumer data like spending, jobs, and residential investment falters then it’s entirely possible that uncertainty around this Trade War has bled from businesses into consumers. Speaking of consumers, lemme give you my take on what “free commissions” might mean to our world.

The biggest news this week was that discount brokerages like E-Trade, Schwab, and TD Ameritrade were cutting their equity trading commission to 0. Free, no cost, you can wing yourself into and outta stocks online for absolutely nothing (startup Robinhood has allowed their customers to do this for a while now). Now there’s a case to be made that this is a golden age for retail investors, the frictional costs of investing for mom and pop are approaching 0. But here’s what the data shows about them:  most do-it-yourself investors struggle to match the overall performance of the stock market. Now there’s lots of reasons why but they mostly revolve around overreacting to noise, trying to time the market, and letting emotions sway decisions. They see something they think is important, fear and greed kicks in, they make a rash decision, and all of a sudden they are chasing the market around. Behavioral stuff. Now if there’s no transaction costs they might be MORE inclined to do this. In fact, I wonder how much “free commission” will end up costing retail investors?

Honestly, I think this will only increase the value of advice/having an advisor. A great many investors will STILL fail at reaching their goals even with zero frictional costs. They are only human, they have biases and emotions literally working 24/7 against their investing success. Yes, advisors charge fees, but part of their value lies in helping clients overcome those investing traps and tackling those behavioral biases which might get WORSE now. Remember, the value of advice is different than the value to transact, don’t conflate the two. Good advice, and frankly a good partner who understands you and your values, will always be needed even in a world of $0 transactions.  

Ok, apologies, I went a bit long today so I’m just going to skip to my big finish:

Tell me if you saw these guys performing this act on the street you wouldn’t give them at LEAST $20? Absolutely amazing

Have a good night    


One of my biggest pet peeves is the notion that markets will some day have “certainty.” I’d argue that “I’m waiting for clarity before making a decision” is actually the worst thing someone can say if they work/invest in the stock market. Awful, embarrassing to hear, people pay advisors and analysts to make tough decisions when things seem crazy because that’s the whole point. You will never have clarity, things will never settle down, uncertainty is and always will be present because if it wasn’t stocks would never move. As we end the month of September I want you to remember one thing about our current level of uncertainty: this market is 1st, 2nd, and last about global trade and monetary policy. It is not about politics or anything else, it’s about how the interconnected economies of the world are responding to a spat between two gigantic trading partners. If you’re a fan of watching intraday price action like I am you’ll notice that headlines regarding trade are still leading the market around by its nose.  When that changes I’ll let you know, but until then don’t confuse noisy headlines with what investors really cares about. 

So what do smart investors really care about other than trying to figure out how to get to this beach? They care about the fact that the U.S. economy continues to muddle thru driven by a consumer that remains somewhat resilient. Is manufacturing and business/CEO confidence weak? Absolutely, but what else would you expect from a global Trade War? The biggest risk remains some kind of policy error (Trade War spirals out of control, Fed doesn’t act, etc) that finally cracks that resiliency. That being said, the consumer is still consuming, they are still buying New Homes, they still have jobs, and their balance sheets are quite good. Recall that 70% of our economy is driven by YOU (sorry to my pals reading this abroad) so that’s what we’re watching for signs of weakness. Can anyone predict a recession by just watching consumer data? Of course not, no one can predict anything at all, but why do you think the market has remained so steadfast (I love that word) in the face of all this horrendous economic data? Also why are Pumpkin Spice Lattes so popular? They’re awful.

Lemme say one last thing about politics (how many people have ended their career saying that?). Politics is extremely noisy with almost no signal. The market cares about POLICIES not politics, that’s what we want to be thinking about.  Remember the rally in 2017/2018?  Happened on the back of de-regulation and a tax cut which boosted corporate earnings. To the extent that we might see fewer market friendly policies in the future that MIGHT have an impact on the investing landscape. MIGHT. Again, nothing is certain (other than October being the best month of the year), but that’s what stocks focus on. Look, I know it’s challenging to divorce your political views from your market forecasts but you absolutely must do so because strongly held beliefs can be toxic to investment returns. These are big complex entities we deal in, don’t make the mistake of over emphasizing the wrong things, headline related volatility and uncertainty will always be a part of this world.   

News Headlines:

Oh man I love this video so much, there’s nothing better than seeing the joy of youth.  It makes me laugh and smile at the same time, make sure you have sound!! (the kid on the 50 cracks me up)

Have a good night