Happy New Year

The year of the Rooster has come to an end.  2017 was action-packed, we had our first total eclipse to cross the United States in 99 years causing darkness along its path.  Merriam Webster added 250 new words, such as sriracha, internet of things, pregame, and froyo.   We Googled hurricanes, Fidget Spinners, and Bitcoin pricing.  We inquired how to make slime, freeze our credit (thank you Equifax) and how to make solar eclipse glasses.  2017 saw Ben Affleck and Jennifer Garner split, while the world’s most eligible bachelor (Prince Harry) got engaged.  Floyd beat Conner and somehow the Patriots came back and beat the Falcons.  We lost Tom Petty, Chris Cornell, Erin Moran, Bill Paxton, Chuck Berry, Della Reese, Hugh Hefner, Mary Tyler Moore, Roger Moore, Don Rickles and gall-lee Jim Nabors.  Oreo’s had a new mystery flavor while Mars’ added three new Snickers flavors; Irritable, Wimpy and Indecisive.


As we move into 2018, we still have low unemployment, stronger exports and lower taxes with the new tax plan.  The continued low unemployment, strong levels of consumer and business confidence should keep U.S. growth positive in 2018.  Low-interest rates and positive business sentiment should also boost economies in Europe.  The US economy had back to back quarters of 3% plus growth with the current quarter looking equally positive.  With the strength of the economy, we should see inflation start to increase slightly, which will keep the Fed on track to move rates a few more times in 2018.  The stock market narrative may not change in the short run as interest rates remain low, Inflation is not showing signs of exceeding the Feds policy, the global economy is accelerating and the Fed’s normalization remains gradual.


The markets were anything but Irritable, Wimpy and Indecisive as equities pleasantly surprised in 2017, this was not the year most prognosticators predicted.  The gains were impressive.  We had extremely low volatility despite hurricanes, infighting in Washington, the Fed raising rates and tensions on the global front.  There could be room to run as conditions appear supportive, but this market is closer to the end of a bull market than the beginning.  One of our biggest concerns is the bar being set too high.  We do not intend to chase this rally and will proceed with caution.


International and Emerging Markets

The markets beyond our borders were the bell of the ball in 2017.  Returns were helped by the international economies accelerating as well as their currencies appreciating as the dollar fell.  We still believe in the international story even with the returns posted in 2017.


DOW vs. Nikkei

The Dow moved over 25,000 while the Nikkei, after 26 years pushed over 23,000.  The Japanese markets have been unloved for decades.  Their government is implementing needed reforms and have remained very accommodating.  Companies in Japan are experiencing impressive earnings and the market is beginning to reap what they sow or as they say in Japan  自業自得 (One’s act, one’s profit).

Figure 1Dow Jones through 1/5/18 courtesy of Big Charts

Figure 2 Nikkei through 12/31/17 courtesy of Big Charts


The Fed basically did as they said they would.  They continued their campaign to raise short-term rates in 2017 and we anticipate two to three more hikes in 2018.  Jerome Powell will be taking over for Janet Yellen as the Fed chair and he appears to be a clone, so no changes there.

Crypto Currency

The December issue of Wired Magazine had an article on Bitcoin.  In the article they stated that “By July 2019, the bitcoin network will require more electricity than the entire United States currently uses. By February 2020, it will use as much electricity as the entire world does today.  So with the current growth in Bitcoin, our current electrical infrastructure will not suffice.  Bloomberg had an article on Bitcoin’s dirty little secret.  That secret is that China, which “mines” 58% of Bitcoins gets 60% of their energy from coal.  I would hope this leads to more innovation on the electrical front, because as Alex de Vries (Accounting firm PwC) says, “if we start using this on a global scale, it will kill the planet.”

Recent recessions were triggered by the bursting of bubbles.  The Savings and Loans crisis of the of the early 90’s followed by the tech pop in early 2000.  Most recently we had the housing and mortgage crisis that ended poorly. How much of the “paper profits” have made their way into the economy?  Will Bitcoin be a catalyst, we don’t know, but it is worth watching. When your Uber driver or barista is talking about the latest investment opportunity…

Plus ça change, plus c’est la même

The more things change the more they stay the same.  There are many inputs to solving for change.  When looking at motion, there is displacement, time, acceleration, initial and final velocity.  As we embark on a new year, we will have a new set of inputs.  Will the Fed get too aggressive, what will happen with a rogue nation, will corporate growth slow, stall or accelerate?  How will the markets perform with our new set of inputs; change or stay the same?  We are not calling for a pullback at this time, most signs point to a decent start to the year.  As stated earlier, we are closer to the end as opposed to the beginning of the bull.  We wish you a Happy and Healthy 2018.






Morgan R. Christen, CFA, CFP®, MBA
Chief Executive Officer


* Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. Market segment (index representation) as follows: US Stock Market (Russell 3000 Index), International Developed Stocks (MSCI World ex USA Index [net div.]), Emerging Markets (MSCI Emerging Markets Index [net div.]), Global Real Estate (S&P Global REIT Index), US Bond Market (Barclays US Aggregate Bond Index), and Global Bond ex US Market (Citigroup WGBI ex USA 1−30 Years [Hedged to USD]). The S&P data are provided by Standard & Poor’s Index Services Group. Frank Russell Company is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. MSCI data © MSCI 2016, all rights reserved. Barclays data provided by Barclays Bank PLC. Citigroup bond indices © 2016 by Citigroup.  The S&P 500 Index is a free-float market capitalization weighted index of 500 of the largest US companies. This index is calculated on a total return basis with dividends reinvested and is not available for direct investment. Charts from Dimensional Fund Advisors and Big Charts. Inflation is typically defined as the change in the non-seasonally adjusted, all-items Consumer Price Index (CPI) for all urban consumers. CPI data are available from the US Bureau of Labor Statistics. Stock is the capital raised by a corporation through the issue of shares entitling holders to an ownership interest of the corporation. Treasury securities are negotiable debt issued by the United States Department of the Treasury. They are backed by the government’s full faith and credit and are exempt from state and local taxes. The indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is no guarantee of future results, and there is always the risk that an investor may lose money. Diversification neither assures a profit nor guarantees against loss in a declining market. The information contained herein is based on internal research derived from various sources and does not purport to be statements of all material facts relating to the securities mentioned. The information contained herein, while not guaranteed as to the accuracy or completeness, has been obtained from sources we believe to be reliable. Opinions expressed herein are subject to change without notice. Bitcoin article posted in Wired Magazine 12/6/17.



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