Fortune telling is not thought of very highly in the mainstream religions of Christianity, Judaism, and Islam. In its essence, investing is very much looking into the future and predicting the evolution of a business. It is why many compare gambling on sporting events to investing in equity markets as both involve spending capital based on future events. There is a difference in that gambling is typically a zero sum game, meaning there is a winner and loser, and it entails the complete loss or gain of one’s principal.  

Investing is different because you can own the asset and can generate income from it, while having the asset also lose or gain value at the same time. By owning it, unless it goes bankrupt, you will not have a complete loss (the loss can be temporary, unless you sell the asset).  All that said, one reason why financial professionals advocate for diversification is nobody knows how the future plays out. By having a diverse set of assets in a variety of industries, you minimize your risk of loss, provided the concentration of your capital is spread out. As we have seen over the last few years, certain segments of the market can lie dormant for a few years, and then lo and behold, have a big run in a matter of weeks.

The best example of this is the banking sector, which prior to the November election sat like a flat beverage for ten years. That is one flat soda, and no return for holding it, either. Once the Donald became president-elect, large banks had 20-30 percent moves in less than a week. Gazing into our crystal ball, let’s take a look what happened this week to try and get a clue of what might happen next.

Wednesday, Janet Yellen and the Fed concluded their board meeting by raising interest rates 25 basis points and somewhat surprisingly announcing the economy was good, so we should expect two more increases through the rest of 2017. Stopping at two was a bit of a surprise, so the dollar weakened a touch and financials took a breather.  Still, rising interest rates is manna from heaven for the banks as those net interest margins get wider and wider.  

Oil bounced back some from seven straight days of declines as US inventories fell a bit. The ECB said they will potentially extend their version of quantitative easing and it appears will lift their deposit rate from -.4% to -.3%. Way to go. In our pathetic attempt to peer ahead, the domestic economy looks solid, which is why you should remain somewhat skeptical as making macroeconomic predictions remains rough.  

On the political front, Mr. Trump released his first proposed budget and the military is the big winner, with anything related to climate change and the State Department seeing large cuts to pay for the shift in priorities.  When you go through the list of some 65 programs which Mr. Trump is putting the axe to, there is a reason why our country ran deficits as large as $500 billion to a trillion a year.  You name it, our country funded it, spotted owls, multi cultural dancing, atmospheric measurement, desert tortoises, the list is long and varied.  Rachel Maddow helped the Donald by revealing the extent of his tax liability in 2005.  Lo and behold, her friend Bernie Sanders paid tax at half Donald’s rate.  Projecting those rates into the future is difficult, especially when Congress gets along so well.  It appears the wisdom of Mr. Tzu is applicable many centuries later.  Imagine that.