Men in general judge more from appearances than from reality. All men have eyes, but few have the gift of penetration. Niccolò Machiavelli

When I was a young adult, I used to enjoy watching television shows which centered around law. I didn’t mind Law and Order, which my wife really enjoys, but instead favored a show called The Practice, which originally starred Dylan McDermott and then Emmy award winning actor James Spader. Anyway, for me, one of the appealing things about courtroom trials is the role of the judge, or jury, in making decisions. Two arguments, one prevails, and much depends on the ability to argue ones side in a persuasive manner. In the investment world, you currently have similar circumstances in that there is a camp which believes inflation is picking up, as seen by wage inflation rising 2.5% over the last year, oil prices near 70$ a barrel (Brent), gold at 1350 an ounce, and the ten year Treasury bond hitting 2.5%. The opposite camp believes we are still in a deflationary world with the Amazons of the world driving down prices in nearly every sector, bond yields still under 3%, and with those big companies only getting more powerful, inflation is the least of an investors worry. With your capital, you sit as the judge and jury, trying to make intelligent decisions where you will get the kind of return you want but keeping in mind the future may look far different than it does today, think two, three, or five years down the line. In any case, the shows on television I used to watch usually had the firm proving triumphant. In the investment world, there really is no declared victory, but the ability to make intelligent decisions based on differing analysis and descriptions of a situation and it’s facts can be seen quite similarly.

In the markets this week, a strong retail sales number (+5.5% during the holiday shopping season, strongest since 2008) and the big profit numbers from Chase and Wells Fargo, four and six billion respectively, helped continue the rally in stocks. One thing to point out in comparing the two large banks, there really was not much difference in the quality of earnings because when you strip out the tax assets, Chase also earned over six billion big ones. Wells has unrealized tax liabilities, whereas Chase has tax assets, so with the reduced tax rate, Wells gets helped and Chase has to reduce their net income number. I know, way deep in the accounting weeds, but just want to clarify that point. Class dismissed. Looking ahead, bank earnings reports stream in on Tuesday with Citi, followed by Goldman and then Morgan Stanley later in the short week.

Interesting article appeared in today’s New York Times (might be the one good article they have per year, oops, pardon the editorial opinion) about cryptocurrency millionaires. In reading about these forward thinking, clairvoyant, and now suddenly quite lush cryptokings, the noteworthy fact was that 95% of all cryptocurrency wealth is held by 4% of all owners. Hmm, why does that seem familiar? Even more, ahem, unique, was there was such a thing named the cryptocrackhouse. What I find striking is these individuals invested money when the technology was early, placing big bets, and were rewarded three to five years with massive payoffs. Once in a while, investing in stocks can make you 50-100 times your money, maybe more. It certainly happened with cryptocurrencies. However, over longer periods of time, equity owners can continue to benefit from both income generation and potential capital appreciation (and of course, loss) after a stock has had a big run. I don’t think the same can be said for cryptocurrencies. Still, give them their due, it is not easy to make many multiples of your investment, so congrats cryptocrackheads.

Speaking of crack, our politicians again demonstrated they seem to delight in appearing they might be using the illegal substance, based on their comments this week. I am sure you are aware of what Donald said, and throw in Nancy Pelosi’s comments about Caucasian males, and well, maybe they are using the pipe. In playing judge and jury regarding the political environment, other than holding ones nose at the stench, the big issue will be how does the midterm elections play out? Will the current success of the market and potential of tax cuts leading to more money in people’s pockets (as seen by the over 150 companies declaring some kind of bonus for their workers) override how people feel about the President’s behavior and remarks over the last two years? An interesting question, and not one anyone currently knows the answer to. Maybe one of the cryptocurrency millionaires can offer their judicious opinion and help the rest of us figure it out. 
Thank you for reading the blog this week, and if you have any questions about investing, please email me at information@y-hc.com

Yale Bock, Y H & C Investments, its clients, and the family of Yale Bock have positions in the securities mentioned in the blog,  Investing in securities involves risk and the potential loss of ones principal.  Past performance is no guarantee of future results.  All investment decisions should be considered with respect to ones risk tolerance, return objectives, liquidity needs, tax considerations, and one's overall financial situation.  The fact that Yale Bock has earned the right to use the Chartered Financial Analyst in no way means or guarantees financial returns which exceed those of a market index.