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Never in the past forty years have I experienced a time when the political climate so dominated the investment discourse and my discussions with you, my clients. For those forty years one axiom has held true. The economy matters, not politics. Even politicians mostly know that. This time feels different. It isn’t. Whether the current political climate has you cheering or jeering, it has been

compelling. Our news is saturated with “alternative facts” and over‐reported

incidents of under‐reported news. This cognitive dissonance is distracting to say

the least. The new administration has come with lots of proposals and executive

actions. These are dominating the news cycle with endless reporting, fact‐checking

and analysis. It is easy to get caught up in it all. But what actually is going on in the

economy and the financial markets?

In the immediate aftermath of the election, the financial markets responded with

unanticipated enthusiasm. Or so we thought at the time. The election may have

been a catalyst for the market strengthening but since then the fundamental backing

for that enthusiasm has become apparent. As the last of the third quarter earnings

corporate reports were coming in, it was finally evident that the slowdown in

corporate profits was reversing and we were returning to overall earnings growth.

At the same time the job market was also showing improvement with increases in

jobs created and decreases in layoffs. More significantly there were some signs of

actual wage growth. Couple these fundamental positives with the prospect of lower

taxes, infrastructure spending and less regulation and the markets were off and


That took us until about mid‐January. Since then the markets have been taking a

breather. Our communal consciousness is taken up by the political spectacle. Much

of that is pure distraction; some is deeply divisive. But the market action is driven

by less inflammatory factors. It is the economy that matters.

So where are we now? The fundamental backdrop of low inflation and interest

rates, corporate profit growth, and improving employment conditions is still in

place. But the political wish list that was expected to fuel much stronger economic

growth is coming up against the realities of legislative logistics, competing policy

agendas and fiscal constraints. The markets do seem to be grappling with not only

the negative aspects of the political agenda like trade wars and immigration

constraints but also with sorting out the winners and losers from the various

proposals put forth by the new administration. Often the winners and losers are not

immediately apparent. The devil is in the details and the demons are in the


As investors it is important to tune out the noise and focus on those aspects of the

actions that will have economic impacts. That sounds easy enough but at this stage

it is quite a challenge. Of the current proposals with the most direct economic

impact, some are positive and some are negative. Almost all require Congressional

action and thus are unlikely to survive in current form. It may take some time

before the noise settles into some pattern and it will be possible to anticipate the

true implications of the inevitable change. Meanwhile we will focus on the long

term fundamentals of the economy and the corporations in which we invest. Oh, and

maybe looking for a good “noise‐cancelling” headset.


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