The minutes of the July 31-August 1 Fed policy meeting and Chairman Powell’s Jackson Hole speech reinforce the view that the central bank will raise short-term interest rates again on September 26. The pace of monetary tightening beyond that is unclear, reflecting a number of uncertainties.

We have used the “Not Afraid” story many times over the past 48 years, but we dredged it up again this morning because of the many questions about “being afraid” we got in Boston two weeks ago and New York City last week.

The Kansas City Fed’s annual monetary policy symposium begins later this week in Jackson Hole, Wyoming. Around 120 people attend the conference, including central bankers from around the world. In the past, the Fed chair’s speech has often been a big deal for the financial markets.

So, as most of you know we were on a road trip last week. We flew into Albany, New York on Sunday only to be greeted with hotter temperatures than what we left in Florida. The mountain drive to Manchester, Vermont was spectacular, but hereto the temperatures were hotter than Florida.

We don’t know how long ago we met Frederick “Shad” Rowe, but we are glad we did, because our conversations with him have been net worth changing.

Nonfarm payrolls rose less than anticipated in the initial estimate for July, but figures for May and June were revised higher. The unemployment rate edged down, but the trend has been relatively flat this year – at odds with the strong trend in nonfarm payrolls.

Real GDP rose at a 4.1%, annual rate in the advance estimate for 2Q18, about as anticipated. That followed a 2.2% pace in the first quarter (revised from +2.0%). Second quarter strength was concentrated in consumer spending (rebounding from a soft 1Q18) and a surge in agricultural exports (which may have been in anticipation of an escalation in trade tensions).

“Do you have the mental fortitude to accept huge gains?” is a line from The Elliott Wave Theorist’s Robert Prechter in an era gone by. But it is as true today as it was when first penned in the 1970s. And to do that, one has to ignore the ticker and hold stocks through a long market swing.

Recent economic data reports, while mixed, continued to paint a picture of a strengthening economy in 2Q18. This improvement, expected to be seen in the GDP report to be released this Friday, partly reflects a rebound from a “soft” 1Q18. Averaging the two quarters should show a robust pace of growth in the first half of the year.

Readers of these missives know that we have been favorable on the midstream Master Limited Partnership (MLP) space for a number of months. The reasons for that strategy have often been mentioned in these letters. First, the midstream MLPs sold off when the upstream MLPs blew up with most of them going bankrupt.

On CNBC last Friday, we stated that we have been in a stealth bull market. Indeed, after anticipating the stock market’s bottom in early February, the stealth bull market emerged.

Fed Chairman Jerome Powell will deliver his semi-annual monetary policy testimony to Congress on Tuesday and Wednesday, but he’s not expected to cover any new ground.

Nonfarm payrolls rose more than expected in June, but the unemployment rate rose and average hourly earnings rose moderately. That’s a seemingly sweet combination for investors. The economy remains strong, but not so much that the Fed has to slam on the brakes.

Clearly the stock market’s “internals” are pretty perky with the NYSE Advance/Decline Line continuing to point the way higher, and in the process made yet another new all-time high last week.

The year began with two key themes. The first was that the economy ended 2017 with a good deal of momentum that should have continued into early 2018. The second was that the outlook for the second half of the year was considerably more clouded, reflecting fiscal stimulus, more binding constraints in the labor market, and tighter monetary policy.

Personally, I start with a base position of actively managed mutual funds, but not just any fund. The funds I want to own are the ones where I know the portfolio manager.

It was a relatively thin week for economic data. Housing starts rose 5.0% (±10.2%) in May – a strong gain, but not statistically significant. Single-family permits, the key figure in the residential construction report, fell 2.2% (±1.0%) in May, but were up 7.7% (±1.3%) from a year earlier.

It was back in November 2010 when James Howard Kunstler first wrote the aforementioned quote. We recalled that quote while spending last week in Nashville seeing institutional accounts and speaking at events for our financial advisors and their clients where the question du jour was, “What’s going on with the potential trade war?”

As expected, the Fed raised short-term interest rates following the June 12-13 policy meeting. Investors were more concerned about the pace of future rate increases and the revised dot plot showed a median of four rate increases in 2018, although (as in the March plot), most fed officials were divided between three and four.

We have used this quip from the book Why You Win or Lose: The Psychology of Speculation by Fred C. Kelly many times in our missives over the past nearly five decades because the wisdom of its message is timeless. We recalled it last week in many of our meetings in New York City when we heard certain individual investors, as well as portfolio managers (PMs), say “I should have!”

The Federal Open Market Committee is widely expected to raise short-term interest rates by another 25 basis points following its June 12-13 policy meeting (bringing the target range for the federal funds rate to 1.75-2.00%).

You might think institutions with their large staffs of highly-paid and experienced investment professionals would be a force for stability and reason in financial markets. They are not; stocks heavily owned, and constantly monitored by institutions, have often been among the most inappropriately valued.

Nonfarm payrolls rose by 223,000 in the initial estimate for May, stronger than expected, but not statistically outside of the moderately strong trend of the last year. We need a little less than 100,000 jobs per month to absorb new entrants into the workforce. Hence, it’s no surprise that the broad range of data has indicated a further tightening in labor market conditions.

I can’t quite remember how I met Craig Drill, captain of Drill Capital Management, but meet him I did over a decade ago and we have become kindred spirts. Maybe it’s because we both have been in the business a long time, or maybe it is because of our connection to First Boston in a life gone by.

Readers of these missives should know our fundamental energy analysts have been bullish on oil for quite some time, as have we. In fact, we have been bullish on commodities in general, often noting they are the cheapest relative to equities as they have been since the 1960s. Yet last week crude oil’s decline spooked energy investors, raising the question, “Is the crude oil rally over?”

The rise in oil prices is expected to have mixed effects on the U.S. economy. Higher gasoline prices will restrain consumer spending growth to some extent. However, increased energy exploration implies more capital spending, adding to GDP growth. For Federal Reserve policymakers, the key question is whether higher costs of transporting goods may be passed along to consumer prices.

We have always liked the movie “City Slickers” and particularly one scene. It’s the scene where Curly (Jack Palance) turns to Mitch Robbins (Billy Crystal) and says, “Do you know the secret of life?” The punchline is, “It’s just one thing” (one thing). For investors we agree, all you need to know is just one thing.

The April inflation reports were a bit on the soft side of expectations, reducing somewhat the fears that we’re on the verge of an upside breakout in inflation. There’s no sign that a strong economy is putting much upward pressure on consumer prices.

Today, we revisit the military preparedness question following President Trump’s nearly $700 billion military budget to attempt to make our military readiness better. We think the recent weakness in the defense sector stocks provides an interesting entry spot for investors.

So we headed to NYC early Thursday morning in search of the “Teenage Mutant Ninja Turtles.” After touching down at LaGuardia we climbed into a yellow taxi held together by duct tape, rode over potholed streets with our cell phone cutting in and out (gosh I love New York City), and arrived at Grand Central Terminal around 11:00 a.m.

Nonfarm payrolls rose by a little less than one million in April – that is, prior to seasonal adjustment – up by 2.932 million from January to April (vs. +2.708 million for the same three months a year ago). Seasonally adjusted, the trend in private-sector payroll growth has remained strong in recent months.

Real GDP rose at a 2.3% annual rate in the advance estimate for the first quarter, a bit stronger than anticipated (the median forecast was +2.0%), but “close enough for government work.” These figures will be revised, but the underlying story is unlikely to change much.

“A long time ago in a galaxy far far away” I was running three separate departments at then Richmond-based Wheat, First Securities. Subsequently, Tom Dorsey and Watson Wright decided to leave Wheat, First and form the now legendary firm of Dorsey Wright. When they left, that department fell under my management.

The Bureau of Economic Analysis will report the advance estimate of 1Q18 GDP growth on April 27. These figures will be revised, but the underlying story is not expected to change much. Growth was likely moderate, not horrible, but far short of the lofty expectations that some had put forth at the start of the quarter. Nobody appears too worried about that.

The March reports remained consistent with the view that inflation will move toward the Fed’s 2% goal, perhaps sooner than expected. The FOMC minutes were not expected to surprise, but several Fed officials felt that it might be appropriate to move the federal funds rate above a neutral level for a time.

These are two of the most important paragraphs we have encountered in more than 47 years of studying markets. DO NOT read them just once. Go off to a quiet spot that invites contemplation and READ THEM SEVERAL TIMES. Then reflect on all of the mistakes you have made in trading and investing.

Nonfarm payrolls rose less than expected in March (+103,000), but the trend remained strong, well beyond a pace consistent with the growth in the labor supply.

The definition of a China syndrome is, “A hypothetical sequence of events following the meltdown of a nuclear reactor in which the core melts through its containment structure and deep into the earth; hypothetically to China.”

When we were kids, we used to love having our parents read to us, especially from books written by Lewis Carroll. Through the Looking Glass and Alice in Wonderland were our two favorites. One of the quotes that has always stuck with us is, “Down the rabbit hole,” which is a metaphor for an entry into the unknown, the disorienting, or the mentally deranging, from its use in Alice's Adventures in Wonderland. Unfortunately, the same can be said about the stock market recently.

Recent economic data suggest the overall growth was at a moderate pace in the first quarter, respectable, but short of the very lofty expectations seen at the start of the quarter.

Financial market participants took the Fed policy meeting outcome as “dovish,” but the end result was a little more hawkish. The Fed’s revised economic projections weren’t much of a surprise, but they illustrate the thinking behind the expected monetary policy outlook. Of course, there are risks, notably a major misstep on trade policy. Gulp!

Many of you will recall that T. Boone Pickens and I know each other. In fact, three years ago he and I did a “fireside chat” on stage at Raymond James’ Summer Development Conference in front of a few thousand financial advisors.

The Federal Open Market Committee is widely expected to raise the federal funds target rate on Wednesday (to 1.50-1.75%). For investors, the key question is the pace of tightening that will follow.

The Three Prisoners problem appeared in Martin Gardner’s “Mathematical Games” column in Scientific American in 1959. It is mathematically equivalent to the “Monty Hall problem” with the car and goat replaced with freedom and execution, respectively, and equivalent to, and presumably based on, Bertrand’s box paradox.

It has been said that an investor will experience three secular bull markets in their life time. In the first one you will not have enough money to take advantage of it. In the third one you will be too old to take the amount of risk to really take advantage of it.

Nonfarm payrolls rose by 313,000 in the initial estimate for February, with a net revision of +54,000 to December and January. The unemployment rate held steady at 4.1%, despite a rise in labor force participation. 

Tariffs on imported steel and aluminum are unlikely to have a major direct impact on U.S. economic growth. However, President Trump’s decision last week has significantly raised the risk level for the U.S. and global economy.

“Smoot-Hawley Tariff was an act implementing protectionist trade policies sponsored by Senator Reed Smoot and Representative Willis C. Hawley and was signed into law on June 17, 1930. The act raised U.S. tariffs on over 20,000 imported goods.”. . . Wikipedia

The House Financial Services Committee has shifted Fed Chair Powell’s monetary policy testimony to Tuesday, February 27.

What a great question! I recently reread the above quote from Bob Prechter. It’s an excellent quip and virtually everybody can identify with it. On the surface the question seems laughable; who can’t accept huge gains? But in order to set yourself up for such gains you have to possess the courage to take an oversize position and maybe even leverage it.