There is an old tongue-in-cheek market adage that says that portfolio managers are “never wrong, but sometimes they are early.” Well, in our case, that expression was flipped -- We were exactly right, but late.

The “dog days” of summer are upon us, and the “out of office” email bounce backs have increased accordingly. But while many Northern Hemisphere workers may be taking their summer breaks, the global economy continues to grind along.

As we review the general state of the global economy and investment markets, the word that keeps running through our mind is “asymmetrical”. We believe that the underlying fundamentals remain generally positive, but the market increasingly is “priced for perfection” and subject to downside shocks if what’s being priced in turns out differently than expected.

“Sell in May and go away” is, perhaps, our least favorite market cliché. It strikes us as simplistic and slightly juvenile. Except for the fact that it often proves true – the summer months do tend to exhibit less trading volume and, therefore (perhaps counterintuitively), the markets often react more violently to transitory news.

In the current environment, we believe the market had once again become overly complacent and so is reacting to noise. Perhaps it would be more accurate to suggest that the market is once again appropriately pricing risk back into the market.

All of the “signals” we’ve been focusing on in the past several months remain solidly “in the green”. So why are we apprehensive? Perhaps we shouldn’t be, and simply are falling prey to our inner “Chicken Little” who always thinks the sky is falling. We’ve been guilty of that before.

We find the global economy and market at an interesting crossroad. Continuing our “noise” versus “signal” theme of the past 2-3 months, here is our take on the current environment.

Given the generally positive trends on both market signals and noise, is it any real surprise that the markets have rallied as they have so far this year?

So let’s summarize how we see the world in terms of noise – those things that may introduce short-term volatility and anxiety, but which are unlikely to dramatically affect longer-term performance – and signals – those things that may actually affect longer-term market performance.

We believe that investors “overbought” good news through the first three quarters of 2018, and now are “overselling” bad news.

Last month, we referenced the phrase “October Surprise” in its usual political context. Well, we certainly had a surprise, but it was markets-related rather than political. After months of investor complacency and a sky-rocketing technology sector, the markets suddenly got spooked on the backs of global trade tensions...

There is not much to say about the mid-term elections beyond what has already been said ad naseum. The bottom line is that the outcome was largely as anticipated – the Democrats regained control of the House (though by a smaller margin than expected by those hoping for a “Blue Wave”)...

This year, there very well may be a political “October Surprise”, though as we write this we are running out of days in which one may occur (perhaps the recent spate of “pipe bomb” deliveries to prominent Democrats qualifies, though the actual sender of those bombs remains highly questionable).

The consensus view is that the US will not head into recession until later in 2019, perhaps not even until 2020. But it is important to remember that fiscal stimulus simply pulls consumption forward. We currently are benefiting from that phenomenon, as the economy is strong and consumer and small business owner sentiment is as high as it has been in years. But while fiscal stimulus can elongate economic expansion, it does not negate the business cycle. The piper always gets paid.

The “dog days” of summer are ending, and September and October frequently have “re-introduced” investors to volatility. This may prove especially true as we head into what looks to be a divisive and brutal mid-term election cycle.

Geopolitics dominates the news these days, over-shadowing what remains a fundamentally solid global economy. As always, Donald Trump is at the center of most of the “noise”...

Topics of discussion are Economic Outlook – “It’s a Mad Mad Mad Mad World”, Market Outlook – “Volatility is the New Black”, Building “All Weather” Portfolios.

The days are long and people’s thoughts naturally move to the mountains, lakes, and beaches. But these coming summer days may not be so “dog-like” as we normally anticipate.

Things just got interesting – maybe. It is hard to write anything definitive given how quickly events are unfolding. Investors were taking turns being spooked by possible trade wars, cancelled (but now rescheduled) Korean denuclearization summits, and elevating unrest in the Middle East. The US market continues its volatile tug-of-war between heavy fiscal stimulus and tightening monetary policy.

Spring is taking its sweet time arriving on the East Coast of the US – much of April was cold and wet. There were several “head fakes” – days when the temperatures rose and the rains dried up. But just when it seemed safe to put away the winter coat, another cold front would blow through and the cycle would start again.

Spring traditionally is a time of rebirth and renewal – the weather starts to turn, flowers begin to bloom, baseball fans start to fantasize once again, and romance is in the air. But as March slips into April in 2018, the markets decidedly are suffering from hay fever – sneezing, wheezing and, at times, crashing to the ground.

We view the events of late January and early February as healthy – the final “death spasm” of market reliance on central bank policy, and a return to more normalized market conditions – volatility returns, earnings and fundamentals matter, and a reminder that stocks can go down sometimes as well as always up.

The global economy continues to grow, global manufacturing is solid, corporate earnings are strong, and we already are beginning to see here in the US the potential growth catalyst provided by the year-end tax legislation (bonuses are being paid, hiring is increasing, and capital investments are increasing).

Interestingly, for everything else he wrote about, William Shakespeare almost never wrote about anything religious – the above passage is one of his few that that even remotely addressed anything theological or spiritual. We don’t know if this is because he was areligious or because he was too savvy to engage in any theological controversy during a fierce Catholic vs. Protestant political regime (we tend to believe the latter).

Goldilocks is going back for thirds. The beneficent global economic regime we’ve described for the past several months remains solidly in place – global economic growth (especially in manufacturing), strong corporate earnings and revenues, raging equity markets, low interest rates, and an almost frightening level of market complacency.

The “Goldilocks” regime we described last month remains solidly in place – global economic growth (especially in manufacturing), strong corporate earnings and revenues, raging equity markets, low interest rates, and an almost frightening level of market complacency.

As we transition from Q3 to Q4, the global economy and markets seem much like that third bowl of porridge in the Goldilocks story – everything is just right.

As we publish this month’s Commentary, Hurricane / Tropical Storm Harvey continues to pummel Houston and the surrounding areas. The flooding is intense, the damage will be massive, and there will be tremendous human and economic suffering as the rains subside and the waters all-too-slowly recede.

It is stinking hot and steamy on the East Coast these days, as the proverbial “dog days of summer” set in. Historically, this was a time of year when things slowed down, people went on vacation, and it was generally too hot to move fast, but not this year.

It is interesting how quickly market narratives can change. Just a month ago the “consensus” was the economy was expanding, market complacency reigned, and the stock market would just keep going up.

The global economy continues to expand, corporate revenues and earnings are solid and, despite frothy valuations, the stock market continues to chug up “to 11” and beyond.