Plainly there are times for investors/traders to be active. But there are also times for them to be inactive, despite the trait of human nature to be “active;” and, for the past few months inactivity has been the best overall strategy.

The good news is that the output gap, the difference between real Gross Domestic Product and its potential, has narrowed. The bad news is that’s largely because potential GDP has declined. The big question now is whether the economy is on a permanently lower track. The answer is not so clear.

Most people acknowledge that losses will happen regardless of the type of business venture. A light bulb manufacturer knows that two out of three hundred bulbs will break. A fruit dealer knows that two out of one hundred apples will rot. Losses per se don’t bother them; unexpected losses and losing on balance does. Acknowledging that losses are part of business is one thing; taking and accepting those losses in the markets is something else entirely. In the markets, people tend to have difficulty actively taking losses. This is because all losses are treated as failure; in every other area o

According to Wikipedia, “Brobdingnag is a fictional land in Jonathan Swift's satirical novel about Gulliver's Travels whose land is occupied by giants. Lemuel Gulliver visits the land after the ship he is travelling on is blown off course and he is separated from a party exploring the unknown land.” I thought of Brobdingnag as I stared at a chart of the D-J Transportation Average ($TRAN/8605.31) last week, which looks like it is making what a technical analyst would term a giant broadening top, or in my terms a “Brobdingnagian Top?”

The nonfarm payroll data for March were disappointing. Job growth was substantially less than expected and figures for the first two months of the year were revised lower. These data fit in with the general theme of other recent economic reports.

Most of you know I spend my days gathering “thin reeds” and try to weave them into a favorable “investment bouquet.” As Yogi Berra said, “You can observe a lot by just watchin’!”

The question of whether the Fed would abandon the “patient” language should have not been an issue, but the financial press always tries to generate some level of tension. However, while the Federal Open Market Committee appeared to move closer to tightening monetary policy, it indirectly signaled that it would likely be much less aggressive.

The week began well enough as I arrived Sunday a week ago in Orlando for the 36th annual Raymond James Institutional Investors conference. As previously stated, there were more than 1,000 portfolio managers (PMs) and analysts there to listen to some 300 companies’ presentations. In addition to the PMs and their analysts, our analysts anchored the presentations by the CEOs and CFOs of those companies.

Job growth remained strong in February, leading financial market participants to believe that the Fed will begin to raise short-term interest rates sooner (June) rather than later (September) and, more importantly, at a faster pace than thought earlier. The report is only one item that the Fed will consider when it meets to set monetary policy (March 17-18).

Fed Chair Janet Yellen signaled that officials will likely alter the forward guidance at the March 17-18 policy meeting. However, altering this guidance (the conditional commitment to keep short-term interest rates exceptionally low) is not the same as signaling that a rate hike is imminent, as Yellen made clear. She did indicate what would lead the Fed to start tightening.

Greetings from Orlando where the Raymond James 36th Annual Institutional Investors Conference is in full swing. At this year’s conference there will be more than 1,000 portfolio managers (PMs) and analysts, as well as more than 300 companies presenting. In a past life I used to attend many of Wall Street’s institutional investors conferences, but have come to like ours the best.

Fed Chair Janet Yellen will testify on monetary policy on Tuesday and Wednesday. These appearances are less traumatic for the financial markets than they used to be. The Fed releases minutes of the policy meetings on a timelier basis and the Fed chair holds press conferences after every other meeting. Hence, it’s unlikely that we’ll see Yellen signal a major change in the policy outlook. Still, the financial markets will pay attention.

Many of you know that I spend time gathering “thin reeds” and try to weave them into a favorable “investment bouquet.” This is a strategy Fidelity’s Peter Lynch took to its zenith in an era gone by. Recall the story Peter told about how he stumbled into Magellan Fund’s (FMAGX/$96.12) investment in Hanes, when he first heard his wife rave about a new product called pantyhose.

Retail sales figures disappointed in December and January. The Bloomberg/University of Michigan Consumer Sentiment Index fell back in mid-February. This news has cast some doubt about whether the drop in gasoline prices will propel consumer spending growth in the near term. However, economic data are notoriously unreliable in the winter months. The spring economic data reports should provide a better picture of the underlying strength in jobs, consumer spending, and housing.

I stopped my rental car in the middle of a cluster of giant sequoia trees while driving to one of my speaking engagements in northern California last week. I have always been overwhelmed with these beautiful “beasts” and last week was no exception. As I lay supine at the base of the behemoth the visual fallacy actually made it look like this monster was indeed growing to the sky. The surreal sensation brought to mind the old stock market axiom, “Trees don’t grow to the sky!”

The big news late last week was German Chancellor Angela Merkel’s and French President Francois Hollande’s emergency trip to Russia for peace talks with President Putin. Obviously, the situation in the Ukraine is heating up again or such Herculean efforts would not be undertaken.

Contrary to what you may have heard, the U.S. economy did not add 257,000 jobs in January. That’s the seasonally adjusted figure. We actually lost 2.755 million jobs, which was a smaller decline than the year before (-2.811 million).

We have lost our way as a people and a country when we ignore and/or fail to see the significance of history. King Abdullah and his father King Abdul Aziz al Saud were titans of the modern day middle east that so affected us all. I read about his death in the B section of the local paper after a story about our local nursing home under new management. God, Allah, Adonai ... please help us all.

The U.S. economy data are likely to be mixed in the near term, but there is little doubt that we are gathering steam. The plunge in gasoline prices is an enormous tailwind. However, this isn?t just an energy story. The fundamentals are getting better.

Central bank policymakers fear deflation more than anything. However, there is good deflation and there is bad deflation. Yet, even low inflation can create problems for an economy. Low inflation is expected to be a key factor in the ECB?s decision to embark on quantitative easing and ought to have some influence on the timing of the Fed?s initial rate hike.

?Rocky Horror Picture Show? was a satirical film production done as a tribute to the science and horror ?B? movies of the late 1930s through the 1970s. I was reminded of the flick last week when one portfolio manager I saw in Fort Lauderdale said to me, ?The first few weeks of the New Year have been an absolute horror show!?

The December Employment Report presented a mixed job market picture. The establishment survey data reflected strong job growth, but with a lackluster trend in average hourly earnings. The household survey showed a larger-than-expected drop in the unemployment rate, but that was due to a decline in labor force participation. What should Fed policymakers make of this report? Patience, grasshopper, patience ...

Amid all of the recent economic data releases, the consumer spending figures stand out. The near-term outlook for the consumer has improved substantially, but financial market participants have yet to embrace the good news.

The transition from one year to the next is always accompanied by a whole host of traditions intended to help people celebrate this annual new beginning. The resolutions, parades, fireworks, football games, food, furniture sales ? they all seem to be experienced in a fresh, optimistic light, like an all-forgiving reset button was hit when that ball dropped on New Year?s Eve.

Every December, economists are asked for their projections for the coming year. Whats GDP growth going to be? How many jobs will be added? Whats the Fed going to do? How will the financial markets react? We build models of the economy models that we know are not precise. There are simply too many variables.

I met Jerry Goodman, whose nom de plume was Adam Smith, late in my career. He was working at my friend Craig Drills money management firm along with another icon in this business, from an era gone by, namely Al Wojnilower. I have had many conversations with all three of these Wall Street legends around the conference table at Drill Capital Management. Jerry wrote The Money Game (1968), Powers of Mind (1975), Paper Money (1981), and The Roaring 80s (1988), but unfortunately we lost his wisdom on January 3rd of this year .

He said: Jeff, you sure were right in Thursday mornings verbal strategy comments when you said we should get a bounce following Wednesdays 90% Downside Day, but that that bounce should not hold and for the perfect set-up to occur for the Santa Rally would be to have the S&P 500 come back down and travel into the 2000 2010 level.

Federal Reserve policymakers meet this week to set monetary policy. The key concern is the timing of policy normalization. Officials may be anxious to begin lifting short-term interest rates, but they need to be very careful about managing market expectations. The risks of tightening too soon or too late are not symmetric and with the financial markets in turmoil, the Fed will not want to add to the level of anxiety.

Looking ahead to 2015, the labor market is expected to play the key part in the Feds path to policy normalization. However, as we learned from New York Fed President Dudley last week, the Fed will also consider the reaction in financial markets.

As most of you know I was in New York City most of last week seeing institutional accounts, doing media and speaking at various events. One of the media appearances was to co-host CNBCs Closing Bell on Tuesday, with the sagacious Sara Eisen, who unsurprisingly gave me the quote of the week. The quote was, Think of it this way, lower oil prices are to America what lower labor costs were to the BRICs!

The minutes of the October 28-29 Federal Open Market Committee meeting suggested that there is still no consensus opinion among senior officials regarding when the Fed will begin raising short-term interest rates. There is strong agreement that monetary policy moves will be data-dependent. However, policymakers differ in their views on the amount of slack in the job market.

Year-end letters are always difficult to write because there is a tendency to discuss the year gone by, or worse, try and predict what is going to happen in the New Year. I mean really, at this time last year who predicted Russia would invade Crimea, that ISIS would effectively take over a significant portion of Iraq, or the Republicans would sweep Congress.

Begin with a turkey chilling in a sink for a few hours. Mix in the Bank of Japans shock and awe announcement of a week ago. Add the U.S. unemployment claims that are at a 14-year low and stir well, include housing prices that are better by +6%, fold in the Leading Economic Indicators advancing by 7%, the ECB announcement by Draghi about a bazooka of Quantitative Easing (QE), and the Thanksgiving dinner result . . . new highs for equity prices!

The minutes of the October 28-29 Federal Open Market Committee meeting suggested that there is still no consensus opinion among senior officials regarding when the Fed will begin raising short-term interest rates. There is strong agreement that monetary policy moves will be data-dependent.

Integrity, Websters dictionary defines it as, The quality of being honest and having strong moral principles. Recently the voters of America sent the D.C. crowd a message that they want integrity back in government. Consequently, I viewed the midterm election as a turning point. And, a turning point approaches on December 21st of this year. Thats when the Winter Solstice arrives.

Inflation-adjusted consumer spending growth, 70% of Gross Domestic Product, rose at a lackluster 1.8% annual rate in the advance estimate for 3Q14. That figure is likely to be revised higher, but the pace is expected to remain disappointing relative to job growth (this year, we are on track to post the largest increase in jobs since 2005). The main restraint on spending appears to be the weak trend in average wages. Until the job market tightens a lot more, were unlikely to see a significant pickup in wage growth.

The headline figures from the September jobs report were better than expected. However, the details were more consistent with moderate growth and a continued high degree of slack. Fed officials arent going to jump to any conclusions.

Dash, Dash ... Dot, Dot is all about Morse Code where the dash is three times the duration of the dot. According to Wikipedia, Each character (letter or numeral) is represented by a unique sequence of dots and dashes. Each dot or dash is followed by a short silence, equal to the dot duration.

Income inequality has been an important topic this year, but it is one that is mired in politics. That means it is a potentially treacherous debate for the Federal Reserve chair to wade into. To be fair, Yellen said that the purpose of her recent talk on income inequality and opportunity was not to provide answers to these contentious questions, but rather to provide a factual basis for further discussion. She provided a mountain of evidence from the Feds triennial Survey of Consumer Finances, and then got out of the way, as appropriate.

In the June 26th edition of the Morning Tack, Jeff Saut wrote, I do believe the VIX bottomed last Friday (6/20/14) with an undercut low, much like the undercut low of October 4, 2011 that we identified as the valuation low, and recommended should be bought with the SPX trading back then at 1075. Well that proved to be fitting timing, since from that 6/20 low to the high on Wednesday 10/15, all the VIX did was shoot up about 200%!

In recent weeks, the financial markets appear to have been reacting less to weaker expectations of global growth and more to the increased downside risks that is, to the fear that things could get a lot worse. The downside risks to Europe are considerable, but America is much less dependent on exports than most other countries and the prospects for moderately strong growth into 2015 remain promising.

In a true demonstration of impeccable and apropos timing given the recent volatility we have experienced, yesterday marked the 27th anniversary of one of the stock markets most infamous and chronicled events. Black Monday, October 19, 1987 was one of those multiple standard deviation occurrences that statisticians will tell you are not supposed to ever really happen, but as is the case more frequently than most realize, it of course did happen, and its impact is still being felt today even as there are fewer and fewer investors around that actually had to suffer through it.

In the latest update of its World Economic Outlook, the IMF revised lower its expectations of global growth in 2014 and 2015. None of that should have surprised anyone. At this point, the IMF expects that European GDP will be relatively weak in 2014 (+0.8% 4Q14/4Q13) and should improve in 2015 (+1.6% 4Q15/4Q14). However, risks are weighted predominately to the downside. Weaker European growth and a stronger dollar will have a significant impact on many U.S. firms, but may have some benefits for the economy as a whole.

In this business it has been said, Sometimes knowing the right question is more important than actually knowing the answer. Over the years I have found that old Wall Street axiom to serve me well. One example would be reading the footnotes in a companys annual report.

A week ago yesterday I arrived in New York City just in time to have dinner with some friends. Avra Estiatorio is arguably the best Greek seafood restaurant in the city and it is located 20 steps from my hotel of choice, the Hyatt 48 lex, which is aptly named since it sits on the corner of Lexington and 48th street.

The headline figures from the September jobs report were better than expected. However, the details were more consistent with moderate growth and a continued high degree of slack. Fed officials arent going to jump to any conclusions.

If you dont change your indicators for the changing causal relationships you are doomed!

Real GDP is now estimated to have risen at a 4.6% annual rate in 2Q14. However, the second quarters strength must be balanced against the first quarters weakness (a -2.1% pace). As the third quarter ends, we still dont have a complete picture. However, figures are likely to suggest a moderately strong pace of growth and a gradual taking up of economic slack.

I have been reminded of the Greek mythology character Sisyphus since mid-July as investors tried to roll an immense boulder up a hill, only to watch it roll back down. In this case the boulder in question has been the D-J Industrial Average (INDU/ 17279.74), which since late July has tried seven times to better its all-time high of 17138.20 made on July 16th of this year.

As was widely anticipated, Federal Reserve policymakers reduced the monthly pace of asset purchases by another $10 billion and kept the considerable time language. Fed policymakers revised slightly their forecasts of growth, unemployment, and inflation. However, the really interesting item in the Feds Summary of Economic Projections was the dot plot, the projections of the appropriate year-end level of the federal funds rate for each of the next few years. There is a huge range of uncertainty among Fed officials.