Why You Don’t Trade on the News: A 2019 Recap

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As we come up to the end of the 2019 rolls to a close, it’s natural to get reflective this time of year about all the stuff that’s happened over the last twelve months. And as I do I realize HOLY CRAP has a lot of stuff happened!

Let’s take a look back, shall we?

The Longest-Ever Government Shutdown

Last Christmas seems forever ago, but let’s not forget that 2019 started off with absolute anarchy in the Federal government. Trump was demanding money to build that wall of his (wasn’t Mexico supposed to pay for it or something?), the newly-Democratic controlled House refused to give it to him, so he decided to play chicken with the Federal government budget what resulted was the longest-ever government shutdown ever, lasting from Dec 22, 2018 to January 25, 2019.

What resulted was thousands of federal workers getting furloughed, or being asked to work without pay. And while nobody was exactly crying into their egg nog over the plight of out-of-work IRS auditors, it also hit the TSA and air traffic controllers pretty hard, which had the effect of shutting down airports across the US right during the holidays. This caused the economy to hemorrhage money to the tune of $3.6 billion dollars, and caused stock markets to turn sharply negative. Remember this?

Good times, good times.

In the end, Trump was forced to cave on his border wall, handing the Democrats and Nancy Pelosi a big win, and then nothing stupid was ever done by the government ever again.

Trade Wars Everywhere!

Just kidding! Trump then went about starting trade wars with pretty much everyone. In 2018 it was Canada and Mexico as he threatened to rip up NAFTA. Then after that it was Europe for some reason (yeah, take that FRANCE, ya jerks). Then this year, the predominant headline was of course the ongoing trade war with China.

Now, the underlying reasons for this particular conflict aren’t actually that unreasonable: Trump is (justifiably) annoyed at China stealing American IP. And China initially seeming to agree followed by them trying to trick US negotiators into signing an agreement in which they removed all their concessions was classic Commie BS (Again, Never Trust Communists). But the year-long uncertainty and escalation of tariffs that seemingly nobody wanted was a constant threat to the global economy, and ironically ended up hurting the very people that put Trump into power the most: American midwestern farmers.

Now, as 2019 draws to a close the American government has announced a tentative deal that would put further tariff increases on hold and cut existing tariffs that had been imposed in half. Curiously, the Chinese haven’t announced this on their end yet, but in the absence of further surprises (or Communist trickery), the US-China trade war may finally be on a path to de-escalation.

Yield Curve Inversion

Hey, remember this? People on this very blog freaked the Hell out about this back in August.

To recap for all the non-nerds out there, the yield curve is a what you get when you chart out the interest rates the bond market was paying for US Treasuries at all the different durations available from 1 year all the way out to 30. Normally, interest rates are lower for shorter duration bonds and higher for longer duration ones, and this is called a normal yield curve. However, on occasion strange things can happen where longer term bonds yields drop so much that it dips below the interest rate for shorter term ones. This is called an Inverted Yield Curve and is commonly seen as a predictor of an upcoming recession.

That “predictor of an upcoming recession” part is of course why everyone freaked out, and on the day it happened, the Dow dropped 800 points. I argued back in August that the Yield Curve Inversion was not, in fact, a predictor of a recession but instead just bond traders reacting to the possibility of an upcoming interest rate cut.

As it turns out, I was right. Since August, stock markets have recovered, and then continued their unstoppable climb upwards.

Like I keep saying, recessions are always coming. The economy is not designed to continue going up forever. It expands, overheats, then contracts in an endless cycle. What nobody can predict, however, is precisely WHEN a recession is going to happen. So stop trying.

Brexit

Speaking of things that people should stop trying, Brexit has been the big confusing geopolitical train wreck that just keeps going. Never have I seen a government try so hard and so long at “accomplishing” something that everyone admits will hurt their own economy.

To be fair, Brexit has been going on for 3 years now, so it’s not exactly a 2019 thing, but 2019 is when things really came to a head in terms of ridiculousness. At one point, all we could do was watch the insane spectacle of Prime Minister Theresa May refusing to offer a second referendum because “the people had already decided” on Brexit, while simultaneously trying to jam her Withdrawal Bill through the House of Commons again and again because she kept not getting the answer that she wanted. At the same time, opposition MP’s were trying to table amendments to amendments to indicative votes as the UK parliament twisted itself into knots trying to find a way out of its self-created impasse.

And now, finally, after a December election gave the pro-Brexit Tory party a thumping majority, it looks like Brexit is going to go through after all. Pro-EU “Remainers” had over 3 years to figure a way to reverse the result, but inter-party squabbling and an inability to coalesce around a central leader ensured their votes got split 3 ways while the Brexiteers all rallied together. Like it or not, Brexit is happening and the UK people will have to own the results.

You know who I feel bad for in all this? Theresa May. She’s only the second female PM the UK’s ever had after Margaret Thatcher. That’s a pretty big deal! And during that time, all she did was channel all this negotiating energy into one Withdrawal Bill with the EU, which after months of political wrangling got fed directly into a shredder. Her legacy will be forever cemented as the PM that got nothing done. Ouch.

Merry Impeachmas!

And speaking of legacies (man, I am NAILING my transitions today!), Merry Impeachmas everybody!

Donald Trump, a man obsessed with his own legacy, who envisioned himself as a transformational president on par with George Washington or Abraham Lincoln, will now be forever known as one of the three presidents who got impeached. Again, ouch.

What was remarkable on this one was the fact that financial markets didn’t react at ALL to this news. Financial markets understand that because of Republican control of the Senate, it was highly unlikely that impeachment would result in Trump being removed from office.

The real trial, and Trump’s fate, will not be decided by the Senate but by the American people. The impeachment saga will allow Democrats to argue in next year’s election that not only is Trump corrupt, but the entire Republican party is corrupt and therefore should be booted from power.

And on Trump’s side, the stakes for him are huge. If he wins re-election despite being impeached, it would effectively annul the results of impeachment and render American democracy’s system of checks-and-balances toothless for generations to come. But if he loses, not only would he be booted from power, but as a private citizen he would likely be fighting criminal charges for the rest of his life. Unless, of course, he tries to pardon himself, which would of course spark another constitutional challenge that nobody knows how it would end.

Either way, 2019 was crazy, but hoo boy just wait until the 2020 election gets under way. You ain’t seen nothing yet.

Why We Don’t Trade On the News

And how did the stock markets do during this period?

That’s right. It ignored all of the noise and just zoomed higher. As of the time of this writing, the S&P 500 was up a stunning 28.2% YTD!

And don’t think this was just a US thing. Here’s Canada’s TSX, up a whopping 20.4% YTD.

Even Europe got to participate, with the EAFE going up 18% YTD.

And that’s why while the news is interesting to follow, you never, ever trade on it. Attempting to dance in and out of the market is why while markets inexorably march higher, normal investors tend to miss out. Because they read fear-mongering articles about Brexit or the Yield Curve and they jump out fearing an impending plummet. While someone who had just closed their laptop and went out to smell the roses made money hand over fist this year.

Again, the noise isn’t going to die down next year. If anything, it’s going to be get even worse as the US election machine of 2020 gears up. Fortunately, Christmas is tomorrow, so maybe a pair of noise cancelling headphones under the tree might be in order?

So here’s wishing everyone a Merry Christmas and Happy Holidays. Turn off the news, go spend time with your family, and here’s to NOT trading on the news. 


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53 thoughts on “Why You Don’t Trade on the News: A 2019 Recap”

  1. Why do you you care so much about Trump and the Republicans? You aren’t even Americans, you don’t vote here. He is helping you make money, right? The economy is booming here, no thanks to the Democrats. All they are doing is going after Trump with bogus accusations, they aren’t even trying to improve the lives of their constituents. You’ll see you are wrong once again about American politics and Trump after next year’s elections. Then you can complain about all the money he’s making you. Hypocrites.

    1. Roberto – the U.S. economy would have performed just as well or maybe even better WITHOUT Trump. Ask any reputable economist. Trump didn’t really do sh-t.

      1. As always, it’s complicated. The US and Global economy is so multi-variate that you cannot pin one action or person as the cause for success or failure. But one major factor is the ill-advised tax cut in 2017 giving corporations lots of extra cash that was intended to trickle down in the form of corporate expansion/hiring/research/development/employee raises. Instead what we got was 2 years of corporate stock buybacks propping up stock prices, and the market overall. Now we are in an everything bubble with 97% of CFOs believing an economic slowdown or recession will hit before the end of 2020.

    2. Roberto: with my noise cancelling headphones, I can’t hear you. They have an enhanced BS blocking switch – it’s very effective.

  2. Great read and Happy Holidays to you both.

    I would like to add a caveat to your comments on the trade deal. Who the hell knows what is happening with that deal? I get the tech theft going on with China, but if Trump’s mouth is open he is lying. And not even intelligent lying…just random blathering lying. There may be NO deal going with the Chinese. And almost all the intelligent adults that used to work in State and the White House have departed (presumably so their resumes won’t permanently sink their careers). Seriously, those places are getting to be ghost towns. And you can now add Defense to that to that exodus and we may have far bigger worries than our portfolios. Bleah and phooey.

    1. Oh yeah, totally agree. This is a deal being negotiated by two leaders who both have a history of repeated and unapologetic lying and back-stabbing. But I guess the eternal optimist in me assumes things will eventually work out, if not under this president then maybe the next.

  3. Happy Holidays.

    I am a boomer with a very similar background as yours. Boy am I surprised that our experience is so similar! I recently returned from a 2.5 years solo backpacking trip around the world and agreed the experience is something I will cherish forever. (Wish I had done this 25 years ago) Yes, the world is changing. Everywhere that I visited, I was proud to say “I was born Hong Kong, in China I would say 香港同胞”. Now I am not so sure.

    Back working in the hi-tech industry for a change of pace. Will see how long before the travel itch takes over.

    (I am one of the early pioneer of the Design in the US and Made in China process. It so sad to hear industry outsiders keep on saying theft without understanding the whole concept! And we work with them for over 20 years. Would this kind of reasoning hold up in our courts? Without hard work and dedication from both sides, a lot of these cool gadgets and business plans would not have been successful.)

    1. Happy Holidays yourself.

      Yeah the whole HK issue continues to fill me with sadness. I don’t think anyone on either side has a plan to de-escalate the situation, which is the scary bit. I hope everyone finds a way to calm down, but I’m not sure how.

      And yay to travel! The idea that you can get travelling “out of your system” is a myth. It just makes you want to do it more, doesn’t it?

  4. when it comes to the markets, everyone is an expert AFTER the fact, ever notice that?

    in 2018, when all the bad news was coming out?..well guess what, the market gave its gains away then some. BALANCED funds lost 3%

    no one knows what tomorrow brings. Everyone relying on the historical upward trend of the market and hoping the next decade mirrors the last, with some , ASSUMing so, 🙂

  5. I like your blog and bought your book, but wish you would refrain from partisan political attacks. We get it, you don’t like the current US President or Republicans.

    1. What partisan attacks? I’m just reporting the well-documented fact that Trump got impeached. And the fact that the next election is probably going to be nasty. I think we can all agree on that.

      1. Wanderer, he did NOT get impeached. Pelosi is illegally holding it up b/c she knows he will not get impeached. Proves you know very little about the US government & the impeachment process.

        Try listening to something other MSNBarfCentral, Commie News Network aka CNN & the like.

  6. I agree with Oli. Please stop the partisan political attacks, or maybe we should just talk about how Hillary sold Uranium? Or how Bill had a BJ in the oval office and not from his wife! Or how Syria “crossed the red line” and a wimp President didn’t have the guts to do anything…I have more money in my paycheck now because of Trump; even though most of the taxes I pay goes towards illegals and people who think that the government owes them everything for free, so please keep to the premise of your blog…how to be FI and enjoy travel instead of criticizing a President of a Country you don’t belong to. Other than this blog today, I really like the articles you and your wife write.

    1. Maybe you could start your own blog, same as Oli instead of trying to censor others. Then you can do as you please. Think about it.

      1. I’m not trying to censor anyone Dave. I was just providing a comment regarding this post and recommending to refrain from alienating some that don’t share the same political leanings. The blogger’s are quite knowledgeable on FI but total ignoramus’s on the United States system of checks-and-balances and the US constitution.

        1. Umm which statement from the article would you classify as an opinion rather than fact?

          I would imagine you might have difficulty with this one as Republicans usually can’t distinguish the two.

    2. Agree with others commenting that the transparent partisanship is tiring. I like the blog but the political commentary turns me off as a reader. Your prerogative to include it, just adding the comment. And your summary of the US’ checks and balances becoming toothless is just wrong. Consider that checks and balances includes the constitutional mandate for the House impeaching a president and the Senate convicting. Just because the Senate doesn’t convict and remove an impeached president doesn’t mean checks and balances didn’t work- although it could mean you didn’t get the outcome you wanted. Also recall Dems we’re calling for Trump’s impeachment even before he was inaugurated, so it’s understandable many feel it was just another partisan attack on the President. Agree that news is just noise that prudent investors should ignore. All the best in 2020!

      1. OMG! Please, everyone shut up about Trump. The blog post was about ignoring the news not debating whether it’s true or not; that’s besides the point.

    3. I agree with Oli and Tracy. Tracy is spot on with the comments made and, what was mentioned is only a very small fraction of what Trumps accusers have actually done & blamed Trump for.

      Keep the the original content of the FI & stay out of a political system you obviously know very little about.

  7. Hi all,

    My take is that it is more worthwhile to stay invested in the markets regardless of what happened. Spread the eggs (i.e investment portfolio) in as many baskets as possible. The generated dividends are my only concerns. It is the matter of receiving more or less dividends in a year depending on the performance of the investment portfolio which may be subject to various news (be it the political, economic aspect etc).

    I use the three buckets analogy as advocated by FC and Wanderers in respect of my investment portfolio. I go about doing the things of my interest whilst disregarding the external news. It helps in my case and I have the peace of mind focusing on the things of my interest on a daily basis. I believe that this is the rewards given by the investment portfolio coupled by my low expenses in respect of the minimalist lifestyle which I choose. The minimalist lifestyle does not compromise my standard of living and I like it as it presents and believe that such lifestyle will be with me for the rest of the lifetime.

    My two cents worth of views.

    WTK

    1. Agreed, I have not yet found the news to be very useful. It’s like a soap opera, you can stop watching for 3 months, see one episode, and not have missed a thing. (So I hear. 😉

      Other pursuits are more valuable to me, and I feel better staying out of it all. To be fair, I used to follow politics and loved the Sunday morning news…but somewhere along the way I quit/found other loves…the transition was aided by realizing that what the various news outlets opted to cover so often missed something I actually wanted to know about. I think my investment habits benefited.

      My little investments stay right where they’re at, regardless of the drama-trauma of the day.

  8. Merry CHRISTmas! It is amazing to me that you had the courage (or stupidity) to show your biases on your blog. Yes it is your blog and you can do what you like with it. Kudo’s. I LOVE YOUR BLOG except with posts like this one.
    When you get outside your subject matter just as MMM did when he espoused his worldview on his blog, you get people like me that have a different perspective and worldview call you out.
    I will be gentle though as you are still young and have many years ahead to gain experience with your worldview. Another 30 years and you will be leaning far more conservative if you can stay away from the mind dulling propagandizing mainstream news media. Oh wait, you only have 12 more years I’m sorry.

    1. What biases? The US president getting impeached is just a fact, just like the Yield Curve inverting is a fact. And the fact is, none of these supposedly earth shattering events made a lick of difference to the stock market, so we’d all do well to just ignore the news.

      Which I’m sure will be so much easier next year in an election year. That should be fun.

      Merry Christmas yourself!

  9. Merry Christmas!
    Touchy, touchy. Who knew that FIRE people were so sensitive about their politics? Oh wait, I suppose there are no exceptions to the rule,

    ***“Don’t discuss politics, religion or sex with anyone unless you know them very very well.” (Quoting my Grandpa)*** Grandpa passed away before the sheltered anonymity of the internet was invented.

    It’s interesting to note that a lot (most?) of the heated comments so far are about US politics. 😉 I may have missed the passionate pro/against Brexit or other issues – lol

    I agree on the bottom line here: ignore the news in regards to investing. We just rolled over a 401K and recited “you can’t time the market” while putting it all into index funds. The ytd graph of our mutual funds has been really volatile this year, and we just ignore it.

    The only news I might listen to is news of a massive drop as a cue to scrounge up some spare cash and throw it into our index fund while its on sale.

    It’s hard sometimes though…my mom called me once all excited to tell me the markets are DOWN, omg. I checked it was maybe a “catastrophic” 1%. I told her to stop watching tv (Fox, cnn, whatever your political choice is).

    Peace on earth people. FIRE 🔥 on.

    1. Politics is interesting because you could make a politically neutral statement like “Trump got impeached” and everyone else will then layer THEIR politics over your statement.

      Merry Christmas and Happy New Year!

  10. I agree, wanderer has been bagging on Trump and been wrong about Trump’s affect on the stock market since 2016. He’s a Canadian lefty who likes money.

  11. The comments alone were worth the read this week. I personally thought you were unbiased with a hint of your distaste for Trump. I enjoyed your recap and look forward to reading your insight into current events.

    I was really hoping Trump would come in a little more bipartisan and get things done but it seems everybody elected nowadays has to be all the way to one side. I think about how to fix our nations problems including healthcare daily, and i can’t find a decent solution without crippling the insurance business (which is anti American capitalism) or further increasing our national debt (which I think will soon bite us in the ass.)

    Here is a question I pose to you. How do you handle a country like China that can play the long game and does not worry about elections or public opinion?

    I look forward to catching up with you two again somewhere on this great big beautiful earth. Enjoy the Holidays and travel on!

  12. Let’s not forget about last year’s 20+% duck dive with an “easy to win” trade war announcement. 20 down, 28 up. I’ll take the slight gain (and the answer is not 8 for those who slept through math class) but let’s not forget the history behind the numbers.

    Haters are gonna hate but I hope you two find a lot of peace and joy.

  13. Just to throw my own two cents into the circus this comment section has become – Wanderer and FIRECracker, I hope you both had a good holiday and that your new year brings you lots of wonderful things.

    To everybody else who seems to think that their personal preference in political discourse dictates what this blog’s authors talk about…if you don’t like the political commentary, the back button on your browser is up and to the left. But the utter gall of condescension and entitled “just my opinion,” is just plain rude. This blog is Wanderer’s and FIRECracker’s house. Be a good houseguest.

  14. I totally get the concept of not trading based on the news but I still struggle with putting my savings into ETFs right now with how high the market currently is. Vanguard’s 2020 forecast report said the US market is basically at the point at being overvalued and some successful FIRE bloggers (ex: Mr. Tako Escapes) have also said they aren’t currently buying in because they also believe the market is overvalued. Thoughts?

  15. After re-reading your post a second time, two things strike me. You HAVE stepped into the political arena. Your anti-Trump bias is clearly visible. And the people in the “UK people will have to own the results”, yeah the PEOPLE do deserve to have what they actually wanted and voted for and not for the politicians who “know better” to override them! I have a nephew who FIRE’d last year at the age of 45 and have been reading and following y’all. But due to your insistence on interjecting your political bias into what used to be a wonderful blog, no more. Although I do hope you enjoy your life, I no longer care to read anymore about it. Don’t bother replying cuz, I have visited your pages for the last time. I am sure i’m not the only reader who feels this way, judging by the strength of the replies already left by other readers. BTW, for those who don’t want the U.S. to have a border wall, why do YOU lock your doors?

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