Quote of the Week 

“Excesses in one direction will lead to an opposite excess in the other direction.”  – Bob Farrell

“Markets are the strongest when they are broad and weakest when they narrow to a handful of blue-chip names.”  – Bob Farrell

Technical Corner

As of today (Tuesday) the markets are quite a bit lower. After having a strong gain last week, the markets seem to have lost their upward momentum. We have been in a somewhat narrow trading range since we exited on March 26th. There are early underlying economic currents starting to establish which appear before we have gone into recessions before. The economy appears to be running on all cylinders but remember back to 2006 when the economy was roaring. Then in 2007, the growth in the economy started to slow and we all remember what happened to the markets in 2008 and 2009 when the S&P 500 was down 57% from the top to the bottom. I really trust our software to see trends that we can’t see on the surface.

Last week the Dow was up 2.34%, the Nasdaq was up 2.68%, and the S&P 500 was up 2.42%. Year to date as of last Friday the Dow is up 0.45%, the Nasdaq is up 7.24%, and the S&P 500 is up 2.02%. Remember that we locked in a nice gain when we excited.

With the markets being so volatile and lacking direction, plus all the economic policy uncertainty in Washington, I am satisfied with being on the sidelines with your portfolios at this time.

Larry’s Thoughts

Two weeks ago, Lynne, my wife, and I were on vacation to New Orleans. I ate my way through the city, and a came back with four extra unwanted pounds. Oh well, we only live once, and New Orleans is known for its excellent restaurants. I can certainly attest to that fact.

We travel with a really good friend whom we met many years ago. We were members of a financial planning study group. She is very easy to travel with.

During our many conversations, the subject of politics came up. I was complaining about the lack of honesty emanating from our politicians on both the left and the right. I have always felt that honesty is the right thing to do, plus lies are often so easy to disprove. Her comment was that all politicians lie to a greater or lesser extent. I am hopeful that there are some that are truthful. John McCain comes to mind.

But based on the current environment it is obvious that we seem to have regressed as a nation. I find this fact to be disturbing. What I also find to be even more disturbing is that we are sliding down a slippery slope of accepting this condition of life.

Over this weekend I happened to run across the text of the commencement speech that was given to the graduates of Rice University in Houston Texas. The speech was given by Michael Bloomberg for whom I have a great deal of respect. I hope you find it enjoyable and compelling. Our democracy is under attack by the lack of truth from our leaders. Please feel free to pass this on to your friends be they Republicans or Democrats.

Graduates: Here’s an Honor Code for Life
Amid a national epidemic of dishonesty, acting with integrity is more important than ever.

The following is an adaptation of an address to Rice University’s class of 2018.

When I was deciding what I wanted to say today, I kept thinking about a Rice tradition that’s an incredibly important part of student life here: I’m talking about the honor code.

When you first arrived on campus, you attended a presentation on the honor code. And your very first quiz tested your knowledge of the code. And so today, I thought it would be fitting for you as graduates to end your time here the same way you began it: by hearing a few words about the meaning of honor.

Don’t worry: There won’t be a quiz. But there will be a test when you leave this campus — one that will last for the rest of your life. And that’s what I want to explain today — and it actually starts with the opposite of honor.

As a New Yorker, I was surprised to learn that an act of dishonor in my hometown almost blocked Rice from coming into existence. William Marsh Rice was murdered at his home in Manhattan by two schemers who tried to re-write his will.

They were caught. His money went where he wanted it to go. The university was built. And fittingly, an honor code was created that has been central to student life here from the beginning. Ever since you arrived here on campus, on nearly every test and paper you submitted, you signed a statement that began, “On my honor.”

But have you ever stopped to think about what that phrase really means?

The concept of honor has taken on different meanings through the ages: chivalry, chastity, courage, strength. And when divorced from morality, or attached to prejudice, honor has been used to justify murder, and repression, and deceit.

But the essence of honor has always been found in the word itself.

As those of you who majored in linguistics probably know, the words “honor” and “honest” are two sides of the same coin. In fact, the Latin word “honestus” can mean both “honest” and “honorable.” To be honorable, you must be honest. And that means speaking honestly, and acting honestly even when it requires you to admit wrongdoing, and suffer the consequences.

That commitment to honesty is, I believe, a patriotic responsibility. As young children, one of the first things we learn about American history is the story of George Washington and the fallen cherry tree.

“I cannot tell a lie,” young George tells his father. “I cut it down.”

That story is a legend, of course. But legends are passed down from generation to generation because they carry some larger truth. The cherry tree legend has endured because it’s not really about Washington. It’s about us, as a nation. It’s about what we want from our children — and what we value in our leaders: honesty.

We have always lionized our two greatest presidents — Washington and Lincoln — not only for their accomplishments, but also for their honesty. We see their integrity and morals as a reflection of our honor as a nation.

However, today when we look at the city that bears Washington’s name, it’s hard not to wonder: What the hell happened?

In 2016, the Oxford English Dictionary’s word of the year was “post-truth.” And last year brought us the phrase “alternative facts.” In essence, they both mean: Up can be down. Black can be white. True can be false. Feelings can be facts.

A New York senator known for working across the aisle, my old friend Pat Moynihan, once said: “People are entitled to their own opinions, but not their own facts.” That wasn’t always a controversial statement.

Today, those in politics routinely dismiss inconvenient information, no matter how factual, as fake — and they routinely say things that are demonstrably false. When authoritarian regimes around the world did this, we scoffed at them. We thought: The American people would never stand for that.

For my generation, the plain truth about America — the freedom, opportunity and prosperity we enjoyed — was our most powerful advantage in the Cold War. The more communists had access to real news, the more they would demand freedom. We believed that, and we were right.

Today, though, many of those at the highest levels of power see the plain truth as a threat. They fear it, deny it, attack it — just as the communists once did. And so here we are, in the midst of an epidemic of dishonesty, and an endless barrage of lies.

The trend toward elected officials propagating alternate realities — or winking at those who do — is one of the most serious dangers facing democracies. Free societies depend on citizens who recognize that deceit in government isn’t something to shrug your shoulders at.

When elected officials speak as though they are above the truth, they will act as though they are above the law. And when we tolerate dishonesty, we will get criminality. Sometimes, it’s in the form of corruption. Sometimes, it’s abuse of power. And sometimes, it’s both. If left unchecked, these abuses can erode the institutions that preserve and protect our rights and freedoms and open the door to tyranny and fascism.

Now, you might say: There have always been dishonest politicians — in both parties. And that’s true. But there is now more tolerance for dishonesty in politics than I have seen in my lifetime. And I’ve been alive for one-third of the time the United States has existed. And as my generation can tell you: The only thing more dangerous than dishonest politicians with no respect for the law, is a chorus of enablers who defend their every lie.

Remember: The honor code here didn’t just require you to be honest. It required you to say something if you saw others acting dishonestly. That might be the most difficult part of an honor code, but it may also be the most important, because violations affect the whole community.

The same is true in our country. If we want elected officials to be honest, we have to hold them accountable when they are not or else suffer the consequences. Don’t get me wrong. Honest people can disagree. But productive debate requires an acceptance of basic reality.

For example: If 99 percent of scientists whose research has been peer-reviewed reach the same general conclusion about a theory, then we ought to accept it as the best available information — even if it’s not a 100 percent certainty.

Of course, it’s always good to be skeptical and ask questions. But we must be willing to place a certain amount of trust in the integrity of scientists.

If you aren’t willing to do that, don’t get on an airplane, don’t use a cell phone or microwave, don’t get treated in a hospital, and don’t even think about binge-watching Netflix.

The dishonesty in Washington isn’t just about science. We aren’t tackling so many of the biggest problems that affect your future — from the lack of good jobs in many communities, to the prevalence of gun violence, to the threats to the environment — because too many political leaders are being dishonest about facts and data, and too many people are letting them get away with it.

So how did we get here? How did we go from a president who could not tell a lie to politicians who cannot tell the truth? From a George Washington who embodied honesty to a Washington, D.C., defined by deceit?

It’s popular to blame social media for spreading false information. I, for one, am totally convinced that Selena Gomez and Justin Bieber are still dating.

But the problem isn’t just unreliable stories. It’s also the public’s willingness to believe anything that paints the other side in a bad light. That’s extreme partisanship, and it’s what’s fueling and excusing all this dishonesty.

Extreme partisanship is like an infectious disease. But instead of crippling the body, it cripples the mind. It blocks us from understanding the other side. It blinds us from seeing the strengths in their ideas and the weaknesses in our own.

And it leads us to defend or excuse lies and unethical actions when our own side commits them.

For example: In the 1990s, leading Democrats spent the decade defending the occupant of the Oval Office against charges of lying and personal immorality, and attempting to silence and discredit the women who spoke out. At the same time, leading Republicans spent that decade attacking the lack of ethics and honesty in the White House.

Today, the roles are exactly reversed — not because the parties have changed their beliefs — but because the party occupying the Oval Office has changed.

When someone’s judgment about an action depends on the party affiliation of the person who committed it, they’re being dishonest with themselves and with the public. And yet, those kinds of judgments have become so second nature that many people in both parties don’t even realize they are making them.

When people see the world as a battle between left and right, they become more loyal to their tribe than to our country. When power — not progress — becomes the object of the battle, truth and honesty become the first casualties.

You learned here at Rice that honesty leads to trust and trust leads to freedom (like the freedom to take tests outside the classroom). In democracy, it’s no different. If we aren’t honest with one another, we don’t trust one another. And if we don’t trust one another, we place limits on what we ourselves can do, and what we can do together as a country. It’s a formula for gridlock and national decline — but here’s the thing: It doesn’t have to be that way.

When I was in city government, I didn’t care which party proposed an idea. I never once asked someone his or her party affiliation during a job interview, or who they voted for. As a result, we had a dream team of Democrats, Republicans and independents.

That diversity made our debates sharper, our policies smarter, and our government better. Arguments were won and lost on facts and data — not parties and polls. That was why we had success. And it’s been great to see other mayors around the country taking that same kind of approach.

But at the national level, in Washington today, partisanship is everything, and I think the dishonesty it produces is one of the greatest challenges that your generation will have to confront.

Of course, partisanship is not a new problem. George Washington warned against it in his Farewell Address.

He referred to the “dangers of parties,” and called the passion that people have for them the, quote, “worst enemy” of democracy — a precursor to tyranny. Washington urged Americans to, quote, “discourage and restrain” partisanship. Sadly, in recent years, the opposite has happened. There is now unrestrained, rabid partisanship everywhere we look.

It’s not just on social media and cable news. It’s in the communities where we live, which are becoming more deeply red or more deeply blue. It’s in the groups and associations and churches we join, which increasingly attract like-minded people. It’s even in the people we marry.

Fifty years ago, most parents didn’t care whether their children married a member of another political party but they didn’t want them marrying outside their race or religion, or inside their gender.

Today, thankfully, polls show strong majority support for interracial, inter-religious, and same-sex marriage. That’s progress. But unfortunately, the percentage of parents who don’t want their children marrying outside of their political party has doubled.

The more people segregate themselves by party, the harder it becomes to understand the other side and the more extreme each party grows. Studies show that people become more extreme in their views when they are grouped together with like-minded people. That’s now happening in both parties. And as a result, it’s fair to say the country is more divided by party than it has been since the Civil War.

Bringing the country back together won’t be easy. But I believe it can be done — and if we are to continue as a true democracy, it must be done and it will be up to your generation to help lead it.

Graduates: You’re ready for this challenge. Because bringing the country back together starts with the first lesson you learned here: Honesty matters. And everyone must be held accountable for being honest.

So as you go out into the world, I urge you to do what honesty requires: Recognize that no one, nor either party, has a monopoly on good ideas. Judge events based on what happened, not who did it. Hold yourself and our leaders to the highest standards of ethics and morality. Respect the knowledge of scientists. Follow the data, wherever it leads.

Listen to people you disagree with — without trying to censor them or shout over them. And have the courage to say things that your own side does not want to hear.

I just came yesterday from visiting an old friend in Arizona, who has displayed that kind of courage throughout his life: Senator John McCain.

We often don’t see eye to eye on issues. But I have always admired his willingness to reach across the aisle, when others wouldn’t dare. He bucked party leaders, when his conscience demanded it. He defended the honor of his opponents, even if it cost him votes. And he owned up to his mistakes — just like that young kid with the cherry tree.

Imagine what our country would be like if more of our elected officials had the courage to serve with the honor that John has always shown.

Graduates: After today, you will no longer be bound by the Rice honor code. It will be up to you to decide how to live your life — and to follow your own honor code.

This university has given you a special opportunity to learn the true meaning of honor to base that code on, and now, I believe, you have a special obligation to carry it forward. The greatest threat to American democracy isn’t communism, jihadism, or any other external force or foreign power. It’s our own willingness to tolerate dishonesty in service of party, and in pursuit of power.

Let me leave you with one final thought: We can all recite the words of the Declaration of Independence: “We hold these truths to be self-evident…”

But remember that the Founding Fathers were able to bring those truths to life only because of the Declaration’s  final words: “We mutually pledge to each other, our Lives, our Fortunes, and our sacred Honor.”

That pledge of honor — and that commitment to truth — is why we are here today. And in order to preserve those truths, and the rights they guarantee us, every generation must take that same pledge.

Now it’s your turn.

Bloomberg, Michael R. (2018, May 12) An Honor Code for Life, Retrieved from http://ritholtz.com/2018/05/honor-code-life/

By the Numbers

HOW THE MATH IS DONE – The calculation of the consumer price index involves weighting the change in prices of goods and services in 8 major categories on a month-over-month basis. The category of “housing” is currently provided the largest weighting of the 8 categories (41.8% of the overall change in prices), more than 4 times as large as the category of “medical care” (8.7%). The consumer price index (CPI) is a measure of inflation compiled by the US Bureau of Labor Studies (source: Department of Labor). – Michael A. Higley, BTN 05-14-2018

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These are the opinions of Larry Lof and Stephanie Mayoral and not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice. Past performance is not indicative of future results. Due to our compliance review process, delayed dissemination of this commentary occurs. The S&P 500 is an index of stocks compiled by Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. The index includes a representative sample of 500 leading companies in leading industries of the U.S. economy. Indices mentioned are unmanaged and cannot be invested into directly. Technical analysis represents an observation of past performance and trend, and past performance and trend are no guarantee of future performance, price, or trend. The price movements within capital markets cannot be guaranteed and always remain uncertain. The allocation discussed herein is not designed based on the individual needs of any one specific client or investor. In other words, it is not a customized strategy designed on the specific financial circumstances of the client. Please consult an advisor to discuss your individual situation before making any investments decision. Investing in securities involves risk of loss. Further, depending on the different types of investments, there may be varying degrees of risk including loss of original principal.

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