Quarterly Review and Outlook – 4th Quarter 2017



“Don’t just do something, stand there.”

  • Martin Gabel


We find it challenging to form a well-reasoned outlook for 2018 that defies conventional wisdom. Growth is steady and balanced, unemployment is low, and corporate earnings are expected to continue growing. There are pockets of concern, but nothing large enough to threaten a diversified economy. Politics can be deafening, but the populist tendencies of the new administration have so far been all tweet and no peck.


Nothing magical about calendar year-end requires a dramatic shift in views, so we are tempted to say “as you were” and move on. Still, the unusual market calmness of the previous year brings to mind a lesson from high school physics.


Boiling water is straightforward. Place a pot of water on a hot stove and the water temperature will steadily rise to the boiling point. Steam bubbles form and escape at the surface. The process is dangerous but orderly. Under certain conditions, though, water can rise above its boiling point without showing the normal signs of boiling over.


This phenomenon is called superheating and happens when, say, a new coffee mug is left in the microwave too long. Superheated water is unstable, and particularly dangerous because it looks so calm. Energy ordinarily released in a vigorous boil remains trapped in still water. A slight jostle releases this energy, at once, with an inescapable suddenness and force. Water explodes.


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