Season of Hope. The Psychology of HOPE

images

Talent, skill, ability—whatever you want to call it—will not get you there. Sure, it helps. But a wealth of psychological research over the past few decades show loud and clear that it’s the psychological vehicles that really get you there. You can have the best engine in the world, but if you can’t be bothered to drive it, you won’t get anywhere.

Many have proposed lots of different vehicles over the years. Grit, Conscientiousness, self-efficacy, optimism, passion, inspiration, etc. They are all important. One vehicle, however, is particularly undervalued and underappreciated in psychology and society.

That’s hope.

Hope often gets a bad rap. For some, it conjures up images of a blissfully naïve chump pushing up against a wall with a big smile. or Don Quixote tilting against windmills. That’s a shame. Cutting-edge science shows that hope, at least as defined by psychologists, matters a lot.

Hope is not a brand new concept in psychology. In 1991, the eminent positive psychologist Charles R. Snyder and his colleagues came up with Hope Theory. According to their theory, hope consists of agency and pathways.  The person who has hope has the will and determination that goals will be achieved, and a set of different strategies at their disposal to reach their goals. Put simply: hope involves the will to get there, and different ways to get there.

Why is hope important? Well, life is difficult. There are many obstacles. Having goals is not enough. One has to believe that they can accomplish their goals, amidst all the inevitable twists and turns of life. Hope allows people to approach problems with a mindset and strategy-set suitable to success, thereby increasing the chances they will actually accomplish their goals.
Those lacking hope, tend to adopt mastery goals. People with mastery goals choose easy tasks that don’t offer a challenge or opportunity for growth. When they fail, they quit. People with mastery goals act helpless, and feel a lack of control over their environment. They don’t believe in their capacity to obtain the kind of future they want. They have no hope.

It seems that performance can be enhanced in the short term by reminding people that they have the motivation and the means to pursue a goal. This “situational hope” could potentially be useful in the future as a means of short-term intervention to enhance performance. By reminding people before tests or situations in which performance and achievement are required that they have the will and the ways to do well, possible potential can be better utilized.

Athletes had higher levels of hope than non-athletes. I have seen that among my gymnasts, the state of having hope predicted outcomes beyond training, self-esteem, confidence, and mood.

I like to think that current ability is the best predictor of future success. Important psychological studies show that ability is important, but it’s the vehicles that actually get people where they want to go. Oftentimes, the vehicles even help you build up that ability you never thought you had. And hope—with its will and ways—is one of the most important vehicles of them all.

fullsizeoutput_3e6e

Season of Hope. Holiday Movies!

I missed writing yesterday. Just a crazy busy day. We had our first significant snowfall and I had to plow my gyms.

There are so many wonderful holiday movies. Most are at least well done. There is not one particular movie that I MUST see every year. But there are many that I enjoy.

Here are my favorites.

It’s a Wonderful Life

Scrooged

Trading Places

Christmas Carol (1938)

Meet Me in St Louis.

The Santa Clause

 

Miracle on 34th St. (1947)

Gremlins

Joyeux Noel

Christmas Vacation

Christmas Story

Holiday Inn

Home Alone

Rudolph The Rednosed Reindeer

and no Christmas is complete without seeing Hans Gruber fall of the Nakahashi Towers. Die Hard

Have a favorite? Let me know!

Twitter @tretrosi

 

Season of Hope. Remember that if you are reading this- you’ve got it pretty good.

We can call get so engrossed with our own lives and problems that we forget that others may need a helping hand. Not just this year, not just this time of year but every day, every year.

For the most part our biggest issues are overeating during the holiday season. Finding time to workout, making time to cook and buy presents.

We can help others. We can extend a helping hand. Take a minute to help someone. We will always be one world and we must be a world full of hope. That is what I want my legacy to be.

In 1984 I was in my first year of college.  Bob Geldof and Midge Ure formed the supergroup Band Aid  to raise money for anti-famine efforts in Ethiopia by releasing the song “Do They Know It’s Christmas?”  On 25 November 1984, the song was recorded at Sarm West Studios in Notting Hill, London, and was released in the UK four days later.[4][5] The single surpassed the hopes of the producers to become the Christmas number one on that release.

Looking back it seemed like an obvious hit but at the time, it was a risk and a chance taken to help others.

The group reunited with current stars in 2014 to bring help to the Ebola Crisis in West Africa.

 

You don’t need to be a superstar to help those around you. You can get involved with groups within your community.

Habitat for Humanity, No Kid Hungry ,  The Salvation Army and one I just learned about in my town, The Community Toolbox 

GIVING, like politics starts local. You do not need to think big to have a big impact.  One of my employees travels with bags of sandwiches that she gives out to people asking for money at the side of the road. She has passed this lesson on to her daughters.

I fully believe that no man stands so tall as when he stoops down to help another.

 

Season of Hope. New Friends

WHAT A PERFECT TIME OF YEAR TO MAKE NEW FRIENDS!

images

One of the most important and yet least understood areas of psychology concerns the role of friends in our lives. It is often awkward when you are at your spouse, partner or GF/BF holiday party. They know everyone, they are in on all the jokes. Find another awkward looking person at the party at strike up a conversation. You already have something in common, you would rather be somewhere else.

As I was finishing up school in NY I was invited to a Christmas party at a friends house. He gave me his address and I headed over there. I pulled onto the street saw cars were lined up down the street. I parked my car and followed a couple up the street into to the house. I walked in was welcomed, my jacket taken, a drink put in my hand and directed to the food. I made small talk and joined in some humorous talk. Looking around the party I realized I didn’t know anyone. I searched for friends and a wave of dread came over me when I realized, I AM AT THE WRONG HOUSE!

The host came in and asked if I needed anything,

Me, “No thank you, what a great party!”

Host, “You are at the wrong place aren’t you?”

Me, “ummm, yeah- but this party seems pretty great!”

Host, “I’ll get your jacket and you can sneak out the back door. I think the party you are looking for is 2 houses down.”

Me, “Thank you so much!”

I snuck out the back door (drink in hand) and went to the party that I was invited to. It was an equally fun party.

The next week I was getting a coffee and the guy in front of me looked familiar. Yep- The host of the party I crashed. We laughed, had a coffee together and had dinner and drinks a few times before I left for New Hampshire. I am NOT a tremendously outgoing individual.  At work it’s easy for me to be social because we have a shared experience. At parties, it’s much more difficult for me. I do not particularly enjoy “small talk”. I can never understand how my wife can go up and just start a conversation with someone.  (ANYONE HAVE ANY HELP FOR ME HERE?!)

I have been pretty lucky to have made some great friends recently. I look forward to dinner and drinks with them. We always laugh and each night, no matter how casual, is memorable.

I am thankful for these friendships and look forward to sharing this holiday season with them.

When it comes to happiness, your friends are the key.

I’ve tried to distill Friendfluence into what I believe are its most important lessons.

Here are 15 reasons to appreciate your friends:

Friendfluence is the powerful and often unappreciated role that friends—past and present—play in determining our sense of self and the direction of our lives. Whether you realize it or not, your friends have shaped who you are today. You are even the product of the friends who are no longer your friends.

Friends can give you vital life skills.  There are many perks of friendship include sharpening your mind, making you generally happier, knowing yourself better, becoming inspired to reach your goals, advancing your career, helping you meet romantic partners, and living a longer and healthier life.

Childhood friendships start your learning process. Early friendships play a vital role because they occur while key developmental changes are taking place. They help teach us some of those important life skills but also shape our life “narrative.”

Teen friendships shape your later romantic bonds. Though parents spend much of their time worrying about who their teenage kids are with, these relationships are a training ground for the later long-term bonds that will evolve through adulthood.

Friends can help you define your priorities. People tend to pick friends who are similar to them. This fact falls under the general proximity rule of close relationships, in that like tends to attract like. Because we fall prey so easily into this similarity trap, it is important to try to stretch yourself to learn from some of those opposites.

Having friends can help you get more friends. People tend to like others who have a reputation for being nice and helpful, and they like people who like them. If you want to be the type of person who attracts new friends, these qualities will help get you on your way toward building your social group. Once you have more friends, you’ll be able to enjoy some of those perks of friendship.

Close friends support you through thick and thin. To take the most advantage of friendfluence, put effort into your closest friendships. Although being friendly can get you more friends, you don’t need hundreds to help you through life. You may have to prune your friendship tree as you get older to be sure that you give enough attention to the ones who will really matter for your well-being.

You’re less lonely when you have friends.  Loneliness is painful, especially when you are living with loneliness for a prolonged period of time. This is yet another reason to put time, energy, and attention into finding and cultivating a close circle of friends.

Your online friends can steer your thoughts and behaviors. Although online friends are qualitatively different than your in-person friends, they shape you nevertheless. They can also be your source of life support.  Of course, your online friends can also make you miserable too, especially if you get caught in the “friendship paradox” (the fact that most people on Facebook have fewer friends than the average number). If you can avoid having Facebook envy dominate your life, you’ll have more rewarding connections with your extended friendship community.

Friends matter to you, regardless of gender. Although much is made of the difference between male friends, female friends, and male-female friend pairs, all share the qualities of having the potential to influence your life. If you restrict yourself to one certain type of friendship, you may be missing out on bonds that transcend gender boundaries.

Couple friendships can help your own relationship. People experiencing similar life events can often provide the most valuable support to each other. Unfortunately, some couples withdraw from their friendships when their relationship turns serious. You can benefit both from maintaining your separate friendships, but also from sharing with the couples who are experiencing transitions such as becoming parents, raising teenagers, and helping older family members.

Friends can also help you alleviate your work-related stress. Even though you may be stretched to the limit time-wise, the investment you make in these friendships will be worth the psychological benefits.

Friends can give you a reality check. Who but your closest friends will tell you that your new purchase is ridiculous? What person you meet on the street will let you know that your latest romantic interest is going to bring you heartbreak? Because friends know us so well, they are able to see things that we can’t, and aren’t afraid to share their dose of reality with you.

Banding together with friends can help you effect social change. It’s difficult, if not impossible, to fight for a cause, raise money for charity, or even just make a few small improvements in your community on your own. Friends are the first step to building successful social movements. Facebook provides one way to enlist the support of thousands of people. At a less grandiose level, people are more likely to engage in helping and altruistic behavior at the urging of their close friends.

Being a friend helps your friends. Friendfluence works in two directions. Not only do you benefit from its many perks, but by being a good friend you are helping those closest to you.  If you are aware of how you’re affecting your friends, you’ll work harder to stay close to them which, in turn, will benefit you as well. Being a good friend also includes asking them for help when you need it.

Giving someone the gift of being influential can be one of the greatest joys you pass on to your friends.

IMG_2532

img_4473

fullsizeoutput_26a1

Go make a new friend today. At least try.

Season of Hope. Reconnecting

images

Whether it’s a yearly holiday letter, greeting card, or email, the holidays remind us of our long-time relationships. Some people are very fortunate to remain geographically and emotionally close to their “oldest” (or longest) friends. Like many my ADULT life (I am still in denial about being an adult) has me pretty far away from the people I grew up with. In our very mobile society the odds are that you no longer live in easy traveling distance from the people you were closest to in childhood, adolescence, or even college.

An old friend never can be found, and nature has provided that he cannot easily be lost.

Samuel Johnson

There is something great about reconnecting with old friends. It helps to remind you of where you were. Even though you can’t go back in time and relive those days, it is nice to ground yourself once in a while. Good for the soul.

Wishing you can go back will be pretty hollow, but looking at that notch in time is a good way to evaluate your place in time- in the “now”. There will always be certain memories you wish to forget. Awkward times, painful experiences and there are also things you wish you could put in a highlight reel, those things you were proud of – the accomplishments of goals and desires you have had over the years.

Then there are those very special memories with those genuine friends and family that if you could “bottle” the feelings of comfort and joy, you would open that bottle frequently and drink that in.

I look forward to seeing  cards and letters from old friends or even their Facebook posts this time of year.  It helps me drink in those memories of the time we have spent together. Last night I was out at the Breckenridge Distillery for drinks and dinner with my family and saw a photo on the wall that I had to send to my friend Jeff. Yes, we played D&D.

CC6B6048-4DD5-4244-B430-26DA7328BBCC

Many people who knew YOU also want to know how you are doing. Send them an e-mail! A lot of people feel it’s awkward and a little nerve racking to try to get back in touch with a friend they haven’t spoken to in a while. What often happens is someone will want to drop an old buddy a line, but then they’ll think, “It will be so weird sending them an email out of nowhere. How will they react to it? Will they wonder why I’m writing them now?”

This time of year there is nothing abnormal or weird about reaching out to an old friend. You just have to put your self out there and go!

My personal story, I grew up in upstate New York. Spent most of my life in Rome, NY then High School in Cortland. Although I was only in Cortland 4 years. They were important years. Difficult as it was trying to “fit in” with others who had been together since preschool. I did manage to make some connections and feel very lucky that I am still in touch with some of them.

My first 2 years of college had me at a 2 year school in Utica. There I made a few connections and I wish I had stayed in touch with some of these people. As odd as it is the person I am closest to from that time is also the person who lives furthest away in Iceland.

fullsizeoutput_155

Finishing up my college career at UNH I find myself still living in the area and therefore occasionally running into people I went to school and grad school with.

Through out all of this there was my “Gymnastics Family”. Guys I did gymnastics with. Girls I coached, and those I coached with. Recently we lost a member of my gymnastics family. Dave- we miss you every day.  

I could make a list of the people who I have lost contact with that I wish I could see or hear from more often. But it would be better to say-

I miss you all. If I have lost touch, please send me an e-mail!

A Season of Hope. Chaos Theory

A season of hope.

As the days get shorter and we are facing  long dark and cold nights. The solstice is just weeks away and the days will become longer. This time of year even the smallest gesture can change the world.

In chaos theory, the butterfly effect is the sensitive dependence on initial conditions in which a small change in one state of a deterministic nonlinear system can result in large differences in a later state. The name, coined by Edward Lorenz for the effect which had been known long before, is derived from the metaphorical example of the details of a hurricane (exact time of formation, exact path taken) being influenced by minor perturbations such as the flapping of the wings of a distant butterfly several weeks earlier.

The idea, that small causes may have large effects in general and in weather specifically, was used from Henri Poincaré to Norbert Wiener.

 

In The Vocation of Man (1800), Fichte says that “you could not remove a single grain of sand from its place without thereby … changing something throughout all parts of the immeasurable whole”.

 

Yes, one small act you do today can change the world tomorrow. In the 2000 movie Pay It Forward A young boy attempts to make the world a better place after his teacher gives him that chance.  It makes me upset that because of Kevin Spacey being basically a terrible human being that this movie will not be shown again. Who knows, maybe the powers that be will reshoot it with a different cast. The assignment: think of something to change the world and put it into action. Trevor conjures the notion of paying a favor not back, but forward–repaying good deeds not with payback, but with new good deeds done to three new people.

 

 

The other day I was speaking to a UPS driver at a coffee shop. It was a VERY snowing day in New Hampshire. I just asked how he was doing.  He said going was slow but not too bad. He then related a story of how at one of his stops he trudged upon the sidewalk to see a basket of snacks for him and other people making deliveries.  That small gesture changed his day.  

YOU CAN CHANGE SOMEONES DAY! Today, Tomorrow, whenever, Slow down! Hold a door open for someone. Buy someone a coffee. Heck, buy EVERYONE a coffee!F9389564-C2D2-4BB7-ABAA-6D6917305430

There are so many opportunities to make the world better. Do it.

fullsizeoutput_3ea1

Who Will Repair What Is Broken?

By Michael Starr Hopkins

I am a Democrat, but I have always felt that strong opposition parties were good for the country. For this, I have sometimes been harshly criticized by other Democrats. Such criticism could be confusing. Aren’t Americans supposed to promote bipartisanship? Indeed, when I first came of age politically, I fundamentally disagreed with Republican leaders like former Gov. Chris Christie and former Rep. Paul Ryan on policy, but I respected them as public servants. I believed that they were the type of leaders who would turn the GOP in particular away from nativism and lead Republicans into some semblance of 21st century politics.

I was wrong. Instead, the GOP has done the opposite. Republicans have taken partisanship to a level that would make Newt Gingrich blush. They have embarrassed themselves, and they have embarrassed me for even suggesting that they could provide a better path forward — and for what, some tax cuts and conservative judges? As angry as I am at Donald Trump for his lack of decency and empathy, I am equally as disappointed in the Republicans who aided his rise to power.

Still, while most Democrats would understandably prefer an America free from the Republican Party, I somehow find myself hoping for the rebirth of a more tolerant and inclusive conservative party that can help to one day restore America’s faith in government.

Repairing what is broken is a task too heavy for one party to bear, and an obligation too onerous for any single group. Rebuilding our institutions and strengthening the bond between people of differing viewpoints requires a commitment from each and every one of us. It requires honest brokers, willing to find common ground and ignore the naysayers whose sole goal is to be the loudest in the room. It requires a confidence of purpose that cannot waver in the midst of an election season that could signal the end of one’s political career. Most importantly though, repairing our broken country requires Republicans in particular to stand up and take their party back from those who are attempting to bastardize their message

Succumbing to the worst tendencies of one’s party isn’t new or unprecedented; we’ve been here before. Moral crises have repeatedly tested the will of our great nation. This country has battled through the dark days of slavery, segregation, McCarthyism and Watergate, and still we stand. Not because of magic pixie dust but thanks to brave patriots, willing to take unpopular yet principled stands because our social contract demands it.

And America has always managed to find its way back from the brink because of our ability to come together, in search of a shared purpose, when we as a country need it the most. We are edging toward a brink now, not of violence necessarily but certainly of near-intractable partisanship. Just look at the differing ways the impeachment inquiry is being covered. I may be foolish, but I still believe in our shared purpose. I still believe that, in spite of those who have turned their back on our motto, e pluribus unum, principled conservatives will find their way back home.

So who will stand up now and help take the Republican Party in a new direction? Election season cannot go into perpetuity, at some point we must govern. Someone must lead.

I am not naive, nor do I believe that the majority of our political leaders have the intelligence or moral compass to act with the courage of Abraham Lincoln. Expecting an overnight solution to a longterm problem is a recipe for failure. And I realize that the same people who mocked me for believing that Republicans and Democrats could work together before, will likely mock me once again for believing that all hope is not lost.

I realize that the same people who mocked me for believing that Republicans and Democrats could work together before, will likely mock me once again for believing that all hope is not lost.

But what other choice do we have? Our democracy requires compromise and courage to meet the challenges that we face. We cannot afford to continue down the broken roads that have led us to gridlock. We need each other.

Like it or not, Democrats need a strong Republican Party to act a a counterweight in our deliberative process. The Framers fully intended for progress to be incremental, not overnight or all at once. A democracy absent diversity is not a democracy. This symbiotic relationship may not be pretty and certainly may not always be successful, but it is necessary to the framework that makes us a shining star on a hill.

I have often been called too optimistic and criticized for my faith in my fellow American. Yet I wear those labels with pride, because at the end of the day we have to believe. We have to believe that we are part of something worth fighting for and saving.

Most importantly though, we have to believe in the goodness of each other and our ability to correct course even when it seems impossible. That has been our saving grace throughout history, our ability to turn this social experiment around and live up to our motto “out of many, one.”

Why Growing Up In The 80s Was Simply The Best

I graduated High School in 1984. I am the epitome of an 80s Kid. I have tried many many times to explain the 80s to my own children. It’s a difficult decade to explain because most of todays pop culture gets it wrong.

I recently ran into one of my students as she was going to an 80s party. She had on literally EVERY cliche 80s fashion. From BIG bangs to a mullet with a rat tail. A Michael Jackson glove, MC Hammer Pants with a fanny pack. Crazy colorful makeup yet managed to put on black eyeliner. Dangly earrings that nearly touched the massive shoulder pads in her jacket.

F9AD7227-CE64-45CB-9771-6BEE44219BDC

You can pick on us for our fashion and hair- BUT WE HAD THE BEST MUSIC and MOST OF THE BEST MOVIES.

 

In the 80s It was OK, or even expected for kids to get hurt. We were kids. We got bumps, bruises, cuts and were roughed up on a regular basis. Our feelings were hurt and we somehow had the support systems in place to overcome this adversity. SURE I did stupid things. But I learned that doing something stupid had consequences.

4D676880-5292-40FC-A245-11325EEC52B3

We spent countless hours outside. Largely unsupervised. I do not think my parents EVER knew where we were. They knew we were “out”.  We were with friends. The media today makes their money by frightening you. They want you to believe there is a predator at every corner. That drug dealers are just giving drugs away to children (because that is a good business plan?!).

56070F70-CB3A-4E6B-B229-323AAF15E2A5

33CBE7BC-4A51-4215-9111-953AB9156C91

80s music. Loved and Hated.

4C51CAA2-E886-4851-BAC4-D511D41B6BDB

I was able to see a lot of great bands in the 80s. Bands that were still around from the 60s as well as bands that were new and on their way up. Of course there are Rolling Stones and The Who which somehow are still around and on tour! (Not in any particular order. Just what I remember. (Bjorn, Joe- What am I forgetting?)

  • The Kinks
  • The Ramones
  • The Rolling Stones
  • The Who
  • The Police
  • Psychedelic Furs
  • Big Country
  • The Alarm
  • Run DMC
  • Beastie Boys
  • Black Flag
  • Depeche Mode
  • The Smiths
  • The Cure
  • David Bowie
  • Asia
  • Sugar Cubes
  • Talking Heads
  • Bruce Springsteen
  • Peter Gabriel

 

9B5D517E-120E-4623-9F32-925AA3057A8C

4527EEA5-324D-4186-A859-089CCC7F0793

I remember when one of my students asked me if I passed notes when I was in school. Apparently her mother told her about passing notes. The good thing is you could always destroy a note. Burn it, flush it, eat it if necessary to get rid of the evidence. Try that with an iPhone.

73241C60-4ECF-4AED-B9D4-AE728DB24E9E

As the 80’s turned into the 90’s there were big changes. The Reagan/Bush era turned to the Clintons. Germany reunified.

 

906F099F-770A-4CA1-AFA0-285AC2E8858E

77357501-2551-4F2F-BD4B-25620161EA17

5093A15C-C9E5-4363-8EFC-85CF8B5B3D71

 

 

 

 

 

Donald Trump’s Campaign Is Becoming an Exercise in Public Insanity

If it doesn’t work out in his favor, someone is always conspiring against him.

image.png

If the economy goes south, as a lot of people are warning us it will, then it’s comforting to know that the president* already is only a baby step away from blaming the Gnomes Of Zurich. From The New York Times:

He has insisted that his own handpicked Federal Reserve chair, Jerome H. Powell, is intentionally acting against him. He has said other countries, including allies, are working to hurt American economic interests. And he has accused the news media of trying to create a recession. “The Fake News Media is doing everything they can to crash the economy because they think that will be bad for me and my re-election,” Mr. Trump tweeted last week. “The problem they have is that the economy is way too strong and we will soon be winning big on Trade, and everyone knows that, including China!”
Mr. Trump has repeated the claims in private discussions with aides and allies, insisting that his critics are trying to take away what he sees as his calling card for re-election. Mr. Trump has been agitated in discussions of the economy, and by the news media’s reporting of warnings of a possible recession. He has said forces that do not want him to win have been overstating the damage his trade war has caused, according to people who have spoken with him. And several aides agree with him that the news media is overplaying the economic fears, adding to his feeling of being justified, people close to the president said.

Oh, lovely.

Weaponized paranoia always has been at the heart of El Caudillo del Mar-a-Lago’s political identity. In the tangles of his mind, he is always standing strong and alone against a vast array of enemies, including the minions of The Deep State and certain Guatemalan toddlers. If he feels like his presidency* is in serious peril, he’s liable to go off the deep end. He’s already setting up the members of the cult to refuse to accept the result of any election he doesn’t win. (He’s recently gone off again about those busloads of Massachusetts voters who drove to New Hampshire to deprive him of his win there in 2016. Neglecting the fact that IF all these people were bussed in to vote- they voted IN a Republican Governor) If a recession hits, he’s already blamed his own Fed chair and the evil media. Who would be left?

The president’s broadsides follow a long pattern of conspiratorial thinking. He has claimed, without evidence, that undocumented immigrants cast millions of ballots, costing him the popular vote in the 2016 election. During the campaign, he predicted that the system might prove to be “rigged” if he did not win. He conjured up a “deep state” conspiracy within the government to thwart his election and, more recently, his agenda. And he has said reporters are trying to harm him with pictures of empty seats at his rallies.

Unless somebody finds the strawberries soon, this campaign is going to be an exercise in public insanity.

It May Be Time To Sell Your Stock

From Jim Collins at  FORBES

The yield curve has inverted and you should sell your stocks.  That is a simple, declarative statement, and yet one that I have not read anywhere this morning.  Having awakened to the news that the yield on the 2-year U.S. Treasury note had risen above that on the 10-year U.S. Treasury note, I have enjoyed this morning’s sell-off in the equity markets.  I founded a new asset management firm, Excelsior Capital Partners, a month ago to initiate short positions on stocks, and so far the timing has worked out well.

There seems to be a basic misunderstanding of the meaning of the inverted yield curve and its meaning for equity markets.  I am making a few bucks on this confusion, to be sure, but I would rather see an educated investing public. Some of the articles I have read this morning in the financial media are wildly misleading.  So here are a few answers to basic questions:

What is an inverted yield curve?  The yield spread is a simple calculation that involves subtracting short-term interest rates from long-term interest rates.  The yield curve is a plot of interest rates for government bonds of all maturities in a given country. Bond yields represent, in percentage terms, the price investors are willing to pay for those securities.  When demand for bond purchases rises, prices rise, and thus yields (interest rates) fall. When long-term bond yields are lower than short-term yields, the spread is negative and the yield curve is inverted.

Money has a time value.  A dollar today should always be worth more than a dollar tomorrow.  I think most investors grab that basic fact.  There’s a second derivative there, however.  At most times in economic history, a dollar two days from now has been worth more than tomorrow’s dollar, which is worth more than today’s dollar.  Similarly, a dollar a year from now is worth more than that two-day dollar and the dollar five years from now is worth more than the dollar one year from now, and on and on and on.  If I am lending you a dollar for five years not five days, I want an extra incentive to do that. Five years gives you much more time to default on that loan, plus—in a concept known as duration among bond investors—there is a much larger chance that the interest a lender will earn over a longer time period can be rendered less valuable by inflation, always the biggest factor impacting bond pricing.

The rate of inflation in the U.S. probably won’t change much in three months.  In ten years, though, it could show a marked difference.  The Federal Reserve and other central banks have consistently referred to the fear of deflationary pressures as the biggest worry facing financial markets.  This morning’s bond markets are telling you that inflation is going to be much much lower in 2029 than it is in 2019.

That is the key meaning of an inverted yield curve.  Inflation expectations for future periods are lower and that can only mean a slowing, and perhaps contracting, global economy.  Stocks are valued based on growth, and the colossi that are Amazon, Facebook, Netflix, etc. have all been built on rapid rates of growth in revenues and earnings.  If the bond market is telling us the global economy is slowing, the stock market should price in lower rates of growth for individual stocks.  That is why shares of those tech titans—and the vast majority of stocks around the globe–are falling sharply today.

Isn’t lower inflation a good thing?  If it costs me less to buy things outright and lower interest rates also result in lower costs to finance purchases made over time (house, car, etc.) how is that a bad thing?  Simply put, it’s not a bad thing for consumers. At the same time it is a horrible, terrible, awful thing for financial institutions such as banks. If it costs a bank more to finance the money underlying a loan than the interest that bank can earn on the loan, the bank would take a loss on that loan.  Obviously bankers are not stupid, and loan growth can be expected to decline when short-term funding costs are higher than long-term loan prices.

The global economy in 2019 is based on access to credit, and it has been for the past 50 years.  This is what we should have learned from 2008. Jamie Dimon’s balance sheet at JPMorgan is much more important than the one based on your household’s financial situation.  I am sorry if that offends you from a political standpoint, but please do not misunderstand. There have been zero real changes in policy or statute since 2008 that would change that.  If credit conditions dry up, we could just easily see a meltdown in 2019 as we did in 2008-2009. These are basic facts, not conspiracy theories or political slogans.

For the past 10 years, naysayers have been calling for another global financial crisis and yet my stock portfolio has gone up, up, up…what is different now?  The biggest development in the world economy over the past decade has been the astounding growth of the financial system in China.  China’s economy, which was barely dented by the financial crisis that ravaged Western economies in 2008-2009, is now, ten years later, just as dependent on credit as that of the U.S. and in fact more so, by certain measures.  The Chinese only really embraced state-sponsored capitalism in the early 1990s and it took them 20 years to embrace the concept of leverage. But, man, have they done it in a big way.

In December 2008 the total assets of the Chinese financial system were $9.1 trillion.  That compared to $12.2 trillion in U.S. financial system assets. As of June 30, 2018, the latest data available, Chinese financial system assets totaled $39.0 trillion dwarfing the U.S.’ total of $17.5 trillion.  So, the Chinese financial system has more than quadrupled in the past decade. Does that worry you? It should.

That’s why pictures of protestors occupying the airport in Hong Kong are so scary.  That’s why the Chinese government’s decision to let the yuan/dollar exchange rate rise above 7:1 (making Chinese financial assets worth less in dollar terms) is so scary.  That’s why President Trump’s trade tweets can and will move the markets significantly—in either direction. Anything that makes Chinese companies less likely to repay their loans is a decided negative for global bond markets.  Each of those three factors certainly qualifies.

That’s also why the yield curve in the U.S. has inverted.  Any measure of U.S. current economic activity or financial system liquidity looks fine or even better than fine.  But the bond market looks like the world is in the middle of a global catastrophe. Why? Because global markets are interlinked.

You can’t just sit in Peoria, Illinois and say the fact that Danish banks like Jyske are now offering negative rates on 30-year mortgages doesn’t affect you.  It does. Some financial institution you use will have exposure to European bonds and when those bonds mature refunding them at negative rates is going to lead to losses.  You can’t just sit in Rexmont, Pennsylvania and say that the fact that assets in China’s financial system now represent more than half of the world’s GDP doesn’t concern you. If you have a 401k, it damn well should.

So, wake up, smell the coffee and lessen your holdings of equities.  The bond market and its inverted yield curve are telling you that economic growth is slowing—or perhaps even contracting.  The valuation of stocks, above all else, depends on estimates for rates of earnings growth. Anyone who is telling you “don’t panic” or “you can’t time the market” is a complete buffoon and should be ignored.  That includes many of the talking heads on CNBC, by the way.

Selling stocks into an economic downturn isn’t panic, it is just smart investing.  Practice it.