Go into just about any supermarket right now and what do you see? Bins and bins of gorgeous red, green, and golden apples. The harvest is overwhelming, but some apples are worth more than others.

 

If you are like me, an average consumer, it takes about 23 minutes to do my grocery shopping, according to Proctor and Gamble. During that spate of time, I buy an average of 18 items out of maybe 30,000 to 40,000 choices. I have little time to browse and, most of the time, I don't even check the prices, which brings me back to the apple cart.

 

You see, I value my fruits and vegetables. The more local, the better, because to me, the taste is everything. Until recently, I was partial to certain kinds of apples depending on whether I was baking, cooking, or just chomping down on one freshly picked from a local orchard. That's until I encountered the honeycrisp.

 

If you have sampled one, you know what I mean. They are everything an apple should be: crisp, with an electrifying mix of acidity and tangy sweetness. It is an apple worth buying, even if the price is two or three times the cost of the next best thing.

 

Why is the honeycrisp worth so much more than the Fuji or Gala? Is the taste really that different, or is it all a clever marketing gimmick? To understand the difference, let's look at the apple business in general. This year the industry expects a nationwide apple crop of 256.2 million, 42-pound bushels of apples. That is about 6 percent lower than last year's crop. Washington State accounts for about 61 percent of that total. The Midwest produces 31 million bushels. The harvest there, thanks to better weather, is up 35 percent from last year. The East Coast will be about flat from last year totaling 58.4 million bushels.

 

In this era of changing consumer tastes, foreign competition (think tangerines and kiwis), and the overwhelming dominance of a hand-full of supermarket chains, in order to survive in the apple business, you need to be close to the ground and light on your feet when it comes to consumer preferences.

 

There was a great article in Bloomberg this week that illustrates the need to be all the above. Evidently, my preference for the honeycrisp is shared. It is taking the nation by storm and leaving orchards in the Northeast flatfooted, according to them. The origins of this apple would, on the surface, contradict everything an apple farmer might have learned about America's modern commercial environment. The honeycrisp was never bred to be grown, stored, or shipped. Here's why.

 

It takes much more pruning than its lesser brethren so that the apples on the lower branches receive enough sunlight. It is also lacking calcium, which will result in brown spots, unless you feed them a vitamin supplement — in this case spraying them with a form of calcium. They are also difficult to store. While most apples can go from the tree right into the refrigerator, honeycrisps need 5-10 days to get acclimated at a mild temperature before they can be put into cold storage.

 

The negatives go on and on: birds love them, so protective fencing and nets are mandatory. They also get sunburned since they are so thin-skinned that the stems need to be clipped off lest they tear into the adjacent fruit.

 

Transportation, as you can imagine, is a challenge at the best of times. Some of these apples grow big. That causes a packaging problem when some of your apples might be the size of a grapefruit. Since preserving and bruising are important factors, there is a high attrition rate with no more than 55-60 percent of these apples surviving to the supermarket produce stalls.

 

And yet, production has doubled in the last four years. It now ranks as the fifth most popular apple grown, according to the U.S. Apple Association. Even so, the demand for the honeycrisp, outstrips supply by a mile. As such, those growers that have moderate weather and huge operations, like California and parts of Washington, have benefited at the expense of the Northeast where orchards are smaller, and weather is "iffy."

 

But don't think that the farmer's bottom line has exploded as a result of the honeycrisp. For most producers, the higher price somewhat off-sets the additional cost of growing and transporting these apples. However, in the end, it is the large supermarket chains that will dictate how much they will buy and sell and at what prices.

 

Bottom line: we are light years beyond Adam and Eve when it comes to the apple and everyone is on the lookout for the next honeycrisp, me included.

 

Stocks are in the process of consolidating after the big gains over the last week or so. So far, the October sell-off has led to a recovery of about half of what was lost. In the two months ahead, we should see even further gains.

 

No matter how much we would like it to, the stock market rarely goes straight up. It is one reason why I constantly advise clients not to check their portfolios on a daily, weekly, or even monthly basis. And never check them in down markets. Why put yourself through that emotional turmoil — especially when you have no intention of using the money anytime soon.

 

As we now know, the Democrats regained the House this week. As I, and everyone else on Wall Street predicted, the Republicans maintained their hold on the Senate. Some races, such as Florida, are still too close to call. But the results were predictable enough for the markets to rally over 2 percent the day after the results.

 

Since then, traders have been selling. That's natural. Once they bank some profits, and some of the overbought technical conditions as well as investment sentiment is reduced, stocks will find their footing and advance once again. In the meantime, get ready for the political noise that will most assuredly begin emanating from Washington.

 

President Trump, at long last, has fired his attorney general, Jeff Sessions. It won't matter who he appoints in his stead, in my opinion, because nothing will stop the Mueller investigation and its findings from being disseminated. The Democrats will see to that.

 

The question that the markets will ask is:

 

"Who, if anyone, did anything wrong?"

 

Chances are it won't be Donald Trump, if history is any guide. Rarely does the captain go down with the ship in politics.  His first mate, bosun, and any number of sailors might drown, but unless he has been stupid and failed in some way to cover his trail, the president will come out blameless. In which case, the markets will celebrate that victory.

 

My column yesterday pointed out that little, if anything, can be expected in the way of legislation over the next two years. That removes an unknown variable from the financial markets. What's left?

 

Trump's trade war and rising interest rates. Both will receive undue attention from investors. Trade will likely take a back-seat until Trump meets his Chinese counterpart this month, which leaves interest rates.

 

Throughout their careers, few of Wall Street's professionals have ever experienced a rising interest rate environment. Most are too young to remember. Many were not even born during the era of the oil embargo, double-digit interest rates and inflation. To them, this is all theoretical and not anchored in experience.

 

Therefore, they won't know when and how rising interest rates may trigger a recession. What's worse, they also won't know when too much inflation, versus too little inflation, is good (or bad) for the stock markets. As such, most of the investment community will live in a state of perpetual jumpiness. Jumpiness is a state of nervousness marked by sudden jerky movements. We just had such a day on Friday.

 

The Fed met this week and simply repeated what the markets already knew: that a rate hike was in the offing next month and further hikes should be expected next year. The only "new" comment was a sentence indicating that business investment seemed to be moderating slightly. Nonetheless, global markets fell on Thursday night and into Friday because many felt disappointment that the Fed was still on course.

 

 My belief is that kind of overreaction may continue to occur. When few in the markets understands the natural process of a growing economy, rising interest rates, and over (versus under) heating, any hike in interest rates is automatically considered negative for stocks.

 

It is not, but one must live through the experience of rising interest rates in order to understand them and to take the process in stride. Unfortunately, our "professionals" are all on a learning curve. What is theory and what is true will only be realized in hindsight. This is the world we live in, so expect more jumpiness in the foreseeable future.  

 

 

True to form, the opposition party regained control of the House, while the ruling party, in this case the GOP, retained control of the Senate. If history is any guide, this means that little in the way of legislation will be coming out of Congress for the next two years.

 

In the past, investors and the stock market alike did better than you might expect under this kind of political paralysis. That's because financial markets abhor the unknown. Given the unpredictability of politics and legislation, investors are far more content with inaction than action, unless of course, those actions are favorable to the markets or the economy.

 

Take for example, the tax cut of 2018. That sent the markets higher because most investors expected the cut would fuel additional growth in the economy.  In turn, that would generate higher earnings for public companies and provide a reason to bid the stock market up even higher.

 

While expectations for any additional tax cuts over the next two years are remote, there could be some surprises. There is some conjecture that the Federal government could undo parts of the tax cut. They could reinstate, for example, the federal tax deductibility of those states with an income tax. In exchange, the corporate tax rate might be raised a few percentage points. Of course, it's early days and any quid pro quo negotiation on taxes between the two houses and the president could drag out until 2020. 

 

The unfolding disaster that is the Affordable Care Act (ACA) over the first two years of Republican rule was not lost on voters. Health care was identified as one of the greatest concerns among voters in exit polls across the nation. That doesn't mean that the legislatures will suddenly be able to come together and fix a health care system that has run amuck.

 

 If the GOP, which had control of the executive branch and both Houses of Congress, could not come up with a plan to replace the AFC, why would we expect a divided Congress to do any better? At most, we may see drug pricing initiatives, but the passage of even that effort is doubtful.

 

The common wisdom of most political pundits is that the Democrats will launch investigation after investigation into the perceived wrong-doings of the president, his cabinet members, and anyone else they can target among the GOP. As a result, no one in power will have the time or energy to contemplate any new legislation. Most of their efforts will be tied up in defending themselves.

 

One area that might see the light of day might be infrastructure spending. Both parties have been talking about that since the early days of the Obama Administration. At that time, Republicans considered themselves deficit hawks and did not want to spend the money necessary to fund a multi-trillion-dollar spending program.

 

Today, however, Republicans, with few exceptions, have taken on the mantle of big government spenders. Democrats, at least since the days of Franklin Roosevelt and the New Deal, have always been saddled with that reputation. It is conceivable that enough elements of both parties could see their way into a compromise infrastructure spending bill. The caveat here is that the deficit itself could become an explosive issue next year as interest rates (and debt payments) continue to rise. In which case, neither party may be willing to add to the nation's debt for any reason.

 

In my opinion, the direction of the stock market will be far more dependent on how fast and how high-interest rates will rise. The outcome depends on the Federal Reserve Bank and not politicians in Washington, D.C.

 

There is one worry, however, that does continue to haunt the markets. President Trump's on-going trade war could ultimately sink both the economy and the stock market. The Democrats in the past, having been no friend of free trade, believe strongly that America has not been treated fairly by our trading partners. Given that the president and the Democrats may see eye-to-eye on this issue, it may embolden Trump to escalate his tariffs and other demands on our trading partners.

 

 

It is a good time to take a reality check on how aggressively you are invested. The 6.9 percent decline in the S&P 500 Index over October was gut-wrenching. But entirely within the realm of probability given the historical data. Here are some questions to ask.

 

Did you find yourself checking your investment portfolios every day? How about every hour? Did you have trouble focusing on other, possibly more important, things like your job, or your family and friends? Was it more difficult to sleep at night, or did you lay awake worrying about the markets?

 

How much time did you spend checking the averages and listening to the talking heads on television or in the print media? Did you call your broker or investment advisor and, if so, how many times? Did you want to blame someone for the market's decline? Did you need that money for something immediate?

 

If you answered yes to any of the above questions, you have probably invested too aggressively. That's not to say that a sell-off is in any way pleasant. Everyone feels the disappointment, the pain of losing money, and the fear that tomorrow will bring more of the same.  And even though your losses are only on paper, you still feel some anxiety. The question is how you handle it.

 

By now, most of my readers understand that the stock market is not a one-way street. Investors should expect at least three declines of around 5 percent and one decline of 10 percent per year in the stock market. That's on average. There have been plenty of times when the averages have declined more than that. Over the course of the last several years that has occurred consistently, and it will continue to do so for the next several decades into the future.  

 

And one's risk tolerance is both personal and financial. Only you can tell yourself what it is or should be.  And the risk is not static. It changes over time. How much risk you are willing to take depends on many things; some, such as your health or your job are different than when you will need the money in your investment accounts.

 

Geopolitical events such as Brexit, the Trump election, North Korean conflict, stock market valuations, and the next recession will also impact your attitude about risk. None of the above remain static. What was a negative development last year (like the Trump vs. Kim double dog dare) may be a positive this year, such as North Korean nuclear disarmament.

 

We can try to break risk down into two concepts: risk tolerance and your capacity for risks. Capacity for risk is how much you can afford to lose. That is measurable and involves time and finances. If you are saving for retirement, which is decades away, you can afford to lose more in the short-term, because you won't need the money anytime soon. Over time, the stock market has been shown to be a good investment and will make up your losses and then some if you remain patient and don't panic.

 

For example, the pain and fear are real for someone in their forties or fifties, who holds a $5 million portfolio, which loses $500,000 in a 10 percent correction, over the course of two months. Yet, if that person plans to retire 20 years from now and has a good paying job that is secure, then they have the capacity to hang in there, even buy more, because they won't be needing to tap those funds for decades.

 

On the other hand, if that money were needed to pay next month's mortgage or car payment, the purchase of a house in two weeks, the first semester's payment on their kid's college education, then that capacity for risk is far lower.

 

Risk tolerance is far more connected with your emotions; fear and greed among the most prevalent. It is greed that drives an investor's desire to "beat the market," something that is as hopeless as winning consistently at the slot machines. Fear is what drives you to sell at the top (fairly easy) but also destroys your ability to buy at the bottom (almost impossible).

 

So how do you determine these risks and when they change? It's not easy. Start with the questions I asked, and if you answered yes to any of them, review your risk appetite, preferably with someone like an advisor or financial planner. I found that it is far easier to examine your risk tolerance after a market sell-off when the pain is still fresh than when the markets are roaring.