By William Davis


According to Merriam-Webster, “schadenfreude” is an unintentional pleasure that comes from seeing or hearing about another person’s troubles or failures. Etymologically, the word is taken from German – Schaden, meaning damage, plus Freude, meaning joy. A good example of the term would be the certain joy many in the industry are experiencing as they witness the reputational damage descending on one of the most condescending cluster of civil servants to have ever crawled the swamp: the U.S. Securities and Exchange Commission.

In 1994, the SEC’s Electronic Data Gathering, Analysis, and Retrieval System, known as EDGAR, was launched

Last Wednesday evening, the “Commission”, as its self-important associates like to call it, let it slip that hackers had penetrated its own electronic filing system – more than a year ago. In a display of arrogance that can only come from an insulated government agency, the regulators snuck a brief four-line disclosure on its ineptitude half way into a 4,000-word statement berating the securities industry for its weak cybersecurity efforts.

In 2016, hackers penetrate EDGAR to illegally trade on information

The breach of the antiquated EDGAR system, which receives and processes more than 1.7 million electronic filings a year, provided hackers access to a treasure trove of non-public information – the kind of precious info good companies expect to be held secure. Undaunted, the agency says the last year’s software vulnerability was patched promptly, though its pretend investigation is “ongoing.”

In 2017, the SEC discloses the hack

So, the SEC in all its high-minded majesty didn’t follow the typical protocols it demands from public companies. Its officious executives didn’t even report the incident when it occurred. And its superior bureaucrats have only just begun to figure out how the hack might have resulted in illegal trading activity. Lots of Schaden here, precious little Freude.

What the equity markets have been doing…

Not a bad stretch for U.S. equities, with important benchmarks like the Dow Industrials, the S&P 500, and the NASDAQ Composite setting record highs along the way. Smaller-cap benchmarks actually performed better than their large-cap brethren but didn’t make it to the highs they established in July. Among the sectors, interest rate-sensitive utilities, consumer staples, and real estate shares were weak while energy stocks acted fairly well.

It’s impossible to ignore the influence of political developments across the two-week stretch, though their effects on the markets were indecisive. The growing noise around North Korea appeared to have only a limited impact on trading as did Congress’s wobbly new efforts to pass a healthcare bill.

INDEX Friday’s Close One-Week Point Change Year-to-Date Change
DJIA 22,349.59 +551.80 +13.09%
S&P 500 2,502.22 +18.38 +11.76%
NASDAQ 6,426.92 +66.73 +19.39%


What the fixed income markets have been doing…

Results of the Fed’s big policy meeting, which came in largely in line with expectations, did not appear to move bond prices that much. An increased chance that the Central Bank will raise rates at its December meeting was more likely behind a modest jump in Treasury yields. Investment-grade corporates, meanwhile, benefited from light new issuance and ongoing demand from overseas investors. The high yield market was mostly quiet. Tax-free issues mostly outperformed Treasuries as the municipal market continued to benefit from high demand for new issues.

FIXED INCOME Period YTD 12 Months Yield
U.S. Treasuries
2.8% -(0.6)% 2.2%
U.S. Investment Grade +0.1% 5.1% 3.2% 3.1%
U.S. High Yield -(0.1)% 6.5% 9.6% 5.5%
U.S. Municipals +0.1% 5.2% 1.5% 2.1%
Non-U.S. Developed +0.1% 10.4% 0.2% 0.8%


What the numbers are saying…

  • 1%

The investment return for Harvard University’s endowment in the latest year, another disappointing performance for the world’s richest school.

What the pundits have been saying…

“For the first time in an age, all parts of the world are enjoying synchronized economic momentum and I can’t see it ending for some time.”

  • Hugh Hendry, founding partner of Eclectica Asset Management


 What people have been saying…

“The bigger this bubble goes, the bigger negative connotation it’s going to have. It’s going to be like the dot-com bust, but on a much more epic scale.”

Jackson Palmer, creator of Dogecoin, on the cryptocurrency market

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