Contrary investing used to be a profitable endeavor. Things have changed. The doom business is in full swing as many financial prognosticators seek to hedge their normally ecstatic outlooks in order to sell their advice. When tragedy becomes a consensus sentiment, it used to be the time to buy. Now that formula has to factor in a different set of risks. Namely the incoherent political intrusions and stimulus-austerity gyrations has to head the list. Has forecasting become a lost art or did it evolve into an algorithm supercomputer project? In either case, the doom factor is sure to continue to be a stable from the Cassandra circle as long as an economic recovery allures the former members of the middle class. Nevertheless, the bulls want you to believe that economic indicators are guardedly improving. The Global Economic Intersection boldly portends.
Our September 2013 Economic Forecast shows a change of trend. Many portions of our economic model started to expand over the previous month’s baseline.
We continue to warn that consumer spending increases are expanding at a much faster pace than income – and that eventually either a jump in income or a fall in consumption must occur to close this gap. This remains an economic headwind for 3Q2013.
The problem for investors is that very often, at the individual stock level, good news is not built into valuations for some time after it has become publicly available.
This means that contrary to markets as a whole, where it can be better to travel than to arrive, good company news can trigger sustained outperformance as investors slowly accept the improved outlook.
This might sound like a counsel of despair for investors, but it shouldn’t. Awareness of the limitations of knowledge is actually strangely liberating when it comes to managing your investments.
Woe is me, what opportunities are missed by sitting on the sidelines? Almost moves one to subscribe to some of those pricey newsletters. But before you brush off the dust on your wallet, heed the lesson that Ian R. Campbell references when he asks Economic forecasting – how credible?
Frequently in this Newsletter I have said I believe that many economists wrongly advance a theoretical forecast framework based on irrelevant history when reaching conclusions on what is prospectively going to happen in any particular economy at any given point in time – and hence many economists inherently are doomed to get things wrong before they put pen to paper.
Yes, the small investor is just as dimwitted as Charlie Brown. The fate of most plays in the M A R K E T S, are sealed before they get started. In a corporatist economy, the balance sheets of companies swell, but the return on equity to stockowners often falls short.
One needs to admit, before placing funds in the hands of Wall Street money managers, that the game is speculation, not investing. Fortunes are made by knowing the insider decisions before the public is even aware of the news that a stock is in play. Even bigger sums are extracted from shorting a vulnerable public company as the vultures sense a ripe carcass.
Any thinking citizen with even a modest understanding of economics and commerce must conclude that the consumer patience is still gravely ill. Sophistication in interpreting trend forecasts is not necessary when CNNMoney provides the evidence.
The average age of vehicles on America’s roads has reached an all-time high of 11.4 years, according to the market research firm Polk. And that average age is sure to keep climbing, the firm said.
For those who reject this analysis and want to be informed about the latest perspective from The Economist, signup for the Global Forecasting Service. Get unrestricted access to full, updated and interactive coverage of our world economic outlook, including projections of key indicators and analysis of developed and emerging markets.
Reading such international financial establishment pronouncements usually provide a reassuring crutch even when countries are going bankrupt. Telling as it is for the spin you are meant to accept, the forecast for personal success in the investment jungle is wrath with predators of all species.
Now all this caution is moot if the global economy enters into a new golden age. Duplicating the prosperity of the industrial revolution with a cyber collection matrix that digitally spies on propitiatory business secrets is not exactly the formula that generates wealth, which is shared by the masses.
The incomparable Paul Craig Roberts is the best political and economic forecaster. In his 2011 article, How the Economy was Lost, Doomed by the Myths of Free Trade, he explains the basic reason for the doomed forthcoming financial meltdown end game.
As the issuers of swaps were not required to reserve against them, and as there is no limit to the number of swaps, the payouts could easily exceed the net worth of the issuer.
This was the most shameful and most mindless form of speculation. Gamblers were betting hands that they could not cover. The US regulators fled their posts. The American financial institutions abandoned all integrity. As a consequence, American financial institutions and rating agencies are trusted nowhere on earth.
This is the forecast that you can bank on.
James Hall is a reformed, former political operative. This pundit’s formal instruction in History, Philosophy and Political Science served as training for activism, on the staff of several politicians and in many campaigns. A believer in authentic Public Service, independent business interests were pursued in the private sector. Speculation in markets, and international business investments, allowed for extensive travel and a world view for commerce. Hall is the publisher of BREAKING ALL THE RULES. Contact [email protected]