Friday, August 26, 2016

This Week's Message: Amateurs, unwittingly, love forecasts...

Janet Yellen’s Jackson Hole speech on Friday essentially echoed the sentiment I’ve been sharing with regard to the economy of late. That is, things are indeed improving, but not at some breakneck inflationary pace. The initial reaction to her commentary was about a 70 point decline in the Dow, as I type (it’s Friday morning) the Dow’s up 90. Won’t guess where it’ll end the day, don’t really care actually.

What I do care about are the prospects for earnings going forward for the many companies whose stocks occupy the mutual and exchange traded funds that we hold in client accounts. Their share prices will meander all over the chart while these companies search the world (yes, the world!) for opportunities to sell their wares. At this juncture, the next recession appears to be somewhere beyond the foreseeable horizon, at least to my eyes. And being that emotionally-impacting bear markets tend to need recessions, while volatility has to pick up going forward, the economy doesn’t suggest that we should be losing any sleep these days. That said, if you’re our client and you ever lose sleep over your portfolio --- regardless of market conditions --- I demand that you call Gladys the next morning and schedule us a meeting.

As this bull market grows older, out of the woodwork will come more and more soothsayers and snake-oilers offering up their guaranteed forecasts on stocks, gold, oil, currencies, etc.

Here’s Alexander Elder in his timeless 1993 book Trading for a Living telling it precisely how it is:
Nature's Law is the rallying cry of a clutch of mystics who claim there is a perfect order in the markets (which they'll reveal to you for a price). They say that markets move like clockwork in response to immutable natural laws. R. N. Elliott even titled his last book Nature's Law.
The “perfect order” crowd gravitates to astrology, numerology, conspiracy theory, and other superstitions. Next time someone talks to you about natural order in the markets, ask him about astrology. He'll probably jump at the chance to come out of the closet and talk about the stars.

The believers in perfect order in the markets claim that tops and bottoms can be predicted far into the future. Amateurs love forecasts, and mysticism is a great marketing gimmick. It helps sell courses, trading systems, and newsletters.

Mystics, Random Walk academics, and Efficient Market theorists have one trait in common. They are equally divorced from the reality of the markets.

Have a great weekend!


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