It’s quite a world we live in. The (satirical newspaper) The Onion earlier this week proffered investing advice as good as anything I’ve seen on any financial news source this year: Report: Only .00003% Of Things That Happen Actually Matter.
This is so true for investing it’s almost (ahem) a joke. People fret over so much nonsense and minutiae each day in the market. For long-term investors trying to build wealth over time, the simple reality is at least 99.99% of what gets reported out there is mere noise or beside the point. And in the focusing on noise, it’s easy for folks to simply overlook what matters: stocks up nicely this year as earnings increase, in the context of what’s been a strong and long bull market, seeing new all-time highs in many spots.
Always and everywhere with financial and economic news, ask yourself if what you’re reading really matters.
Legendary investor Sir John Templeton has a famous quote that still rings true:
“Bull markets are born in pessimism, grow on skepticism, mature on optimism, and die of euphoria.”
I have a new wrinkle. For today’s hyper-media-inundate-you-with-data-all-day-every-day era, somewhere between skepticism and optimism comes fatigue. And it’s bullish.
Stories have recently asked why CNBC’s ratings have tanked. In my view, you watch CNBC for two reasons:
1. You’re terrified of seeing what bad thing will happen to your investments next, but you can’t look away. Like a train wreck. (Hello, Financial crisis and Eurozone meltdown.)
2. You’re euphoric, and want to see how much your account will rise today. (Hello, tech boom, housing boom, etc.)
Investors aren’t any of these things right now. I think they’re just…fatigued. Fatigued of Middle East fears, Fed QE fears, of US debt/deficit fears, of Eurozone ills, of all of it. These things have been around for years now, and have lost much of their bluster power. Many aren’t so bullish, they’re just tired of spending so much energy worrying.
In my opinion, fatigue in this environment is bullish. It means there’s plenty of room for markets to rise and most still haven’t appreciated record earnings, and other meaningful positives out there.
Looking at history and the long waves of demographics is a great and fine thing. It can tell you a heck of a lot. It’s frequently the case that history is driven by large, abstract, impersonal forces rather than singular decisive events. But…
…to start forecasting equity markets using these metrics is a perilous thing. And it’s becoming all the rage lately.
The problem with demographics as equity market forecasters is that, first, in order for you to be right, you might have to wait, you know, a generation or more. Also, even if you can shoehorn a theory to explain all, at best you only have a few good data points to support the correlation tied to equity markets. That’s not much to stake a +20 year forecast on.
As a follow up to my previous post on housing supply, read Christopher Matthews latest Time Magazine Article: What Ever Happened to the Big, Bad “Shadow Inventory” of Homes?
Dash your expectations for a go-go housing expansion like last decade, but expect a steady recovery in US home prices and a modest GDP tailwind from residential construction. Here’s why:
Simply, the economy has worked through excess inventory created by the last downturn, and housing supply hasn’t seen these low levels basically since they started recording this sort of thing. This creates significant pressure to expand supply, and that’s been seen—in spades—in recent homebuilder sentiment indexes.
Simply, the long-term cost of financial services is down—technology will see to it. This feature will overwhelm even the politicians’ ability to cause inefficiencies and higher costs.
Million-Dollar Traders Replaced With Machines: Credit Markets– Bloomberg Businessweek
Remember just a half-year ago we were supposedly headed for a global nutrition Armageddon? Why didn’t it happen? Because folks largely misunderstand what prices are: one of the ultimate technologies for information transmission. Prices are signals, when they go higher producers (like farmers) respond by shifting available resources (like arable land), investing in increased productivity (like genetically modified seeds and modern irrigation), to get more of those higher prices. In fairly short order, via competition, prices come back down as that new supply (which shows its first signs of life in the futures contract markets and is a reason so-called “speculation” on such things matters and is largely a good thing) comes online.
In the very short term, food prices can spike, drop, shimmy and shammy. Food prices are volatile. But it’s clear by now, once again (because such a scare seems to materialize once every couple years) global food fami-geddon isn’t happening. Generally efficient allocation of resources and utilization of technology via free markets is the reason.