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.
…the world gets a cold.
I’ve read some version of this notion off and on in the financial media for the last week. Which reminds me of decades past where folks would speculate that if the US didn’t do well economically then the rest of the world wouldn’t either. We seem to be getting a new version of that with China now.
Don’t let it fool you. China continues to contribute nicely to global growth and that’ll help prop equity prices. From MarketMinder this week:
“…slower growth” is something of a misnomer. Yes, if China hits the full-year target, in percentage terms, growth will be slower than 2012’s 7.8%. But in dollar terms, it will accelerate—a $339 billion increase, compared with 2012’s $327 billion rise. Should China match the target for the next few years, the dollar-based gains get bigger and bigger—and higher than the dollar gains seen when the growth rate exceeded 10%. The slower growth rate isn’t a sign of weakness. It just means China’s growing off a much bigger base. In fact, China could miss the target and still add significant value to the global economy and be a key source of revenue for developed-world companies—what ultimately matters for stocks.” – Cracks in the China?
Through most of the last decade, I answered an interminable number of investor questions about whether the weak dollar would destroy the very foundation of our world. (I exaggerate, if only slightly). Now that the dollar is showing some ballast, we get this: P&G to Apple Hurt by Strong Dollar Keep S&P 500 Profits in Check.
Look, I don’t care which way you fall but someone needs to cry foul when we perceive both a strong and weak dollar to be bad. In reality, we’ve had plenty of bull and bear markets in both strong and weak dollar environments, and in my view dollar direction doesn’t generally tell you much about what stocks are likely to do.
Currencies matter. A lot. But don’t get too far lost in this quagmire when it comes to judging the stock market.
If you’re like me, you get annoyed ubiquitously by the clichéd, overused, nonsense, nondescript lingo central bankers, central planners, politicians, and guru economists routinely employ. My current most peevish is “downside risk.” As in, “Currently downside risks for the economy are stronger than a month ago.” Or, “We see downside risk abating in the intermediate term.”
What does this mean? It means nothing. It’s gibberish. In the era where central bankers claim to be more open kimono, what they really are doing is just saying more words. The opacity is the same, as depicted by the current—and bizarre—speculation over “tapering” clogging today’s financial headlines.
When you see this stuff, don’t try to read tea leaves. Just ignore it until there is something concrete to form an opinion.
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.
Just about everywhere I go, I meet investors who tell me so-called core inflation is a dumb metric and food inflation is very high. Check out this recent graphic from Bloomberg Businessweek by Dorothy Gambrell.
“In 1984, the average U.S. household spent 16.8 percent of its annual post-tax income on food. By 2011, Americans spent only 11.2 percent. The U.S. devotes less of its income to food than any other country—half as much as households in France and one-fourth of those in India.”
In the words of Stan Lee, ‘nuff said.
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.
I don’t always agree with Jim Cramer, but here is some good sense that’s been espoused on this page for some time now:
You know what didn’t work in 2012? Risk on, risk off. As hard as I tried to stamp out this ridiculous bit of hedge-fund-ese, I was not able to. There are too many commentators out there, and too many traders who want to succumb to this kind of non-rigorous, intellectually lazy thinking, and it’s impossible to shut them all down. But let 2012 be a lesson to you: It was revealed that you would have underperformed these people if you’d followed them. Notice I say “underperformed,” because one thing is for certain — none of these blowhards will let you see their returns after what I bet was a fiasco year for what I can only call an “alleged” strategy.
Let this be the death of risk on, risk off – Jim Cramer
Ken Fisher and Lara Hoffmans have published their layperson’s guide to building a basic wealth plan — I couldn’t recommend it more.
Much like his other books, Ken Fisher takes a route of empowering the average investor, being less didactic or preachy and offering usable perspectives in terms everyone can understand.
In my view, it’s one of the ultimate things a skilled expert can do for us: to give his knowledge back in a way all can participate in. Ken has seen it all, done it all, and been very good at it for very long time; it’s a pleasure to read about the fundamentals of wealth-building with all the signature wit and uncommon perspective he and Lara always bring.
By now, folks have gleaned the Sandy storm won’t have as much economic impact as feared. On the Monday of the storm I saw figures speculating upward of $75 billion in damages. By Wednesday’s end it was knocked down to ~$15 billion, depending who you ask. But it’s clear widespread consensus overestimated by multiples.
Acts of God are often a case study in bad economics. Though, it’s probably not the calculations so much as the psychology of the matter: it’s far better in most folks’ minds to overestimate than underestimate. If you worry too much, no one will blame you. But if you worry too little, fingers will wag in your direction. (In my view, most economists could use a crash course in Bastiat and Broken Window Fallacies before publishing their guesstimates, too.)
Natural disasters have rarely or ever had lasting deleterious effects on capital markets. It’s quite a statement about the durability and plasticity of global capital markets that the NYSE along with US markets generally can be closed for two days and one could barely tell come Wednesday’s trading action. And yet people worry over and over about this stuff.