Forecasting or Pandering?

The Wall Street Journal’s recent article on forecasting (an article on forecasting), speaks to how inaccurate forecasters and forecasts typically are. When I read it, the following quote hit home:

“Sometimes forecasting isn't even about the future, some researchers say. The true goals of some predictions, says Kesten Green, a forecasting researcher at Monash University in Melbourne, Australia, include lighting a fire under the sales force or alarming the public into some sort of action.”

This holds true in the public policy arena and in the financial markets. It often appears that the forecasts are crafted to get attention, get elected, promote a product or strategy, sell a book, or all of the above! When the forecaster’s goal is "hey, listen to me," it's understandable why some forecasts are so extreme. The more in tune with public sentiment and the more outlandish the forecast is - the more attention it will likely garner. Remember, these ‘bed partners’ have similar goals; forecasters want attention and media outlets want eyeballs. Is this goal best achieved with a demure and soft-spoken guest or with one adamantly postulating an alarming scenario?

Consider this: With public confidence in the financial market very low right now, is the book touting Dow 36,000 or Dow 6,000 going to sell better? Is this forecasting or pandering?

It is possible to articulate a case for whatever you want others to believe, particularly if you selectively choose data and interpret it liberally. That doesn't make it correct. While it is sometimes interesting to contemplate what might happen, no one really knows. Worrying about what might happen, keeps individuals and corporations from acting in the here and now.

I think the market is so incredibly complex that it is not possible to make accurate forecasts. As a result, I rely on an adaptive process that modifies portfolio holdings as conditions evolve. This way the portfolio is based on what is actually happening, as opposed to what may or may not happen in the future.
This does not mean that I do not have opinions. I just don’t manage your portfolios based on my opinions because the market does not care what Michael Guilsher thinks should happen…


Securities and Investment Advisory services offered through NBC Securities, Inc., member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities, does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence.

This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.

Maintaining Objectivity

The Arab Spring preceded the European summer which in turn preceded the fed’s latest ‘twist’. The differences between these events are clear but the net result is similar - market volatility. For whatever reason, when we experience a day with volatility & declining markets the mind quickly flashes back to the days, a few years ago, when banks were being bailed-out at a fraction of their former values and Lehman Bros. was suddenly referred to in the past-tense. Sure, there are negatives with regard to the slowing of the US economy however I must objectively point out the positives (and negatives) regarding the current environment:

In the positive camp:

Interest rates are at historically low levels
Implications: low rates allow corporations & individuals to borrow very inexpensively to fund expansions & home purchases or remodeling projects
There is a lot of cash on the ‘side-lines’
Implications: This provides the ability & means to ‘buy on pullbacks’
80% of US corp. earnings for Q2 were above expectations & earnings were up approx 20%
Implications: US corporations are in very good shape
Emerging economies, as an aggregate, have about 2 billion people ‘coming on line’ who want to “live the good life”
Implications: potential for significant new demand for consumer goods & services

In the negative camp:

Unemployment is remaining high
Causes: ‘generous’ & extended unemployment benefits, workers lacking adequate skills & technological improvements usurping employees on production lines
Implications: negativity surrounding consumers’ ability to spend
Uncertainty regarding government policies
Implications: costs associated with Obamacare & other potential legislation weighs heavily on corporate hiring decisions
2008 is still fresh in the minds of investors
Implications: a proclivity to react emotionally

In the ‘for what it is worth’ camp:

The dividend yield on the S&P 500 now exceeds the yield on the 10-year Treasury notes. Sam Stovall, Chief Investment Strategist from Standard & Poor's, cites in his "Stovall's Sector Watch" from The Outlook that this doesn't happen very often. In fact, since 1953, there have only been 20 occurrences when the S&P 500 yielded more than T-Notes. He goes on to say, that the following 12 months, after this occurrence, the S&P 500 rose by an average of +20%.

Bottom line:

No one can predict what will happen. I am operating with a ‘set of tools’ that are unbiased and non-emotional. When the markets are volatile I take a step back and remind myself to be objective – asking "what is?" rather than "what if...?" Said another way, we will adjust to what the market is telling us.



Securities and Investment Advisory services offered through NBC Securities, Inc., Member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence. This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.

More of the Same

The last couple of weeks have been trying, to put it simply. Daily fluctuations, talking heads screeching about the next recession and lack of cooperation in Washington are enough to test even the most patient of us.

From my perch on the seventh floor I can see up 20th Street to UAB, but I also can look at the market without emotion or bias, and with the ability to draw upon three decades of experience deciphering market trends.

This is what I am observing: despite the volatility, on each pull-back the market does not fall as far as before and when it lurched forward, it moved ahead of the previous high.

What does this mean?

• The market has pulled back to where it traded last summer
• It is ‘building a base’, this is healthy and a normal part of what the market ‘does’
• It has not violated the long-term trend-line
• Supply (sellers) are getting ‘weaker’ as they are unable to push the market lower
• Demand (buyers) are getting ‘stronger’ as they have been able to push the market higher.

That is where we are - still.