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My Sunday Washington Post Business Section column is out, and its a doozy: Rather than do the usual forecasts for the new year silliness, I thought it might be interesting to look instead at the major trends driving the world of finance.

Its called 10 trends to watch in finance for 2013, and the concept behind it is that most people are so busy guessing what might happen in the future, they forget to understand what is happening right now.

My position is understanding precisely what just occurred is much more important than guessing about the future:

“It’s a winter ritual: Seers, prognosticators and other gurus tell us which stocks to buy for the year ahead, where they think the Dow will close in December and which momentous events will take place.

History teaches us that the majority of these charlatans will be wrong, and the ones who get it right are mostly lucky. If you have been reading my column for any length of time, you know to ignore them. (See 2011’s Forecaster Folly.)

When it comes to predictions, I do the following: Note down the forecasts made this month and look back at them in a year. Repeat every year. I use my desktop calendar and an e-mail Web service called Followupthen.com to keep me on track. I started doing this almost a decade ago, and I found it terribly liberating. It will be always be instructive, and, as with the class of 2008 forecasters, occasionally hilarious.

Doing this taught me to ignore the forecasts I see or read, as well as to keep the piehole in the middle of my face closed whenever anyone asks me for a forecast. I defer, saying, “I have no idea. No one does.” It is fun to watch the TV anchors’ heads spin like Linda Blair’s in “The Exorcist.”

A better use of your time? Discern what’s happening here and now. It’s been my experience that investors spend so much time worrying about what might come next that they miss what just happened..”>

The rest of the column articulates those 10 trends. (I think this may be my first front-page-of-the-business-section column!)

There are a couple of charts at the Post I pulled together from Bianco research & FRED, but the artwork is really kinda cool:
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click for larger graphic

Jonathan Bartlett for the Washington Post

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Source:
10 trends to watch in finance for 2013
Barry Ritholtz
Washington Post January 12 2012
http://www.washingtonpost.com/business/10-trends-to-watch-in-nance-for-2013/2013/01/11/70b7b6c6-5477-11e2-a613-ec8d394535c6_story.html

Category: Finance, Investing

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

19 Responses to “10 Significant Trends in Finance”

  1. Lugnut says:

    Good list. 10 being the predominat one.

    from the peanut gallery….

    11. Large banks will continue to take in ordinate risks with their deposit/loan gap float and obfuscate the assets on their books to an inpenetrable grey goo as they become secure in the lack of criminal accountability by the SEC and the Justice Dept. So long as .gov gets their cut (fine), the punchbowl will be full.

  2. John Adamson says:

    RE: “#8 What Hyperinflation”

    “This is unsustainable! Inflation is about to explode!”

    I’ve heard that forever as well. The light came on for me when I read someone say, “Inevitable doesn’t mean imminent.”

    In other words, Keynes maxim that “the market can stay irrational longer than you can stay solvent” applies to everything, not just markets.

  3. “(I think this may be my first front-page-of-the-business-section column!)” — Congratulations, Barry!

    Very interesting article, Barry…thanks! I was particularly struck by your Trend 10. I agree that it’s “the one trend that rules them all.” I would be interested to see a piece from you on the current trend in government action/inaction/delaying tactics, et al, and whether such a trend would trump Trend 10 or be trumped by it…in other words, who really “rules the roost?”…the Fed or the Government?

    Have a great week! :-)

  4. heh heh — Sorry, I have 20 other columns banging around in my head that I have to get out.

    Someone once asked me why I write, and I answered “To quiet down the voices in my head”

    They come first . . .

  5. “…A better use of your time? Discern what’s happening here and now…”

    Sweet. Great reminder, BR.

    (also, to note, quite Contra to Why? these Idiots, as described, here..”…the TV anchors’ heads spin like Linda Blair’s in “The Exorcist.”…”, actually, ‘Get Paid.’..)

    but, more Importantly, People–interested in following your advice–may care to Start, here..

    http://quotes.ino.com/exchanges/futboard/

    and, remember that ‘Commodities’, while they can be Traded as Derivatives, are, rather, the Core.

  6. constantnormal says:

    Barry, when you mention “the voices” in your head, it strikes me that one of the things that denotes the onset of senility is the one-by-one silencing of dissenting voices, until there is (in the fashion of Highlander) “Only One”.

    Something for your audience of boomers to concentrate on avoiding, and for the younger folks to watch out for from the mentally aged in their midst …

    I think that it is from among our internal babble of “voices” that choices , and the ability to change directions, emerges. It doesn’t guarantee that the directions we choose will be the best ones, but I’m pretty sure that being of a fixed mindset is going to guarantee being wrong almost all of the time. Reality is too slippery a thing to permit any other result.

  7. RW says:

    Not much to add WRT praise for an excellent column. I was momentarily confused by the sub-head on #9 since all the other sub-heads used a positive statement — what was happening — rather than the negative, what wasn’t happening, but that’s a nit.

    Agree with Lugnut that we are likely to see further crises at the Banks until the Fed, SEC and Justice Dept monitor and enforce regulations and laws as they should be.

    Also agree with constantnormals point although I’d worry if I could actually hear ‘em: anybody remember the scene in The Gods Must Be Crazy where the woman says, “I’m sorry, are the voices in my head bothering you?”

    “It is the mark of an educated mind to be able to entertain a thought without accepting it.” -Aristotle

  8. “The voices in my head may not be real, but they have some good ideas!” — Anonymous

  9. Moss says:

    I think that #10 should be the Fed along with other Central Banks. This trend is international. Also #10 is largely responsible for #9.

  10. slowkarma says:

    A good list, but I might take some issue with the idea that the bull market in bonds is not ending. Isn’t a “bull market” usually considered to be different than a market that isn’t going anywhere? I don’t see that bonds can actually sustain a “bull” in the traditional sense, simply because I doubt that returns will fall much lower than zero. And since there’s really not much money to be made there (and really, at current rates, you’d almost certainly sustain a “real money” loss if you bought government bonds now and held them to maturity) it’s not really a bull…

    …unless you consider a bull market to be one in which there is steady high demand for the product regardless of the price or expected return on the product. That is certainly the case right now, and that doesn’t seem to be ending, at least for the moment.

    Still, the whole situation strikes me as unstable and possibly dangerous. We’ve seen how fast communications can cause people to stampede (like into bonds). So what happens if they stampede out? And what conditions would it take to create such a stampede? I doubt that it would require anything like hyper-inflation; it might require nothing but an uptick in inflation, and when word gets out that the big guys are leaving, the stampede begins.

    I totally agree with your skepticism about market predictions; but I also believe in black swans. Is there a bond-market black swan in the air? To not know the answer to the question doesn’t really mean that you shouldn’t be ready for it.

  11. Barry Ritholtz says:

    I was more interested in referencing the wrongheadedness of for the forecasters — and for quite some time now — than I was the bond market itself.

    And yes, #10 (US and other world central banks) are definitely impacting #9

  12. rd says:

    Regarding the death of but will likely be much more important to have a very disciplined apporach over the coming decades.y-and-hold: I suspect that balanced index funds (either ETFs or mutual funds) will continue to grow. The media uses the S&P 500 as a benchmark of investing success but I use the Vanguard LifeStrategy family instead. An advisor needs to show that they can show a greater return and/or less volatility than this family fo funds for a given equity/bond ratio in order to justify any fee at all. Buy and hold of a low cost 60/40 index fund did very well in the past decade without a lot of volatility.

    Regarding demographics: this is going to be a major challenge over the next couple fo decades from multiple perspectives. It has been shown in a number of studies that the ability to make good trading decisions goes down with age for most people. I

  13. drewburn says:

    Very nice article. Liked it a lot. As for the death of buy & hold, agree. For example, I went into 2000 with no high tech; my little savings banks and utilities did quite well. By 2002, I’d jetisoned all my big cap, especially growth (including Fannie, Citi, Pfizer, J&J & all financials) and made decent money that year. Wish I could say I did it again in 2008, but I didn’t. I’ve owned predominantly natural resources over the past 10 years (which didn’t work, as said, in 2008) but I always shoot of long term gains, even in tax deferred accounts, and have done quite well over the past 12 years. Took a fair amount of risk, some would say, by being very “undiversified,” but it’s worked.

    Again, like this one a lot, Barry.

  14. znmeb says:

    Yes, inflation is dead – unless, of course, you count health care and education costs. Inflation is dead mostly because businesses respond to higher costs by destroying jobs.

  15. znmeb:

    The column bullet point #8 is “What hyperinflation?”
    You are discussing the wrong subject — inflation vs Hyper-inflation

    I was specifically referring to the group of people who have been forecasting hyperinflation for so many consecutive years running.

    Reminders:

    -Inflation was much higher in the 2000s, a period (2001-07) when the dollar lost 41% of its value and Oil & Gold skyrocketed.
    -Health care and Education inflation was significantly higher last decade than this decade
    -Inflation post crisis, in a period of enormous capacity under-utilization has led to this decade showing modest inflation, despite the working of the Fed.

    Be aware of confirmation bias (don’t misread the words in black and white on the page)

  16. Dustin Small says:

    Number seven, the non-death of buy and hold was the most interesting for me. I am purely focused on value when I make my investment decisions, and aim to hold for the long term. You hit the nail completely on the head when you said that “when” the buy and hold starts makes all the difference. Buying and holding during periods of extreme pessimism in the markets is the key to long term success.

  17. [...] 10 significant trends facing the finance industry this year.  (TBP) [...]

  18. perpetual_neophyte says:

    I know you like to kick sand on the hedge fund guys, but I do constantly feel like you are either making a mistake that is beneath you or you are being intentionally disingenuous when you talk about them “getting stomped — they underperformed markets by 15 percent.”

    You know who else got stomped by the S&P 500? Just about any investment portfolio that wasn’t 100% in US large cap equities (or something even “riskier”). Were Bill Gross and Jeff Gundlach overpaid in 2012 because they didn’t put up 15%+ returns in their funds? Was Michael Dellapa ridiculously underpaid in 2012 because he put up almost 30% returns?

    I am not disagreeing that the pay scale is silly. It may or may not be (I tend to think it is, but don’t have enough familiarity with it) but imagine someone trying to claim you overcharged your clients because some “moderate-risk” portfolio didn’t match the S&P 500 in a big year for US equities.