Posts filed under “Finance”
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:
10 trends to watch in ﬁnance for 2013
Washington Post January 12 2012
We are looking for a personable administrative assistant to replace current job holder (who has to return to Switzerland). The position covers all aspects of assisting executives, from correspondence to calendar to phones, including the occasional Starbucks run. Skills required: Word Press, Excel, Word are all must haves. Understanding back office transactions for wealth management…Read More
Among the exercises I occasionally undertake is to dig into the history books and see, in retrospect, how things have played out relative to what the punditocracy had proclaimed (works with punditry on politics, markets, economics, sports, etc.) . With Barron’s releasing its semi-annual “big money” survey, there’s really no better opportunity to page back through history. As we went through the worst economic near-collapse in generations, I always find it most instructive to start my analysis in the summer/fall of 2007 and take it from there. (I will never, ever forget attending a very small dinner on the evening of October 2, 2007 (at Casa Lever, then Lever House), at which David Rosenberg was the speaker. He laid out his assessment of what was happening – and what was going to happen – in the economy, and the group of 12 or so (most unfamiliar with his work or world view) looked at him as if he were a Klingon. Total disbelief. The S&P500 peaked one week later to the day – October 9, 2007.)
The current big money poll (Reason To Cheer), brings us this (S&P500 = ~1380):
America’s portfolio managers see more gains for stocks in our latest Big Money poll. They are wary of bonds, hopeful about the economy and predict that President Obama will be re-elected.
On that note, let’s have a look at where the Barron’s big money participants stood in early November 2007 (S&P500 = ~1520):
Although U.S. money managers are less optimistic than in the spring, bulls still outnumber bears by more than 2-to-1. Some even say the Dow will top 16,000 by mid-2008. Insights into bonds, politics, the Fed and more.
Can you see where this is going? We were on the cusp of the worst recession in 70+ years and a market that would lose 50+ percent peak-to-trough. The writing was on the wall in a huge, bold font.
That article contained this graphic:
Suffice to say that following the Barron’s big money poll in November 2007 was a money-loser.
Fast forward to April 2008 (S&P500 = ~1400)
The professional investors surveyed in our latest Big Money Poll are getting set to jump back into stocks. What they like, and why.
That poll contained this graphic:
Moving on to November 2008, the Barron’s big money poll was titled A Sunnier Season, and teased with this (S&P500 = ~970):
Barron’s latest Big Money poll reveals unrelenting bullishness among many money managers, despite their pronostications [sic] for a “contagious” recession and punk profits through 2009.
The article contained this gem: “The managers also cast their votes for BlackBerry maker Research in Motion (RIMM), whose shares have been decimated this year…” RIMM was mid-50s at the time.
In April 2009, when it was, literally, time to margin your account to the hilt and throw it all into equities, the Barron’s big money participants were cautious (S&P500 = ~855):
The pros in our latest Big Money poll say they’re bullish or very bullish about the stock market. But they have good reason not to jump in with both feet yet.
They were, of course, wary at exactly the wrong time:
For one, just 56% of today’s poll participants think the stock market is undervalued, down from 62% last fall. Thirteen percent say stocks are overvalued, up from a prior 7%. And an alarming 58% say the market hasn’t bottomed yet, even though the Dow Jones industrials hit a low of 6469 in March, before recovering to a recent 8100.
The bear market had clearly taken its toll on the psyche of the managers who participated:
In November 2009, Barron’s titled its big money poll Treading Carefully, and teased with this (S&P500 = ~1050):
The bull is still in charge, say America’s money managers in our latest Big Money Poll. But it pays to be cautious, as bargains are getting harder to find. The case for Microsoft.
April 2010 brought Be Very Careful (S&P500 = ~1190):
The bulls in our Big Money poll pulled in their horns a bit and see only tepid gains for stocks between now and year’s end. Stay away from bonds.
The S&P500 closed the year at 1257, up an admittedly “tepid” 5.6% on a price-only basis. The 10-year US Treasury went from about 3.80 to end the year at about 3.31 after hitting about 2.40 in October and then selling off – there was no reason to “stay away” from them.
November 201o brought us Bears, Beware! (S&P500 = ~1190)
America’s money managers say stocks are cheap and the economy will keep growing. Why they’re bullish on tech, bearish on Congress.
The November 2010 poll showed continued caution regarding the bond market, and offered up another majority opinion about a “bond bubble” which has yet to materialize (count me among those who’s not been in the bubble camp):
On we go to April 2011, in which the big money poll was titled Watch Your Step (S&P500 = ~1340):
America’s money managers are bullish in Barron’s latest Big Money poll, but picking their spots with care. The crowd is seeking safety in big, defensive stocks.
The financial services industry is in flux. Traditional investing beliefs have become discredited, challenged by experience, factually disproven by data-driven analyses. No, the markets are not efficient; No, human are not rational economic players; No, Buy & Hold is not a successful strategy, nor is frenetic day trading. The big wire houses are still reeling…Read More
Steve Waldman was a software developer who became fascinated by finance and started writing about it. He is now a doctoral student in finance at the University of Kentucky. He blogs at Interfluidity. ~~~ Lisa Pollack at FT Alphaville mulls a question: “Why are we so good at creating complexity in finance?” The answer she…Read More
Our quote of the day comes from an article in this Sunday’s NYT magazine, Don’t Blink! The Hazards of Confidence by Daniel Kahneman: “The illusion of skill is not only an individual aberration; it is deeply ingrained in the culture of the [financial] industry. Facts that challenge such basic assumptions — and thereby threaten people’s…Read More
The Fed released its G.19 report on Consumer Credit last Thursday, and it stirred some optimism (see also here): The new U.S. consumer credit numbers reflect an economy that is reaccelerating, and that is very bullish for growth — as well as inflation. All in all, U.S. household credit surged by $7.62 billion in February,…Read More