No, this isn’t a commentary about putting your phone away and turning off the TV so you can spend quality time with your family by being truly present. Look, if you get knee-deep in a bottle of bourbon to make it through the holidays, who am I to judge? My Uncle Paul used to say that drinking heavily doesn’t just make women prettier, it makes family tolerable.
Well said, Uncle Paul, well said.
This commentary is about spending your time and resources to better understand what is happening right now, rather than relying on forecasts to manage your portfolio.
Just like Captain Prediction from last week, Wall Street research is also in the business of telling you what’s going to happen months in the future. As you’ll see, using Wall Street forecasts to make investment decisions is about as effective as using a Magic 8-Ball.
Cannot Predict Now
Even with the sophistication and technology in meteorology these days, weather patterns can’t be accurately predicted further out than 72 hours. I’d say getting it right the next day is a stretch.
If weather patterns can’t be accurately predicted, does it make sense that anyone can accurately predict what will occur in a system as vast and complex as the global economy months ahead of time?
At their core, economics and markets are the study of human action, which is highly subjective and can’t be accurately reduced to computer models. There is absolutely no way to accurately predict economic and market developments that are influenced by an infinite number of factors.
Most investors have limited insight into what’s really happening in terms of fundamentals. What’s more, any intelligence that could be behind their decisions is often obscured by their emotions.
The fundamental gravity of a given economy should dictate an investor’s behavior, not the actions of others. If you follow the investing herd, which determines market price movement, you cannot earn superior returns.
But this reality hasn’t stopped Wall Street firms from publishing their top trade recommendations for next year during the stretch of time between Thanksgiving and Christmas. These research reports attempt to predict economic activity and the direction of asset prices months into the future, with the key word being “attempt.”
Looking at Goldman Sachs’ top six trade recommendations for 2017, their number one trade idea is to be LONG the U.S. dollar. What I find interesting is that another of their top trade recommendations is to be LONG emerging market equities; specifically, they like Brazil.
So out of one side of their mouths they suggest the USD will continue to strengthen from here, and out of the other side they’re saying get LONG a market that will be severely hampered by a strong greenback.
Sounds to me like they are hedging their bets so that either way they can come back next year and say, “Look how accurate our crystal ball was last year!”