This Week’s Message: Amateurs, unwittingly, love forecasts…

Janet Yellen’s Jackson Hole speech on Friday essentially
echoed the sentiment I’ve been sharing with regard to the economy of late. That
is, things are indeed improving, but not at some breakneck inflationary pace.
The initial reaction to her commentary was about a 70 point decline in the Dow,
as I type (it’s Friday morning) the Dow’s up 90. Won’t guess where it’ll end
the day, don’t really care actually.
What I do care about are the prospects for earnings going
forward for the many companies whose stocks occupy the mutual and exchange traded funds
that we hold in client accounts. Their share prices will meander all over the
chart while these companies search the world (yes, the world!) for
opportunities to sell their wares. At this juncture, the next recession appears
to be somewhere beyond the foreseeable horizon, at least to my eyes. And being
that emotionally-impacting bear markets tend to need recessions, while
volatility has to pick up going forward, the economy doesn’t suggest that we
should be losing any sleep these days. That said, if you’re our client and you
ever lose sleep over your portfolio — regardless of market conditions — I
demand that you call Gladys the next morning and schedule us a meeting.
As this bull market grows older, out of the woodwork will
come more and more soothsayers and snake-oilers offering up their guaranteed
forecasts on stocks, gold, oil, currencies, etc.
Here’s Alexander Elder in his timeless 1993 book Trading
for a Living
 telling it precisely how it is:

Nature’s Law is the rallying cry of a clutch of mystics who
claim there is a perfect order in the markets (which they’ll reveal to you for
a price). They say that markets move like clockwork in response to immutable
natural laws. R. N. Elliott even titled his last book Nature’s Law.

The
“perfect order” crowd gravitates to astrology, numerology, conspiracy theory,
and other superstitions. Next time someone talks to you about natural order in
the markets, ask him about astrology. He’ll probably jump at the chance to come
out of the closet and talk about the stars.

The believers in perfect order in the markets claim that
tops and bottoms can be predicted far into the future. Amateurs love forecasts,
and mysticism is a great marketing gimmick. It helps sell courses, trading
systems, and newsletters.

Mystics, Random Walk academics, and Efficient Market
theorists have one trait in common. They are equally divorced from the reality
of the markets.

Have a great weekend!

Marty
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