Morning Note: It’s HOW we think that matters…

Keeping this morning’s note quick (our weekly “main message” coming later today), I’ll update yesterday’s charts of the day (although I’ll use Nasdaq futures this time to catch the pre-market action) to give you a feel of how traders are positioning ahead of today’s Fed policy announcement.

In a nutshell, bonds have calmed down a bit.

10-year treasury yield, yesterday and today:

Nasdaq 100 future contract, yesterday and today:

U.S. Dollar Index, yesterday and today:

So, bond and equity traders are more or less sitting tight. The dollar, however, is discounting (albeit slightly) perhaps a hint from J. Powell that the fed may indeed be thinking about one day thinking about raising rates — or slowing down asset purchases — or doing something other than flooding the world with excess liquidity that’ll keep asset bubbles afloat and inflation risk abounding…

Asian equities leaned green overnight, with 13 of the 16 markets we track closing higher.

Europe’s mostly higher so far this morning, with 13 of the 19 bourses we follow in the green as I type.

U.S. major averages are mixed: Dow down 128 points (0.38%), SP500 up 0.16%, SP500 Equal Weight up 0.14%, Nasdaq 100 down 0.07%, Nasdaq Comp down 0.04%, Russell 2000 down 0.19%. 

Oil futures are up 1.26%, gold’s down 0.18%, silver’s down 1.23%, copper futures are down 0.67% and the ag complex is down 0.81%.

The 10-year treasury is down (yield up) and the dollar is up 0.07%.

Led by oil services stocks, energy stocks, India, AT&T, and uranium miners — but dragged by solar stocks, MP (rare earth minerals), silver, wind stocks and tech stocks — our core portfolio is up 0.18% to start the day.

In Superforecasting, The Art and Science of Predicting (about to become required reading for all PWA staff), Dan Gardner and Philip Tetlock share the results of their mission to locate the world’s best forecasters, and to identify what makes them the best.

Here are some telling snippets:   emphasis mine…
“…there were two statistically distinguishable groups of experts. The first failed to do better than random guessing, and in their longer-range forecasts even managed to lose to the chimp. The second group beat the chimp, though not by a wide margin, and they still had plenty of reason to be humble. Indeed, they only barely beat simple algorithms like “always predict no change” or “predict the recent rate of change.” Still, however modest their foresight was, they had some.
So why did one group do better than the other? It wasn’t whether they had PhDs or access to classified information. Nor was it what they thought—whether they were liberals or conservatives, optimists or pessimists. The critical factor was how they thought.”

One group tended to organize their thinking around Big Ideas, although they didn’t agree on which Big Ideas were true or false. Some were environmental doomsters (“We’re running out of everything”); others were cornucopian boomsters (“We can find cost-effective substitutes for everything”). Some were socialists (who favored state control of the commanding heights of the economy); others were free-market fundamentalists (who wanted to minimize regulation). As ideologically diverse as they were, they were united by the fact that their thinking was so ideological. They sought to squeeze complex problems into the preferred cause-effect templates and treated what did not fit as irrelevant distractions.”

“The other group consisted of more pragmatic experts who drew on many analytical tools, with the choice of tool hinging on the particular problem they faced. These experts gathered as much information from as many sources as they could. When thinking, they often shifted mental gears, sprinkling their speech with transition markers such as “however,” “but,” “although,” and “on the other hand.” They talked about possibilities and probabilities, not certainties. And while no one likes to say “I was wrong,” these experts more readily admitted it and changed their minds.”

Bottom line, forecasting is hard — and while you hear me say “this is not a prediction” ad nauseam — indeed all of us are forever to some degree forecasting. Even if we couch it as “assessing probabilities.” 

The ultimate key to doing it well — which in my view is consistently taking thoughtful, heavily-researched, well-calculated shots — is to NEVER invest your ego in your assessments!

Have a great day!

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