February 11 – A New Kind of Investment Outlook

Asset Class Overview:

European stocks climbed on Tuesday as investors continued to eye talks between Greece and its creditors.  The new Greek government is sticking to its pledge to end some debt-reduction measures demanded by its creditors. Still, many investors believe a deal will be reached and Greece won’t exit the eurozone.

The yield on the benchmark 10-year U.S. government bond rose for a sixth straight session, briefly exceeding 2% for the first time in a month in the latest sign of the broad price swings that are roiling the market. The 10-year yield rose to 2.016% earlier Tuesday and settled at 1.991%. That compared with 1.948% on Monday and a 21-month closing low of 1.669% on Feb 2. The six-day rise marks the longest stretch since June 2013. When yields rise, prices fall.

Crude-oil futures fell more than 5%, to their lowest level in nearly a week as concerns about a persistent supply glut resurfaced ahead of weekly U.S. inventory updates. Light, sweet crude for delivery in March fell $2.84, or 5.4%, to settle at $50.02 a barrel. That was the lowest settlement level since Feb. 4.

Gold prices fell, as investors pushed up yields on U.S. government bonds on expectations that the Federal Reserve would raise interest rates later this year.

The exceptionally strong US dollar continues to meander around its highs:

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Asset Class Overlook Spreadsheet: 

Overview

Sector Watch:

On a nice plus day like today it’s no surprise that only two sector ETFs declined; XLE Spider Energy and XOP Oil and Gas Exploration ETF. On a rolling week basis we have four lower, the same two plus Utilities and healthcare.

SpdrDaily

Also indicative of o good up day 56 of our 79 sector/industry ETFs advanced twice the 24 that declined.  The strength today was in Semiconductors, Biotech, and Technology. Previous leaders attempting to reassert their leadership;

Top 10:

Screen Shot 2015-02-10 at 8.43.54 PMBottom 10 consist mainly of what has been recently strong, i.e. energy and metals

Screen Shot 2015-02-10 at 8.46.11 PMThe question we need to figure out: are the previous leaders reasserting themselves or are we remaining in a sideways take turns marketplace?

A New Kind of Investment Outlook

Long time members are familiar with Robert Seawright of the Above the Market blog. Bob in addition to being a linkedin partner of mine is also the Chief Investment & Information Officer for Madison Avenue Securities, a boutique broker-dealer and investment advisory firm headquartered in San Diego, California.

Allow me to highlight or paraphrase some of the article then link to it below if you are interested in the full text.

2015 Outlook – Forecasting Follies

A famous study by the U.S. Institute of Medicine concluded that up to 100,000 people die each year due to readily preventable medical errors. Since physicians are among the smartest and most highly trained professionals imaginable, being stupid is obviously not a prerequisite for making mistakes, even horrible mistakes.

It’s also easy to prove how error-prone we are in the investment world. Every year I take a look at various predictions for the year that’s ending and they are uniformly lousy in the aggregate. Moreover, when somebody does get one right or almost right, that performance quality is not repeated in subsequent years. Last January, analysts called for far higher oil prices, firmer inflation, a worse jobless rate and higher interest rates. The exact opposite happened in each of those areas.

Alleged experts miss on their forecasts and miss by a lot. Let’s stipulate that these alleged experts are highly educated, vastly experienced, and examine the vagaries of the markets pretty much all day, every day. But it remains a virtual certainty that they will be wrong often and often spectacularly wrong. On account of hindsight bias, we tend to see past events as having been predictable and perhaps inevitable. Accordingly, we think we can extrapolate from them into the future. But the sad fact is that we can’t buy past results.

Alleged experts miss on their forecasts and miss by a lot. Let’s stipulate that these alleged experts are highly educated, vastly experienced, and examine the vagaries of the markets pretty much all day, every day. But it remains a virtual certainty that they will be wrong often and often spectacularly wrong. On account of hindsight bias, we tend to see past events as having been predictable and perhaps inevitable. Accordingly, we think we can extrapolate from them into the future. But the sad fact is that we can’t buy past results. For what it’s worth, individual investors did even worse.

It’s no wonder then that Nassim Taleb tells a sardonic story about forecasting. As the tale goes, a trader listened to the firm’s chief economist provide a forecast about the markets and then lost a bundle acting on it, getting him fired. The trader angrily asked his boss why he was fired rather than the economist, as the economist’s poor forecast led to the poor trade. The boss replied, “You idiot, I’m not firing you for losing money. I’m firing you for listening to the economist.”

The market predictions offered by experts (and others) and the thought processes underlying them can be very entertaining indeed. They are even the engine that drives much of what pretends to be financial and business television. But none of us should take them seriously. Doing so would be very dangerous indeed. Based upon the historical record (and the 2014 record!), it’s a good thing that so few bother to hold people accountable for their forecasts. The bottom line here is that anyone who thinks it’s possible to predict the future in the markets ought to think again. Your crystal ball does not work any better than anyone else’s…

As Charley Ellis famously established, investing is a loser’s game much of the time, with outcomes dominated by luck rather than skill and high transaction costs. Thus if we avoid mistakes we will generally win. As Phil Birnbaum brilliantly suggests in Slate, not being stupid matters demonstrably more than being smart when, as in investing, a combination of luck and skill determines success. “You gain more by not being stupid than you do by being smart. Smart gets neutralized by other smart people. Stupid does not.”

Let’s look at the mistakes that so routinely undermine us and make our investment choices and outcomes so disappointing. Most investment outlooks offer a list of favored investments for the coming year. Instead, here is a different sort of “top ten” list of interrelated investment insights and recommendations – mistakes that are both common and deadly – for us to try to correct for 2015 and beyond.

1. We don’t prioritize properly in financial planning.

2. We complicate things unnecessarily.

3. We don’t invest.

4. We don’t stay invested.

5. We don’t diversify.

6. We value investment choices over asset allocation.

7. We try to time the market.

8. We fail to consider costs.

9. We fail to consider incentives.

10. We try to go it alone.

Read the full Text: A New Kind of Investment Outlook

Is it any wonder I use following techniques as opposed to predictive ones  😎

Economic Reports and Earnings:



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