An Insider's View

Epperson

Take heed … but be cautious and consider the source’s motivation

August 21, 2017

Beware! This is the silly season for both economists and stock market mavens. All are seeking a rare opportunity at fame and fortune.

The stock market, at 22,000 on the Dow, is an all time high, which flies in the face of the various market watchers who have claimed we are moments away from a free fall. Many are tempted to time a big report or press release saying, “Today is the peak; the market will fall __% from here.” I saw one just yesterday.

The idea is that if you happen to be the one who is right, you get recognition, television interviews and sponsorships. Hopefully, if you are wrong, it is soon forgotten. Eventually, someone will be right and claim to be a genius.

This economic recovery is getting mature in historical terms. The only longer recovery since World War II was from 1991 to 2000, and we will reach that in less than two years. Some economists are being tempted to call the top of the economy, saying we have peaked and are about to go into a recession. If they are right, they get more money, become a talking head on TV and have some bragging rights.

As with the stock market mavens, we can all come up with lots of stats to prove (or disprove) our position.

The painfully slow growth of this recovery has spawned another economic theory. Some are now saying that the U.S. and maybe the world are in a secular no-growth period thanks to demographics, technology or some sort of cycle of the moon.

Among economists, some study monetary or fiscal policy and imbalances in currencies, inventories or who knows what. Among stock market forecasters, some base their work on fundamentals, i.e. levels of profits, growth by industry and that sort of thing.

But today, many of the institutional money managers rely on technicians who use computers to look at daily volumes and spreads, and use algorithms (not Al Gore-isms, which have to do with weather) that use more variables than anyone can count to pick stocks. I do not understand how this works, but truthfully, no one else does either, including many who use it.

So be cautious about who you listen to and consider what their motivation is. Always good advice. I remember a good friend who began to buy up gold in the 1960s waiting for the dollar to crash. He preached it to everyone. Eventually, he was right, at least about gold prices, but it took more than 30 years to happen.