The Long Term Investor

The FEAR MONGERING media and others continue to throw everything against the wall hoping that something will spook the markets. The interest rate inversion, China, and now WAR with Iraq. NOT going to happen, and if it did we would crush them in a matter of days. The outcome would simply be like Iraq, Grenada, Panama, etc, etc. This is just another in a long line of fear mongering stories that is being trotted out in the financial media. The GOOD NEWS, none of them seem to have any impact or legs when it comes to the economy.

US consumer sentiment surges to highest level in 15 years

https://www.cnbc.com/2019/05/17/consumer-sentiment-may-2019-preliminary.html

(BOLD is my opinion and what I believe is important content)

"Consumer sentiment rocketed to its highest level in 15 years in early May as Americans grew more upbeat on the health of the economy and its path in 2019, according to data released Friday.

The University of Michigan’s preliminary print on its consumer sentiment index rose to 102.4, up from 97.2 in April and well ahead of economist expectations of 97.5.

“Consumers viewed prospects for the overall economy much more favorably, with the economic outlook for the near and longer term reaching their highest levels since 2004,” said Richard Curtin, chief economist for the Surveys of Consumers. “To be sure, negative references to tariffs rose in the past week and are likely to rise further in late May and June.”

The optimistic consumer outlook was mostly recorded before U.S.-China trade deliberations soured earlier this month.

Last week, the Trump administration raised tariffs to 25% from 10% on $200 billion worth of Chinese goods in response to Beijing’s attempts to renegotiate a trade agreement between the world’s two largest economies. China then responded in kind, bumping taxes on $60 billion worth of U.S. goods in retaliation.

Aggravated trade tensions between the U.S. and China could dampen consumer sentiment going forward, Curtin said, and will likely weigh on subsequent reports in May and June.

“Even apart from the direct impact of tariffs on prices, rising tariffs could cause a more general loss of confidence which could further diminish the pace of consumer spending,” Curtin wrote. “At present, the data point toward moderate spending growth in the year ahead. Nonetheless, the data indicate the corrosive impact of an escalating trade war.”"

MY COMMENT

MORE good news for the general economy. AS USUAL the data comes in better than the economic geniuses predicted........DUH. As to the closing shot in this article, the opinion (wishful thinking?) as to the China talks causing a loss of confidence........my off the cuff reaction is....BALONEY. I dont see or hear any "regular" person that cares in the slightest about the China trade talks. In fact I am hearing more and more people starting to turn against China, even if it caused us some slight economic pain. In my opinion the chance of this China stuff having some real impact on us or our businesses is.......ZERO. The only way this could have any impact is if WE allow it to become a self fulfilling prophesy, not based on reality, but based on fear.

As to China, at this point, I believe it is clear from their actions that they have no intention of making a deal on trade before the election. They have strung it along this far to hold of tariffs as long as possible. Now they will put up with the pain for a while to hope for a change in the presidency and a reversion back to the old policy of allowing China to do whatever they wish. Two exceptions to this opinion. First one is if WE cave. Second one is if their economy TANKS big time.

 

ALL Americans, especially investors, should be lamenting the rapid destruction we have seen in the honesty and factual reporting on the part of the media over the past 2-10 years. The press has always been biased one way or another for centuries if you look back on our history. What has changed now is the COMPLETE absence of factual reporting. Simple opinion on the part of the writer of the story has now been totally substituted for factual reporting. This is a BIG issue when it comes to financial reporting and investment reporting. This is also a BIG issue when it comes to the education of the younger generations and the continuance of our economic system.

This article has a lot of good factual information, I present it for the economic content, not for political purposes.

(Bold is my opinion and what I consider important content)

The Booming Jobs Market Mystifies the Press, When They Notice It At All

https://issuesinsights.com/2019/05/...stifies-the-press-when-they-notice-it-at-all/

"‘These are prosperous times in America.”

If that sounds like pro-Trump propaganda, that’s because it’s rarely uttered by anyone who isn’t already a supporter of the current president.

But that’s how National Public Radio, to its credit, began a story about the incredible jobs boom underway right now in a segment called “America Is In Full Employment, So Why Aren’t We Celebrating?”

“Why doesn’t today’s full employment come with effervescence?” reporters Pallavi Gogoi and Scott Horsley ask.

But while the reporters do a good job of describing the widespread benefits of the current economy, they also manage, in asking that question, to expose the extreme bias at work among the overwhelming majority of their colleagues in the press.

“Unemployment has reached a nearly 50-year low. The jobless rate for Hispanics has never been lower; the past two years have been the best job market ever for African Americans. Wages are starting to rise — and, more significantly, for the lowest-paid workers. That may not endure, but it’s a reversal of the long-term trend where the most highly paid workers were also the best rewarded. The job market today is so hot that groups that were sort of on the margins also are finding opportunities — including people with disabilities or a prison record.”

Did you get all that? Wages are rising for the lowest-paid workers. Minority groups have never had it so good. People at the margins are getting pulled back into the labor market.

So why, they ask, is the country “not quite exuding the self-possession or excitement that should accompany these exceptional times.”

First of all, that claim that nobody is celebrating the current economy is wrong. Every measure of consumer confidence and optimism is up. In some cases, way up.

Just this month, the IBD/TIPP Economic Optimism Index hit a 15-year high of 58.6 — anything over 50 signals optimism. By contrast, this index averaged below 50 for President Obama’s entire eight years in office.

The University of Michigan’s Consumer Sentiment Index also hit a 15-year high in its latest rating.

The Conference Board’s Consumer Confidence Index, which was 98.6 the month before the 2016 presidential election, is now at 129.2. The index was 100 in 1985, when the economy was in the middle of the Reagan boom.

Measures of business confidence are high, as is the biggest measure of confidence around — the stock market.

The fact that the NPR reporters aren’t aware of this shift in confidence says more about the bubble they live in than what is actually happening in the country.

Inside this bubble, it’s all doom and gloom, anger and frustration, and an absolute fixation on driving President Trump from office. The idea that people are happy is alien because, inside the bubble, nobody is. The closest they get is to say that “anger over politics may be skewing views of the economy.”

That is why, in detailing the “exceptional times” we live in today, the NPR reporters never once mention what has contributed significantly to bringing them about. Namely, President Trump’s economic policies of tax cuts and deregulation.

Nor do they cast an eye on their own profession. If there’s not dancing in the streets, it’s because the mainstream press refuses to cover the economy. Or if they do, they fixate on the negative.

This bias isn’t new, by the way. In the early 1990s, coverage of the economy suddenly turned overwhelmingly positive in 1993. That, of course, was the year control of the White House shifted from Republican to Democratic hands.

Throughout President Obama’s eight years, reporters tried desperately to put a happy face on a gloomy and historically anemic economic recovery.

Of course, Trump is often his own worst enemy when it comes to championing the growth on his watch by drawing attention to other matters. Then again, when he does boast about the economy, the press either ignore it entirely, or pick at nits.

If you want to fully understand incredible bias at work, try to imagine how today’s economy would be covered under a Democrat. It would be a constant media celebration. Proof that Democratic policies work to lift all boats. Etc.

The only reason there is no joy in the journalist equivalent of Mudville today is because Trump didn’t strike out.

MY COMMENT

The current trend of the press, TOTALLY ignoring or twisting important and positive economic and investing news, should be a concern to EVERYONE. If we get to the point that investors and others can not trust the media there will be NO factual basis to what anyone is doing with their investing. It has been bad enough historically as investors fall for trends and fads that are foolish and lead to poor returns. It has been bad enough that the average investor fails to achieve anywhere near average returns due to fear and panic behavior. We are on the early leading edge of a NEW AGE of PROPAGANDA in every form of media. Computers, the internet, and technology including social media, is the obvious cause. It will be interesting over time to see how this all plays out for the public, investors, and our economic system which is much more fragile than people realize. One or two generations of voters will have the ability to put into place a totally foreign economic system depending on who they vote for. I have said it in the past and will say it again.....once our capitalistic, corporate, private business model of economics is gone it will in all likelihood be gone for good.

 

I have been DISTRACTED from my investment reading and focus lately. A few months ago we made a plan to downsize our home from about 5000 sqft to a single story of about 3800 sqft. We figured that it would take between 2 and 5 years for a home to come available in our area that meets our very specific design and quality criteria. In our general target area there are about 4500 homes of which about 15-20 meet what we are looking for.

Of course, just a week before we were going on vacation, and two years early, one of the top homes on our wish list suddenly had a coming soon sign on it. So I spent many nights of the vacation communicating from out of the country with our realtor. The end result, we ended up under contract on a home. The whole process was about three weeks total from seeing the sign to owning. We bought the house while it was "coming soon", it never got active as a listing. Because we were an all cash deal, the closing was 5 days after we returned from our trip.

So, we went from planing to downsize in 2 to 5 years to owning a new home in the span of about 3 weeks. Of course, we now own two homes and are pushing to get the "old" home ready and on the market, as well as packing up to move and stage the "old" house. So, my days are filled with being a general contractor for all the little jobs that need to be done to get the house in tip-top condition, lining up all the various trades to make our changes to the new home, and pushing to get the "old" house actively listed by the first of July. Great fun.

At least the markets have been kind to me by being stuck in a fairly narrow trading range for the past months. In the old days I might call what we are seeing lately a market that is building a base. AT LEAST, there seems to be pretty good resistance to a move down in the general markets at the moment. Personally, I would be content if the markets hang in there and end the year with the gains we see right now. I will take 10-15% gain in a year any time. AND......at least as a long term investor that is always fully invested, I don't have to actively do anything in terms of my portfolio while my attention is on moving and getting rid of one of two houses. That to me is one of the GIANT benefits of being a LONG TERM INVESTOR. When one is preoccupied with other life events, it is not a problem to simply ignore the stock markets and take care of other business. My portfolio will take care of itself for a while. In an ideal world, we will get the house listed by about July 1 and sold by Sept 1. I HATE owning two houses. BUT, that is reality for us right now. We have done this a couple of times in the past. The worst was a situation where it took over a year to sell and get back to owning only one home.

 

HERE is the BIG KAHUNA for stock investors........the FED. Looks like rates will be stable for some time. In fact, the way things are going at the moment, and if the economy continues as it is, I would not be surprised to see no rate increases in 2019 or 2020.


Fed Minutes Signal Patience on Rate Moves for 'Some Time'

https://www.newsmax.com/finance/streettalk/fed-rate-balance-sheet/2019/05/22/id/917168/

(BOLD is my opinion and what I consider important content)

"U.S. Federal Reserve officials at their last meeting agreed that their current patient approach to setting monetary policy could remain in place “for some time,” a further sign policymakers see little need to change rates in either direction.

According to minutes of the Fed's April 30-May 1 meeting released on Wednesday, officials also delved deep into the mechanics of how they could best structure their holdings of several trillion dollars of securities to battle a future economic downturn.

They quickly hit a dilemma as they discussed what could be a several years plan to structure perhaps $3.5 to $4 trillion of assets to either reflect existing market holdings of U.S. Treasuries, or to be focused on shorter-term maturities.

“Many participants” said they thought it might help for the Fed to gradually load up on short-term securities now, so that they could be traded for longer-term securities and bring down long-term rates as a way to better stimulate the economy if needed in the future.

However, staff presentations noted that would come at the potential cost of higher longer-term rates now, “and imply that the path of the federal funds rate would need to be correspondingly lower to achieve the same macroeconomic outcomes.” In the scenarios being discussed that would, ironically, mean the Fed would have less room to cut rates in a crisis - and be more likely to have to rely on its balance sheet tools to boost the economy.

No decisions were made.

Yields on U.S. Treasury securities briefly rose following the release of the minutes while U.S. equity prices fell. The dollar pared losses against a basket of currencies.


NO NEED TO RUSH

A number of Fed policymakers in recent weeks have said the Fed need not rush any changes in its rate policy.

Earlier on Wednesday, New York Fed President John Williams said at a press briefing that there is not currently a strong argument for changing rates.

The Fed’s last meeting came before the Trump administration increased tariffs on Chinese goods and intensified global trade tensions further with restrictions on Chinese telecom giant Huawei.

At that point, with U.S. growth continuing, inflation “muted,” and some global risks appearing to have eased, “members observed that a patient approach...would likely remain appropriate for some time...even if global economic and financial conditions continued to improve.”


While “a few” participants warned of inflation risks and a possible need for higher rates, and “several” warned inflation could weaken, minutes of the policy meeting reflected a committee poised to bide its time until economic data shift convincingly in one direction or the other. The committee held its target interest rate steady at that meeting in a range of between 2.25 and 2.5 percent

Consistent with Fed Chair Jerome Powell’s press conference after the meeting, participants observed “at least part of the recent softness in inflation could be attributed to idiosyncratic factors.”

Meanwhile, the U.S. economy should grow at a solid 2.25-2.50% rate this year, with inflation moving up to the Federal Reserve’s target, putting rates in the right place, a top Fed official said on Wednesday.

Dallas Federal Reserve Bank President Robert Kaplan told the Fox Business Network that it was too soon to say what effects U.S. tariffs on Chinese imports would do to the country’s currency or inflation rate.

Kaplan told the television network that he wants to be patient on rates and avoid policies that might create excesses or imbalances in the U.S. economy.

Earlier Kaplan also said U.S. bond markets are “flirting” with a yield curve inversion that could signal slower economic growth ahead.

The current flat yield curve, where long-term borrowing costs are only slightly higher than short-term borrowing costs, suggests that “unless we make changes, we’re going to have sluggish future growth; trade tensions are part of creating this flattening,” Kaplan said at a conference at the Dallas Fed. “An inversion for me has to be of some size and of some duration and at the moment we don’t have either, but I’m watching carefully.”"

MY COMMENT

DUH..........there is absolutely NO reason to talk about raising rates. I love the statement that "recent softness in inflation could be attributed to idiosyncratic factors.” Do you know what idiosyncratic factors means? In this case it probably means peculiar, or quirky. In a medical sense it often means "unknown". The conclusion to draw from this statement is that the FED is saying........"WTF, how in the hell do I know". They, being inflation fighters on a massive scale, even when there is NO inflation, dont have the slightest idea of what is happening in the economy and the world to cause this deflationary environment. At least someone had the brains to stop the rate increases before their actions kicked the economy to the curb and into recession. In any event GOOD NEWS for stock investors, although the markets have probably discounted this information at this point.

 

NEEDLESS to say, I am in COMPLETE AGREEMENT with the article below. No need for me to say much since the article, as well as most of the research, is a BLISTERING indictment of Technical Analysis.

(BOLD is my opinion and what I consider important content)

Technical analysis in major brokerages and financial media

https://mathinvestor.org/2019/05/technical-analysis-in-major-brokerages-and-financial-media/

"Suppose, in the weather forecast part of a local newscast, the person handling the weather displays a chart of recent temperatures in the local area, points out “trends” and “waves,” then mentions a “breakout pattern” from a recent temperature range. Most of us would not have much confidence in such a dubious and unorthodox forecast, and, if followed (e.g., for a major storm), could have serious consequences.


Or suppose, when one’s electrocardiogram is taken at a clinic, that the attending physician makes some measurements by hand between some events on the graph and notes a “Fibonacci ratio” between them [the “Fibonacci ratio,” also known as the “golden ratio,” usually denotes either the value (sqrt (5) + 1)/2 = 1.6180339… or its reciprocal, namely (sqrt(5) – 1)/2 = 0.6180339…]. Or suppose that after reviewing one’s historical record of pulse and blood pressure measurements that the physician noted a “triangle pattern” in the data. If such were to happen, a patient would be entirely justified to discontinue seeing this physician.


The reason that scenarios such as this do not happen in most scientific disciplines and professions is because in recent years most fields have significantly upgraded their prevailing standards for data analysis. Typical of these upgraded standards is this statement by the American Statistical Association on the usage of p-values and significance statistics. This statement takes aim at “p-hacking,” namely the ethically questionable practice of testing numerous hypotheses on a single set of data until one finds a hypothesis that is confirmed to, say, the level p = 0.05. See this Mathematical Investor blog: P-hacking and backtest overfitting and this Math Scholar blog: P-hacking and scientific reproducibility for additional details.


Technical analysis in major brokerages and financial media

So what is one to think about the numerous major brokerages and financial media outlets who continue to promote technical analysis, including “trends,” “waves,” “breakout patterns,” “triangle patterns” and “Fibonacci ratios”? In a previous Mathematical Investor blog The most important plot in finance, we mentioned some of these organizations. Here are some more details, with updates:

1. Charles Schwab represents technical analysis as an indispensable tool for active traders here and here. At the first URL, for instance, one reads
   This chart shows five short trends higher and five short trends lower. Notice that as price declines, volume rises and as price rises, volume declines. This is exactly the opposite of what a trader would want to see in a rising or “bull” market and typical of a falling or “bear” market. … In this type of situation, consider using tighter-than-normal stop-loss orders to protect capital and/or profits against the possible resumption of the longer-term downtrend…
2. Merrill Lynch offers a Market Analysis Technical Handbook. Among the chapter headings are “Price Momentum Indicators,” “Support and Resistance,” and “The Fibonacci Concept.” Yes, one chapter is devoted to the “Fibonacci concept.”
3. Some Bank of America / Merrill Lynch analysts utilize technical analysis, for instance here. Note that this analyst cites a “double breakout” pattern, which led him to believe that the bond market would soon rally.
4. Fidelity considers technical analysis an appropriate technique for both individual and professional traders, as shown here and here. At the latter URL one reads that their Technical Indicator Guide “can help you identify possible entry and exit points for trades and may help you achieve your investing goals.”
5. E-Trade offers an introduction to technical analysis here. In this introduction, one learns that technical analysis is built on several assumptions, two of which are “stock prices tend to move in trends” and “history repeats in the stock market.”
6. Barrons explains here why they believe technical analysis matters:
   f a stock is rising and then starts to move sideways as bulls and bears become uncertain as to what to do next, a coiling pattern appears on the chart as price swings in both directions diminish. … Chart watchers wait for prices to move above the upper border of the triangle and then buy the stock because the odds favor further gains.
   
   [*]The Wall Street Journal lists numerous articles on technical analysis here. In this article one reads “Stocks can’t rise forever, but the bad news for bears is that few clear ‘sell’ signals have materialized, technicians say.”
   [*]Bloomberg offers a blog dedicated to technical analysis here. This blog quotes an analyst as saying that the best definition for technical analysis is “using technology to improve investment results.”
   [*]MarketWatch.com offers a blog with a promotion of technical analysis tools here:
   Using candlestick charts and proprietary tools, [the toolkit] establishes near-term market bias and identifies patterns, trends, support and resistance levels, moving averages, attractive entry and exit points, buying opportunities and more.
   
   [*]The Market Realist recommends technical analysis and Elliott wave theory as investment tools here. It explains:
   In the beginning of the corrective phase, it’s difficult to predict that the market trend has stopped. The stock price starts dropping due to correction. This phase is called wave A. In wave B, the stock price increases on the anticipation that the long uptrend is still there. Wave C is formed when stock market news is negative and a downtrend is confirmed.
   

Why technical analysis doesn’t work

In some previous Mathematical Investor blogs, we have cited several reasons why technical analysis does not work and cannot be expected to work. Here is a summary:

1. 
   
   
   • Disagreements. One difficulty is that there is no clear, publicly acknowledged consensus within the technical analysis community as to what constitutes an actionable pattern, particularly when chart readings and interpretation rules are themselves vague and ambiguous.
   • Research studies by the present authors. One of the present authors and colleagues recently completed the study Evaluation and ranking of market forecasters, which analyzed the records of 68 market forecasters, based on data earlier collected by CXO Advisory, and employing a novel weighting scheme that took into account how specific the forecasts were. Among these 68 forecasters were 27 who acknowledge using technical analysts as a significant part of their analysis. So how well did these 27 technical analysts do? Their average precision score was 44.1% — in other words, less than even chance. In fact, this average score was slightly less than the average of all 68 forecasters in our study. In short, there is no evidence whatsoever in this data that technical analysis is effective in predicting markets. If anything, our results must be on the optimistic side, because of the well-known survivorship bias phenomenon — very likely numerous unsuccessful technical analysis practitioners have dropped out of the business, and thus are absent from our tables.
   • Research studies by other analysts. We are hardly alone in concluding that technical analysis does not work. Market analyst Laszlo Birinyi, for instance, interviewed in the book The Heretics of Finance, declared, rather bluntly, “The truth is technical analysis doesn’t work in the market.”
   • Multiple testing errors and cherry picking biases. Technical analysts can cite some successes, but statistically speaking, how “real” are these? As we showed in the earlier Mathematical Investor blog The most important plot in finance, many of these claims fall prey to multiple testing errors and cherry picking biases. And as we mentioned in the introduction above, the American Statistical Association recently released a statement condemning “p-hacking,” which is exactly the same practice — trying numerous hypotheses, or searching thousands or millions of possibilities on a computer, and only highlighting or publishing the one or a handful of cases that look the best. This is the essence of backtest overfitting in finance, which sadly afflicts many arenas of the field — see P-hacking and backtest overfitting.
   • Fundamental considerations of the operation of markets. Numerous quant funds and other organizations at the forefront of modern quantitative finance employ highly sophisticated mathematical algorithms (much, much more sophisticated and extensive than anything ever used in the technical analysis world), with huge dynamic datasets, implemented on state-of-the-art large-scale computer equipment, and trading at millisecond and even microsecond levels. What’s more, increasingly these are the only organizations that consistently make money — see, for instance, Majority of highest-earning hedge fund managers and traders are at quant firms. Furthermore, these programs are engaged in a very real “arms race,” because any strategy that works is quickly mimicked by other programs from other organizations, so that any “edge” evaporates rather rapidly. Indeed, this “war” partly explains why the resulting market price stream is almost entirely a random walk. So those who promote technical analysis would have us believe that the many highly trained mathematicians and their highly sophisticated computer programs have all somehow missed a few simple, elementary schemes that anyone armed with a laptop, a plotting program and a handful of simple tools can routinely take advantage of to produce reliable above-market-average profits. Obviously there cannot be any such trivial schemes.

Why this matters

The technical analysis community certainly has command of the financial news world — it is hard to read any online financial news source without seeing at least some articles of this genre. More importantly, many individual investors, pension funds, mutual funds and other organizations routinely use technical analysis methods in their market analysis and decision making. As the quotes in the brokerage/media section above declare, technical analysis is “using technology to improve investment results,” and “can help you identify possible entry and exit points for trades and may help you achieve your investing goals.”


And therein lies the problem. Hundreds of thousands or more of investors, both individual and professional, have been firmly convinced that technical analysis is how the “smart” investor wins in the market.


As one of us wrote in this Forbes interview, “[Technical analysis strategies] encourage traders and investors to put their money to work, while offering guidance with no objective information value.” If similarly ineffective data analysis techniques were employed in the medical or pharmaceutical world, lawsuits would be lodged.


What’s more, as the quote about “entry and exit points” makes clear, market timing is central to using technical analysis methods. But the overwhelming consensus of professional analysts is that market timing is a VERY BAD STRATEGY, especially for individual investors with retirement accounts. In addition to the extra fees paid, in all too many cases investors sell out significant portions of their portfolio in a panic just before or after the market prices hit bottom, only then to miss a substantial rebound. For example, a financial advisor known to one of the present authors reports that at least one client who exited the market at the wrong time in the wake of the 2008-2009 downturn never recovered his/her previous level of capital. Other clients have been convinced to go “all in” during market highs, and yet have been reluctant to buy during market lows.


Such failures of market timing are multiplied by the thousands and tens of thousands in the investment world, and account for a significant fraction of the chronic poor performance of individual investors in particular — see these Mathematical Investor blogs: Poor investor performance: What can be done? and The folly of panic selling.


Hope on the horizon

There is some hope on the horizon. The success of state-of-the-art quantitative finance and machine learning methods is now more widely recognized in the field, and there are some indications that even the technical analysis community is starting to explore some of these more advanced schemes. Analysts with real-world quant and machine learning skills are in high demand — see What is the best training for finance PhDs. Along this line, a colleague of one of the present authors notes:


At one time, when I started doing recruitment at [a hedge fund], it was common — and acceptable — for candidates to tout their technical analysis skills. Now, at the various firms where I have worked, that would pretty well disqualify them on the spot. When I recently spoke to a national group of active investment managers, I saw a similar shift in a constructive direction.


But it is also important, just for the credibility of the mathematical finance field, that more of us are willing to declare “the emperor has no clothes” when we see material advocating techniques that are clearly ineffective and/or out of date. As one of us and colleagues explained in a 2014 paper, Our silence is consent, making us accomplices in these abuses.""

MY COMMENT

The ENTIRE article is cited in BOLD since I believe this is a very important issue. The academic research does not support any validity to Technical Analysis. Yet, humans with their craving for order, complexity, and systems are tricked by their brain and genetics into believing that this STUFF works. Take something like this and make it look complex, make it sound like math, make it look scientific with all sorts of charts and obscure rules and language, etc, etc, etc, and BINGO you have a perfect TRAP for the human brain. Poor foolish humans.

 

HERE is a take on earnings now that, as of May 20, 92% of results were in the books. It was a good reporting period, well above what was predicted.......what is new......anyway:

EARNINGS SEASON TAKEAWAYS

https://assets.realclear.com/files/2019/05/1295_earnings.pdf

(BOLD is my opinion and what I consider important content)

"Earnings season delivered as expected. With 92% of results for S&P 500 Index companies in the books, first quarter 2019 earnings are tracking to roughly flat with the prior year [Figur e 1]. While flat earnings don’t sound impressive, we consider it a victory given consensus estimates were calling for a 4 – 5% decline when earnings season began (source: FactSet). Here, we recap the numbers and provide some key takeaways from earnings season.

GOOD NUMBERS OVERALL

We consider earnings season a success based on the amount of upside to prior estimates generated by S&P 500 companies despite several headwinds. Some numbers that support our assessment include:ƒƒCompanies generated solid upside to prior estimates of about 5% to get overall earnings up to flat. When earnings season began, consensus estimates called for a 4 – 5% decline in S&P 500 earnings. An upside of this size, which is slightly above the long-term average, is impressive considering persistent trade uncertainty.

Currency may have been as much as a two-percentage-point drag on overall earnings growth, suggesting companies have more earnings power than the overall growth number suggests.ƒƒ

The median stock in the S&P 500 has grown earnings several percentage points faster during the first quarter than the aggregated market-cap-weighted measure. According to data from Credit Suisse, the median S&P 500 company is tracking to a 5.6% earnings gain. A few large companies are having outsized impacts, including Apple (AAPL), whose earnings per share (EPS) dropped 18% from the year-ago quarter.ƒƒ

Estimates have held up well during earnings season. Since April 15, the 2019 consensus estimate for S&P 500 EPS has risen slightly to $168. We consider that a win given that estimates typically fall during earnings season. Consensus S&P 500 earnings estimates for the next 12 months have increased from $173 to $175 per share since mid-April [Figure 2], reflecting expectations for a ramp-up in growth later this year and into 2020.

Based on first quarter numbers and the changes to forward estimates, earnings results have been good. Here are some of our key takeaways that go beyond the numbers:ƒƒ

It looks like an earnings recession will be averted. Even if we have an earnings recession (commonly defined as two consecutive quarters of year-over-year earnings declines), it would be extremely shallow. Although earnings may be flat in the first half of the year, we expect some acceleration in the second half.

ƒƒTariffs are a huge wild card. If the latest round of tariffs remain in place and are followed by another round — meaning that tariffs would be imposed on all U.S. imports from China — then achieving any earnings growth at all this year will be difficult. It is apparent that the latest escalation of trade tensions caught management teams off guard, which means there is probably some downside risk to current estimates in the event of a prolonged impasse (though that is not our base case).

ƒƒSlower growth overseas — in the Eurozone and China in particular — has weighed on the results of U.S.-based multinationals. According to FactSet data, earnings growth for companies generating more than half of their revenue within the United States has been 6.2%, compared with a 12.8% earnings decline for companies that generate less than half of their revenue within the United States. ƒƒ

Operating efficiency has become increasingly important. Companies must consider shifting supply chains away from China as tariffs are imposed. As costs increase, particularly wages, passing along higher tariff costs will become more difficult. This additional potential pressure on profit margins may cap the amount of earnings growth companies can achieve this year.

Our base case still calls for some upside to the 3 – 4% consensus estimates for S&P 500 earnings growth in 2019. However, hitting our 6 – 7% forecast published last fall may be a stretch if the United States and China are unable to resolve their differences within the next several months. Until then, tariffs could eat away at company profit margins, and business leaders may become more cautious with their capital investment decisions. Lower capital spending means less revenue and profits for corporate America.

CONCLUSION

We consider first quarter earnings season a success based on the upside to prior estimates and resilience of estimates for the rest of this year. It appears an earnings recession has been averted and better days lie ahead for U.S. companies. However, the threat of more tariffs is a huge wild card.

We are hopeful that significant progress can be made on the trade front next month, when President Trump and China’s President Xi are expected to meet at the G20 summit in Japan. A prolonged impasse that lasts through the summer would introduce downside risk to our 2019 S&P 500 earnings growth target of 6 – 7%.

Our base case remains that we will get a trade deal with China early this summer and consensus expectations for 3 – 4% earnings growth may prove to be conservative. Earnings are hardly booming, but with a continued economic expansion, low inflation, and low interest rates, we see enough earnings growth ahead to push stocks up to our year-end S&P 500 fair value target of 3,000 — though it probably won’t get there in a straight line."

MY COMMENT

AS USUAL the experts were totally wrong about earnings well to the negative of reality. It was nice to see the markets come back strong today. To me this shows the ridiculous nature of the drop yesterday which was based on the media story of the day......China. I saw little to nothing about China today. AMAZING how something is such a DOMINANT story one day and totally absent the next. This shows you the nature of the IDIOCY that is jerking the markets around short term.

For the LONG TERM the earnings data is the actual reality that will drive the markets. ALL the rest of the media STUFF is simply NOISE.......very loud NOISE.

 

It will be interesting to see how this prediction works out for JP Morgan. Not that it matters to anyone or anything in the REAL world. I would guess that the odds of this being correct are about what we normally see with these sorts of predictions........LOW. This prediction reflects the herd mentality on WALL ST and in the BIG banking and investment banking business world. They always seem to follow the herd. I will give you my GDP prediction.....TOTALLY seat of the pants, wild ass, GUESS, based on nothing more than what pops into my mind at this moment as I type this,...........2nd Qtr GDP prediction 2.5% to 3%. At least I have an excuse if I am wrong since my prediction is nothing more than a simple, uneducated GUESS. Lets see in a few months how accurate JP is with their prediction with all their financial power, analysts, Quants, computer models, etc, etc.

JP Morgan slashes second-quarter GDP forecast to just 1%

https://www.cnbc.com/2019/05/24/jp-morgan-slashes-second-quarter-gdp-forecast-to-just-1percent.html

(BOLD is mine)

"J.P. Morgan economists said they now see much slower second-quarter growth of just 1%, down from their prior forecast of 2.25% and way off the 3.2% reported in the first quarter.

“The April durable goods report was bad, particularly the details relating to capital goods orders and shipments. Coming on the heels of last week’s crummy April retail sales report, it suggests second quarter activity growth is sharply downshifting from the first quarter pace, ” the economists wrote.

The Atlanta Fed’s GDP Now tracker has GDP growth for the first quarter at 1.3% for the quarter.

The J.P. Morgan economists also changed their view on the Fed, and now do not expect the next move to be an interest rate hike.

“We had previously expected the next move from the Fed would be a hike, albeit at the very end of our forecast horizon in late 2020. We now see the risks of the next move as about evenly distributed between a hike and a cut. We still sense little appetite on the FOMC for an insurance ease to goose inflation, but we see rising odds of ‘your father’s rate cut’: one prompted by downside growth risks,” they wrote.

The durable goods report follows Thursday’s PPI manufacturing and services data that was also surprisingly weak. That data helped fuel a stock market sell-off and buying in Treasurys, which sent yields to 2017 lows. Yields move opposite price, and the low yields reflected concern about the economy.

The 10-year Treasury yield was at 2.32% Friday, after dipping as low as 2.29% Thursday. The fed funds futures market is reflecting expectations for more than 25 basis points of easing this year, and at least another cut in 2020.

“Net, net, business investment in the future is sputtering at the start of the second quarter as uncertainty and geopolitical risks are a heavy anchor that appears to be a big drag on companies’ willingness to order up new equipment,” said Chris Rupkey, MUFG Union Bank chief financial economist. “Business confidence is clearly lacking in the manufacturing sector of the economy.”

Rupkey added that corporate chief financial officers may believe, as some surveys suggest, that the odds are increasing for a recession so they have canceled orders in March and ordered less equipment in April.

The J.P. Morgan economists said the key risks they see for U.S. growth include the uncertainty from the trade war, impacting business sentiment, and global economic slowing.

In the April durable goods report, total orders at manufacturers declined 2.1% last month, due to large declines of aircraft and motor vehicle orders. Beyond transportation, the J.P. Morgan economists noted that orders were flat last month and revised significantly lower in March."

MY COMMENT

The USUAL stuff we see daily at the moment.......the trade war.....global risk......etc, etc, etc. As to the trade war with China, I say BRING IT ON. RAMP UP THE PAIN.....on China. As I have said previously, I believe any corporate CEO that has allowed their company to become a captive of China should be FIRED. It is TOTAL management malpractice to allow your company to become captive to a communist dictatorship that steals your technology with impunity and counterfeits your products. It was ABSOLUTELY predictable that this situation would happen to any company doing business in China. What is the dollar value of ALL the losses that will incurred due to the technology stolen by China going forward over the next decades? You would think these SMART CEO types, earning their tens to hundreds of millions in compensation, would have some strategic ability to see and think about the issue of doing business with a CRIMINAL partner and the long term impact of that sort of relationship on the company they manage. I have NEVER seen a single article on this issue or the issue of these American companies HANDING their tech, manufacturing secrets, and other company business model, proprietary information, to China in return for short term savings on manufacturing. They are certainly NOT gaining anything selling in the China consumer market. There are certainly more reliable manufacturing partners all over the world.

LOOKING GOOD at the open. We continue to be stuck in the short term range when it comes to the general averages. ACTUALLY, back to the article above, I consider much of the info in that article good news. The economy is NOT overheating, exuberance is NOT out of control, interest rates as seen by the ten year treasury are actually ABNORMALLY low reflecting NO inflationary pressure or ability to raise rates, companies appear to be running LEAN and MEAN, etc, etc. As to global weakness.....what is new...the world has been a MESS for the past ten years. Nothing has changed.

 

FOR those that want to see the negative opinion on the markets here is an article that sums up that sort of thinking. NOT particularly relevant to me as a LONG TERM INVESTOR. But, it is good for investors to understand where different people are coming from in their opinions.

Why the stock market is one or two bad economic reports away from a collapse

https://finance.yahoo.com/news/why-...c-reports-away-from-a-collapse-104950229.html

"Investors need to wake the hell up.

Just because the market is “holding up well” during the past month or so of dreary trade war headlines doesn’t mean everything is fine and dandy. The signs are starting to build that the global economy is cooling down more quickly than many balding pundits and aging stock price predictors would have investors to believe.

Consequently, valuations on stocks are well overdue for a significant haircut. Not the drip, drip, drip BS investors have endured the past month — the S&P 500 and Dow Jones Industrial Average are “only” down 3.8% and 4.1%, respectively, since late April.

Think 10% nosedive, or more. In other words, a classic collapse.

“Of course, some people could argue that the S&P 500 holds up very well in the face of this news [trade, etc.]. Well, this is true, but we also have to note that when the 20% decline began in October, the S&P was down only 5.2% after three weeks,” Miller Tabak strategist Matt Maley reminds everyone.

Supremely put.

Ignore the signs at your own risk

Investors entered the the post Memorial Day long weekend oddly still feeling pretty good. The Dow just capped off its fifth straight weekly loss, the first time that has happened since 2011. Yet, there remains this hope the market rally will soon return and the declines of late are normal given the uncertainty around global trade.

To many, the Federal Reserve is a friend and the U.S. jobs market is humming along — both serving as powerful reasons for stocks not to stay on the mat for too long.

Going lost in this rose-colored glasses backdrop is mounting evidence that the trade war is taking its toll on companies around the world. In turn, economic data and leading areas of the market are worsening.

Some noteworthy points from the battle trenches:

• The flight to safety has continued — the 10-year Treasury yield is at its lowest since October 2017.
  
  
• The yield curve inverted again on May 23. Recall from last year that this is often viewed as a reliable recession indicator.
  
  
• IHS Markit U.S. manufacturing PMI for May badly missed Wall Street estimates and fell month over month. Sentiment among manufacturers hit its lowest level in nine years.
  
  
• The April reading on durable goods softened across the board.
  
  
• Copper prices are down 8.9% the past four weeks.

• The Dow Transports and small-cap Russell 2000 have underperformed the S&P 500 and Dow the past month.

“It just seems to us that the level of uncertainty has gone up dramatically over the past 3 weeks... and this uncertainty is not going going to calm itself soon,” Maley contends.

“What surprises us is that, despite these signs of a rapid slowdown in U.S. economic growth and the renewed escalation in trade tensions, the S&P 500 has held up surprisingly well,” says Paul Ashworth at Capital Economics. “If markets are pinning their hopes on a U.S.-China trade deal next month or on the Fed successfully saving the day, then they could be in for a rude awakening.”

Ashworth believes incoming economic data point to a “sharp” slowdown.

The bottom line

Many on Wall Street I have talked with these past few weeks continue to be optimistic on stocks this year. You can hear the optimism in their voices even as a good number of them are trimming winning positions into strength.

All of this dialogue suggests to me the market is one or two bad economic reports away from a sharp reversal as investment theses become derailed.

In this type of slowing environment, Corporate America is unlikely to announce bang up second quarters and is at risk at cutting their 2019 outlooks. I encourage all investors to listen to recent earnings calls from Target, Walmart, Deere, Macy’s and Best Buy to get a sense of the real profits the trade war is stealing.

That has to get priced into stocks, it’s that simple.

Nonetheless, let the Twitter tirades begin regarding this dose of business news analysis. Everyone thinks they’re right, until they are proven horrifically wrong. Sometimes it’s tough being a contrarian."

MY COMMENT

I MIGHT give a little more credence to this opinion piece if the SENSATIONAL language was not used through the article. The scary headline using the word COLLAPSE. The talk of a 10%....NOSEDIVE. The description of a 10% loss being a "CLASSIC COLLAPSE". Come on.......a 10% drop barely meets the definition of a simple correction. Corrections are obviously normal events in the markets. There is NO WAY a 10% drop would be considered a "collapse" or a "nosedive". It is not unusual to see one, two, or even three corrections in a year......any year. I would NOT call putting forth an opinion predicting a 10% correction some time over the next year or so a real scintillating prediction. The data in the article is what it is and may be important information for an investor to consider, but calling for a 10% correction and than holding yourself out as being a GUTSY CONTRARIAN is kind of stupid in my personal opinion. Pointing out the chance of a 10% correction is simply pointing out the obvious.

 

MARKETS are owned by the FOOLS at the moment. People are in the beginning of a self imposed, self fulfilling, fear induced panic. Well.......not exactly a panic. I dont see or hear much if anything from REGULAR people. Just mostly the financial media and the insider companies that benefit from trading and volatility and the herd mentality.

For YEARS now on another forum and on this forum I have been saying that the world was in the middle of a deflationary depression. Japan has been in this situation for decades. The EU has been in this situation for at least ten years if not longer. Of course treasury rates are dropping with rates in the EU being negative for some period of years and the economic situation in the EU showing NO sign of improving for the past ten years. The ONLY thing that changes, year to year or month to month, is when or if our media and others happen to be paying attention to what is going on in the EU at any specific time. The EU will NOT change. MANIPULATING interest rates in a bureaucratic, semi-socialist, regulation happy, EU is NOT going to create economic success. The EU is lost and there is NOTHING that could make me invest in any sort of INTERNATIONAL investment.

As to OUR economy. NOTHING has changed over the past week or two.....EXCEPT....for the media focus on what has been in front of them for years. NOTHING we do can or will correct the situation in the EU, in CHINA, in Japan, etc, etc. Those places are on their own and will continue to be victims of their own economic stupidity. What we can control is to avoid.....BECOMING THEM.

The BOTTOM LINE.....we are "perhaps" at the start of a little summer correction. ALTHOUGH, we are no where near correction territory at the moment......a drop of 10% or more. Our businesses are strong and nothing is any different this week that it was a month or two ago when NO ONE was worrying about any of the "STUFF" you see in the news today.

As to CHINA. It is now apparent that they were simply pretending to negotiate to string things along til they could wait out the election. I hear NO ONE saying this but.......ANY company doing business in China, or manufacturing in China, is committing business suicide and their management should be replaced en-mas. Talk about sabotaging your own business and giving away the store for short term results.

LETS CONSIDER.......EVERYONE over the age of about 13 has known for the past 10-20 years or more that doing business in China means they ARE going to steal your technology, they ARE going to require that you partner with one of their companies, they ARE going to counterfeit your product and probably do so in your own plant, they ARE not going to allow you to trade fairly in their country, they ARE going to compete with your product all over the world and in their own country using the technology and manufacturing knowledge that they steal from you. So what do you do as CEO......you ignore all the above and just manufacture in China anyway. YOU are selling the future of your company down the river for short term minor gains. Have you EVER heard any economist or talking head on the financial shows calculate the future economic losses to American companies due to the theft of all this tech and manufacturing methods. If you did the figure would be MASSIVE. Talk about LOSING shareholder value. APPARENTLY in the corporate world NO ONE ever looks at the long term situation and realizes that the data massively supports NOT doing business in China. As I have said, there are many other third world countries that would welcome our business to manufacture and produce products. India has a HUGE population and is extremely capitalistic. Many other Asian countries would fit the bill also. YET.....our company CEO's and BOARDS choose to KNOWINGLY do business with China even though they will STEAL YOU BLIND and destroy your product value. NOT TO MENTION the dirty little NON-SECRET that they are a communist dictatorship responsible for the death of more tens of millions of people than ever occurred in the HOLOCAUST. Responsible for the enslavement of tens of millions. Come to think of it, WHERE ARE ALL THE SOCIALLY RESPONSIBLE PEOPLE when it comes to China. The people that will not invest in a company like, PM, (tobacco), but never say a word about companies doing business with one of the most brutal dictatorships left on the planet. GOOGLE? FACEBOOK? etc, etc, etc. If I was to list all the goody goody companies that think they are such socially responsible shining examples for mankind, my "etc, etc, etc" above, would be hundreds of names and probably would encompass the entirety of American business.

WE NEED to use this little opportunity right now to begin the process to get out of China and move manufacturing out of that country. A little short term pain for MASSIVE corporate profit later if you take into account the corporate losses that will happen due to the theft of technology and production of competing products using our own technology by China.

ANYWAY........I am now carrying my soap box back to the garage and putting it back up on the shelf. I know that our short term business geniuses.....the modern glad-handing CEO front-man, will never do anything other than for their own short term benefit. So I am wasting my breath and muscle power typing this.

What really counts is that ANYONE that is any sort of LONG TERM INVESTOR, totally ignore this short term media circus that we are seeing at the moment. At least I am....I continue to be fully invested for the LONG TERM as usual.

 

THIS Thursday and Friday i noticed that DRUDGE was pushing the SCARY financial panic headlines about interest rates drooping, the recession threat, the EU an global financial crisis, and........the return of INFLATION. Talk about IDIOCY. There is no way we are seeing a return of inflation with interest rates dropping here and being negative in Europe, with the massive influx of legal and illegal aliens flooding the job market ("Spanish speaking preferred"), and all the talk of recession, etc, etc. I noticed that story has DISAPPEARED now. I guess someone told them it was too stupid to keep on the site along with all the other contrary fear mongering for clicks.

U.S. inflation much softer in first quarter; puts spotlight on Fed

https://www.reuters.com/article/us-...ates-in-q1-but-momentum-slowing-idUSKCN1T01FV

(BOLD is my opinion and view of important content)

"WASHINGTON (Reuters) - U.S. inflation was much weaker than initially thought in the first quarter amid a sharp slowdown in domestic demand, which could cast doubts on the Federal Reserve’s view that the benign price pressures were largely because of temporary factors.

The weak inflation pulse reported by the Commerce Department on Thursday could also pile pressure on the U.S. central bank to cut interest rates, especially as the economy appeared to slow in the second quarter. Fed Chairman Jerome Powell said recently he believed the soft inflation “may wind up being transient.”

The personal consumption expenditures (PCE) price index excluding the volatile food and energy components increased at a 1.0% rate last quarter, the government said. The so-called core PCE price index, which is the Fed’s preferred inflation measure, was previously reported to have risen at a 1.3% pace.

The increase last quarter was the smallest in four years and pushed inflation further below the Fed’s 2% target. Inflation has been running below its target this year and President Donald Trump has urged the Fed to cut rates.

“The low inflation readings are likely to be persistent,” said Sung Won Sohn, an economics professor at Loyola Marymount University in Los Angeles. “With both inflation and economic growth going in the wrong direction, the Fed is likely to cut rates later this year.”

The Fed early this month kept rates unchanged and signaled little inclination to adjust monetary policy anytime soon. Inflation has been restrained in part by weaker prices for portfolio management services, apparel, and airfares.

Economists said the sharp downward revision to the first-quarter inflation rate raised the risk of a lower core PCE price index number in April.

With healthcare costs rising at both the producer and consumer levels in April, economists had expected the core PCE price index reading to remain unchanged at 1.6% year-on-year in April.

The government will publish the April core PCE price index data on Friday. Inflation hit the Fed’s 2% target in March last year for the first time since April 2012.

“This raises the chances that tomorrow’s core PCE inflation rate prints at 1.5% on a year-over-year basis, which would potentially give the Fed more ammunition to worry about a low inflation rate,” said John Ryding, chief economist at RDQ Economics in New York.

The dollar was little changed against a basket of currencies, while U.S. Treasury prices rose. Stocks on Wall Street were trading higher.

SLOWING GROWTH
The government also reported on Thursday that gross domestic product increased at a 3.1% annualized rate in the first quarter, pared from the 3.2% pace it estimated last month. The economy grew at a 2.2% pace in the October-December period.

The economy will mark 10 years of expansion in July, the longest on record. Growth last quarter was, however, flattered by the volatile export, inventory and defense components.

Excluding trade, inventories and government spending, the economy grew at a 1.3% rate, the slowest since the second quarter of 2013. This measure of domestic demand increased at a 2.6% pace in the fourth quarter.

When measured from the income side, the economy grew at a rate of 1.4% in the first quarter. Gross domestic income (GDI), increased at a 0.5% pace in the fourth quarter.

The average of GDP and GDI, also referred to as gross domestic output and considered a better measure of economic activity, increased at a 2.2% rate in the January-March period, up from a 1.3% growth pace in the fourth quarter.

The inventory-and-export-driven growth spurt appears to have fizzled early in the second quarter. The slowdown largely reflects the fading stimulus from the Trump administration’s hefty tax cuts and spending increases last year. A trade war between the United States and China is also hurting the economy.

In another report on Thursday, the Commerce Department said exports fell 4.2% in April. The report added to weak April data on industrial production, orders for long-lasting manufactured goods, retail and home sales.

The growth drag from inventories is, however, likely to be small. The government reported that wholesale inventories increased 0.7% last month, while stocks at retailers rose 0.5%.

The Atlanta Fed is forecasting GDP rising at a 1.3% rate in the second quarter.

“A recession is not in our baseline, but we note the dangers from the recession bias leading to self-fulfilling prophecies,” said Lydia Boussour, a senior U.S. economist at Oxford Economics in New York.

The economy is seen supported by a strong labor market, which is boasting the lowest unemployment rate in nearly 50 years. In a separate report on Thursday, the Labor Department said initial claims for state unemployment benefits rose 3,000 to a seasonally adjusted 215,000 for the week ended May 25."

MY COMMENT

INVESTORS that have been in the market have ENJOYED ten years of historic BULL market. The gains people have made over the past ten years in net worth and portfolio worth have been MAGNIFICENT. I can recall many many people that took up to 2 or 3 or 4 or 5 years to get back into stocks and funds after the 2008/2009 crash and missed much of the gains. CLASSIC investor behavior. I think the markets now and the financial media has been INFECTED with MILLENIALISM.......constant whining about how bad they have it and how things are the worst ever for them and how they are being held back by blah, blah blah. The reality for that generation is that many if not most PRIOR GENERATIONS had it as bad or worse.......(WWII, WWI, KOREAN WAR, VIETNAM, the great depression, the great bear market of the 1970's/1980's, stagflation, the crash of 1987, the dot com crash, etc, etc) BUT....we are now a narcissistic, participation trophy, cant get our nose out of the screen, culture. YES, sounds like the fall of the ROMAN EMPIRE to me. BUT....I dont give a SH*T because my focus is on myself and my family which is ALL I have any control over as an individual. I also know that most Millenials are doing fine, have good jobs, are having kids, moving to the burbs, buying homes, have $30,000 or less in student loans, are making historically high starting wages, are investing in their 401K, etc, etc, etc in spite of the UNTRUE crap the media spins out there about younger people and how they think and what they are doing. SO......I will remain fully invested all the time for the LONG TERM as usual.

 

AND.....before anyone jumps off a building:

DOW year to date +6.38%

SP500 year to date +9.78%

JUST five months into the year.

 

With ALL the fear in the air lately, and constant drumbeat of the media.......here is a relevant little article. BEHAVIOR is the key to successful investing. BEHAVIOR is also the key to sucking as an investor. As LONG TERM investors we constantly fight against the human brain and genetics.

To Err Is Human

https://www.morningstar.com/articles/931235/to-err-is-human.html

"Risk is anything that could threaten your ability to achieve a goal. Many portfolio risks that capture our attention are those that we can’t control. How will stock market movements, changing interest rates, or the price of oil affect our investments? Investing is a probabilistic exercise. The key to increasing your odds of investment success is to make sound decisions. Most investors could improve their portfolio risk management by turning the spotlight on themselves and recognizing when their behavioral biases may lead to bad decisions that hurt performance.

Investors should prioritize managing portfolio risks from their behavioral biases because these risks:

1. Are within their control;
2. Are likely to occur;
3. Have an meaningful impact on portfolio returns.

Identify. Adapt. Overcome.
The latest CFA field guide[1] of behavioral biases groups them into two camps: emotional biases and cognitive errors. The first step to overcoming bad investment decisions from behavioral biases is to determine which bias you are more susceptible to.

Emotional biases stem from impulse or intuition and lead to faulty reasoning owing to the influence of feelings such as fear, greed, or remorse. These biases are more difficult to overcome than cognitive biases because it’s tough to control emotional responses to the experience of losing or making money.

Cognitive errors stem from faulty information processing or recall. These are split between two types. First is belief perseverance, which is the tendency to irrationally stick with current beliefs. These decision-making errors could stem from selective exposure, perception, or retention of new information. Processing errors are the second type. Instead of failing to adjust to new information, these errors are caused by shortcuts that we use to make decisions quickly. Cognitive errors represent the limits of the human mind and tend to be easier to correct than emotional biases.

Exhibit 1 shows the taxonomy of common behavioral biases.




All investors will exhibit some of these biases at some point in their investment career. While it’s hard to avoid these biases, it’s important to take steps to mitigate their impact.

Managing Emotional Biases
Emotional biases are difficult to manage because they stem from impulse rather than miscalculation or interpretation of information like cognitive biases. For example, fear of pain from investment losses could lead us to sell out of the market after it crashes. This is often a poor decision because valuations are more attractive following market downturns, which can lead to better future returns. On the flip side, fear of missing out could induce counterproductive performance-chasing. The decision to buy once prices are already high is another suboptimal investing decision because high prices can lead to less attractive valuations and returns going forward. In any case, doing what you wish you would have done in the past is rarely a recipe for investment success.

Morningstar’s "Mind the Gap" study quantifies the phenomenon of investors behaving badly likely because of emotionally fueled decisions. The latest study found that the returns experienced by the average mutual fund investor lagged the asset-weighted return of the same funds by 1.37% annually over the past 10 years through March 2018.[2] This gap is simply the fund returns that investors missed out on owing to poor investment timing decisions, likely performance-chasing.

Overcoming emotionally driven decisions is difficult, but you can set yourself up to reduce the likelihood of making these mistakes. Investing to your "optimal" risk-based asset allocation isn’t useful if you can’t stick with it during rough patches in the market. Depending on your level of wealth and standard of living, emotional biases may be best managed by modifying your asset allocation. For example, you could shift toward an asset allocation that’s more conservative (for example, tilting more heavily toward bonds and away from stocks) than the risk level that you ought to be able to tolerate. The higher your level of wealth and lower your standard of living, the more cushion you have to deviate from your optimal asset allocation. Modifying your asset allocation to adapt to your emotional biases could improve your investment outcome because you’re more likely to stick with a more conservative allocation in turbulent times.

Overcoming Cognitive Errors
Cognitive errors stem from poor information processing and overconfidence in our ability to predict or influence market outcomes, leading to bad decisions. For example, resisting the urge to trade when faced with new information can be tough to overcome. But you’re likely better off not trading based on "new" information that you read in Barron’s or hear on CNBC. Since everyone has access to that news, it probably won’t lead to market-beating performance. Frequent trading can lead to excessive transaction costs or realized taxes, which detract from performance.

If you find yourself trading frequently, remember there’s always someone on the other side. Consider what they might know that you don’t. It should also be sobering that most professional money managers, with all their time and considerable resources dedicated to their craft, don’t beat the market. Morningstar’s Active/Passive Barometer shows that most actively managed U.S. fund fail to top their average passively managed peer in their respective Morningstar Category. Exhibit 2 shows the success rate of actively managed funds' average return over their passive category peers over varying look-back periods as of Dec. 31, 2018.




Cognitive errors can lead to the impression that we can take actions to beat the market, even when the odds are long. The good news is that cognitive errors are easier to address than emotional biases because they represent limits in logic or calculations rather than deeply seeded impulses. Checking your decision-making logic and finding gaps in thinking are often the best ways to avoid cognitive errors. The following strategies may help mitigate their effects.

1. Hit pause. Often times when making an investing decision, the benefits of waiting a day or a week to make a decision outweigh the penalty for not acting fast. Slowing down the decision-making process will allow the time to collect necessary information to make a more informed decision. Sometimes, the best thing to do is nothing at all.
2. Keep an investment journal. Documenting your thought process leading up to an investment decision can help keep yourself in check. Use consistent sections in your journal to create a time series of decisions to find where you consistently make strong or poor decisions.
   
   1. For example, you could habitually overestimate the risks of an investment decision. Knowing this information could help you adapt future decisions to incorporate this known cognitive bias.
   2. Keeping a journal can also help you keep track of skillful versus (un)lucky decisions. Did the decision pay off for the reasons that you had anticipated or because of events that you hadn’t considered?
3. Have a devil’s advocate. Find a friend, financial advisor, or family member to check your investment logic and highlight your blind spots. The goal here is to help strengthen your thinking before making the decision. The best candidates for this role are those that exhibit sound logical thinking, aren’t afraid to point out when you’re wrong, and are willing to put in the time. This is a two-way street. An investing partner will appreciate it if you exhibit the same characteristics when serving as a devil’s advocate for them.

Correcting Bad Behavior
Investors should prioritize the risk of bad behavior on their investment decisions because its within their control, likely to occur, and can have a on meaningfully impact the odds of long-term investing success. Recognize that you’re likely to be prone to both emotional and cognitive biases. For emotional biases, improve your odds of investing success by considering a more conservative asset allocation that you can stick with during rough markets. When dealing with cognitive errors, self-reflection is key. Consider sleeping on it before making a decision, keep an investment journal, or use a devil’s advocate when making an investment decision. Better decisions usually lead to better investment outcomes. Don’t let your behavioral biases torpedo your portfolio."

MY COMMENT

So true. If I was going to BOLD what I consider important in this article I would have to BOLD the whole thing.

 

BOOM........general markets RIP ONE today. BUT.......another example of short term boom and bust on a day to day basis. It is certainly more fun when a day like today happens. It is also a random, news driven, knee jerk, kind of day.

(BOLD is my opinion and what I consider important content)

Dow gains more than 500 points on second best day of the year for stocks

https://www.cnn.com/2019/06/04/investing/dow-nasdaq-stock-market-today/index.html

"US stocks recorded their second best day of the year on Tuesday, rallying as hopes for a Federal Reserve rate cut took hold and worries about an escalating trade war took a backseat.

The Dow (INDU) finished the day up 512 points, or 2.1% — its best day since January 4. The Nasdaq closed 2.7% higher, erasing its losses after a steep selloff on Monday that was driven by worries about tech regulation.
The S&P 500 (SPX), meanwhile, ended up 2.1%. Both the Nasdaq and the S&P recorded their best days since January 4.
Just last week, this picture looked substantially different. The trade war has put pressure on equities. Proposed tariffs on Mexican imports to the United States are set to go into effect Monday.

But investors brushed aside those fears. US markets opened higher, and those gains accelerated after Federal Reserve Chairman Jerome Powell said that the central bank was closely monitoring developments on the trade front.
"As always, we will act as appropriate to sustain the expansion," he said Tuesday at a monetary policy conference in Chicago.
Powell's remarks came a day after St. Louis Fed President James Bullard said the central bank may need to cut interest rates soon amid concerns about weak inflation and risks to economic growth. Although Powell didn't echo Bullard's more explicit expectation for a rate cut, investors seems to have heard all they needed to hear.

According to the CME's FedWatch tool, market expectations for an interest rate cut at the Fed's July meeting are 65%, having moved significantly higher over the course of the day. By December, the chances are 98%. Expectations for an interest rate cut were already growing before this week's comments by Bullard and Powell, noted MUFG chief financial economist Chris Rupkey. They climbed even more after President Donald Trump threatened Mexico with tariffs.

There are no signs of a recession anywhere in the economic data, Rupkey added, which would be a traditional reason for the Fed to lower rates.

Trump has long called on the central bank to cut rates to stimulate the economy."

MY COMMENT

SUDDENLY.......NO signs of a recession anywhere.....concerns about weak inflation (deflation)......investors brushed aside fear. Just shows the FOOLISH expectations UP and DOWN. The MEDIA is responsible for much of the recent FEAR BASED behavior. The market strengths and REFUSAL to be talked down shows the strength of the general business environment.

 

Once in a while on here I see the AGE OLD discussion about TRADING versus INVESTING and TECHNICAL ANALYSIS systems and FUNDAMENTAL INVESTING break out on here. OBVIOUSLY I have very clear opinions and am NOT a fan of the trading mentality or technical analysis type systems. Based on what I have seen as a 45+ year investor here is MY take without going into a lot of detail....

I have never seen a successful Technical investor in my life of investing. Now...there may be some, but I have never know one that can beat the averages long term, like the SP500, if seeing their REAL results and taking into account ALL expenses of trading including taxes. For that matter, very few investors of any type will beat the SP500 due to poor human investing behavior issues

The "average person" WILL lose money trying to be a short term trader or a technical investor. In fact, the "average person" will SEVERELY lag the general averages in any sort of investing style.

I remember very well the dot com era and the DAY TRADING style of investing that swept the country in those years. EVERYONE thought they could be a trader or day trader. It was a time period when you could throw darts at a list of stocks and pick winners. Basically because there were very few losers. People got caught up in thinking they were genius investors when actually they were just benefiting from a totally euphoric market where it was nearly impossible to lose......for a while. Where are all those day traders now......all gone. All that I know lost their money and I dont know ANY that continued to day trade for even a year.

I have yet to see a short term trader apply this style of money management to their retirement account and their 401K money. WHY? I dont know. I suppose they dont want to take the RISK with their retirement money. The VAST majority of traders, day traders, even technicians that I have known DO NOT use the same style in their retirement accounts. That tells me something.

On a prior board I did "know" one short term options trader that seemed to be successful for 8-9 years and I trusted him to put up real numbers. But, I noticed that over the past year or two that he was experiencing BIG losses that had the potential to unwind everything he had done up to that point. Was he really a successful short term trader, leveraging his funds with options? Or was he simply benefiting from the greatest BULL MARKET in history along with some educated luck and when we got into the more normal market conditions of the past year or so REALITY hit.

My TAKE on this issue is that the AVERAGE INVESTOR will NEVER benefit over the long term from being a trader or a true technician. IF........BIG IF......all the people you see on message boards (not this one, I dont know anything about any of the traders on this board) claiming to be very successful traders or true technicians can do as well as they claim......than go get a job as a trader at a BIG investment company. QUIT your job and turn PRO.

I would LOVE to see a true DEAF, DUMB, and BLIND test of Technical Analysis.......( I KNOW what the result would be).....where the person is actually totally isolated from any information, news, etc, etc, other than their chart system. I believe the results would be DISASTROUS.

DISCLAIMER......I dont read any of the short term trading threads on this board so the above is not a comment aimed at anyone on this board or what they post or their results. AND....I also believe that the "average" person should simply invest in a SP500 Index fund in retirement accounts or taxable accounts. The "average" person will NEVER beat the SP500 no matter what they do investing or how they do it.

 

For 45+ years and for many more years before that with my Mom's brokerage accounts, my family has invested in BIG CAP, AMERICAN, DIVIDEND PAYING, ICONIC PRODUCT, WORLD WIDE MARKETING, type stocks and funds. Over that time I have seen in general money in those accounts routinely double in 5-7 years on average. Of course, there are times when things go sideways in the markets. In my lifetime of investing I have taken calculated risk at times.....BUT....always VERY calculated. NO trading, NO short term thinking, NO market timing. SIMPLY fully invested in QUALITY companies, whether young or old, for the LONG TERM. I have seen this approach to be the pathway to building REAL wealth and family security. You do need to have a savings mentality in order to pull this off by putting as much free cash as possible into the accounts for life. HERE is what I BELIEVE in and follow:

The Big Lie That Keeps Many Investors Poor

https://www.riskhedge.com/outplacement/the-big-lie-that-keeps-many-investors-poor/rcm

"Today we’ll bust a big lie about investing.

This big lie keeps many investors down. Belief in it is a tall hurdle to building wealth.

How many times have you heard a statement like this?

“The only way to make big profits is to take big risks.”

This is the conventional wisdom. It gets repeated in classrooms, on TV, and by stockbrokers over... and over... and over again.

The problem is, it’s complete nonsense.

Why This Lie Spreads
Like many lies, people tell this one for one of two reasons. Some genuinely don’t know any better. Others are happy to spread it because it’s convenient for them.

Mediocre financial advisors hide behind this lie. It’s the perfect excuse for when they fail to generate strong returns on their clients’ money.

Most academics embrace this lie too. A finance professor who’s never bought a stock won’t hesitate to lecture you on why markets are “efficient” and trying to beat the averages is a foolish waste of time.

You can see why this lie has become conventional wisdom. It has powerful friends.

Folks who take the lie seriously fall into one of two groups.

Group one thinks: “Well, I’m not willing to take a big risk, so I guess I’m destined to earn small returns.”

Group two thinks: “Well, I’m not settling for mediocre returns, so I’ll load up on risky stocks.”

Both of these mindsets are a shame. They blind investors from great opportunities to make big profits in safe stocks.

If you give me three more minutes, I’ll prove to you that it’s wrong. I’ll also show you how to collect big returns without risking big losses.

So What Exactly Is a “Risky” Stock?
Most folks would agree risky stocks carry a few key traits:

1. Expensive—stock price is high relative to earnings
2. Small—company lacks financial resources of larger competitors
3. Volatile—stock price swings around unpredictably
4. No dividend—suggests company’s profitability is shaky

You most definitely do not have to buy stocks with these risky traits to make big returns.

To prove it, let’s flip this on its head. A safe stock should be the opposite of a risky one. It should be cheap, big, stable, and pay a dividend.

Few companies fit the bill better than Disney (DIS)—a stock I’ve been recommending since July 2018. You can read the most recent investment case here.

To recap, Disney is a huge company—bigger than McDonalds (MCD), Wells Fargo (WFC), and Goldman Sachs (GS).

Its stock traded at just 15-times earnings, which was cheaper than the average US stock.

Disney’s stock price is stable. It pays a reliable dividend in the neighborhood of 2%. And it has increased its dividend by 21% per year, on average, over the past five years.

No Reasonable Person Could Call Disney (DIS) “Risky”
By any definition, Disney stock is safe.

Yet it recently leapt 30% in just four weeks:



Source: RiskHedge

And since the fall of 2016, its stock has gained 52%—far better than the S&P’s 36% gain.

This combination is possible because Disney is a disruptor stock.

The big leap in Disney’s stock price came when it unveiled details of its disruptive new streaming project that’s threatening Netflix.

I’ll give you another recent example of a safe stock exploding higher.

Like Disney, Qualcomm (QCOM) Is Very Safe, and Yet…
I first wrote about computer chip giant Qualcomm (QCOM) late last fall, telling readers it was a “buy.”

Even I was surprised when it rocketed 55% in two weeks recently, following news of a favorable legal settlement.



Like Disney, Qualcomm is big. Bigger than Starbucks (SBUX), American Express (AXP), and Lockheed Martin (LMT).

Its stock isn’t quite as cheap as Disney’s. But at 15-times next year’s earnings, its valuation is reasonable.

Its standard deviation is low—which means its stock is not volatile. And it pays close to a 3% dividend, which it’s raised for each of the last eight years.

Like Disney, Qualcomm stock is unquestionably safe.

Also like Disney, it has handed investors big, quick profits recently.

And ALSO like Disney, it has tapped into a disruptive megatrend.

As I explained a while back, Qualcomm makes cutting-edge hardware that will be powering 5G phones and computers.

The coming launch of 5G in America is the most disruptive event of the decade.

Clearly big, safe stocks can hand you big profits, if they’re on the right side of disruption."

MY COMMENT:

SIMPLE, yes. It TRULY can be and is that simple if you have the FOCUS and CLINICAL approach to saving and investing for the LONG TERM.

 

PERFECT jobs report for stock and fund investors. the economy and business environment is good and these indicators bouncing around from month to month is keeping the FED from having any excuse to raise rates. For those that were CRYING about the coming recession and the collapse in stock prices for the past few weeks, we are now once again in easy striking distance of ALL TIME HIGHS. Those that gave in to the dubious fear and panic environment created by and driven by the media over the past few weeks have NOW been WHIPSAWED as usual.