Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
US Bond Market Yield Curve Patterns – What To Expect In 2020 - 25th Feb 20
Has Stock Market Waterfall Event Started Or A Buying Opportunity? - 25th Feb 20
Coronavirus IN Sheffield! Royal Hallamshire Hospital treating 2 infected Patients, UK - 25th Feb 20
Dow Short-term Trend Analysis - Coronavirus Trigger a Stocks Bear Market? - 24th Feb 20
Sustained Silver Rally Coming? - 24th Feb 20
Should Investors Worry about Repo Market and Buy Gold? - 24th Feb 20
Are FANG Technology Stocks Setting Up For A Market Crash? - 24th Feb 20
Gold Above $1,600 Amid FOMC Minutes and Coronavirus Impact - 24th Feb 20
CoronaVirus Pandemic Day 76 Trend Forecast Update - Infected 540k, Minus China 1715, Deaths 4920 - 23rd Feb 20 -
Ways to Find Startup Capital - 23rd Feb 20
Stock Market Deviation from Overall Outlook for 2020 - 22nd Feb 20
The Shanghai Composite and Coronavirus: A Revealing Perspective - 22nd Feb 20
Baltic Dry, Copper, Oil, Tech and China Continue Call for Stock Market Crash Soon - 22nd Feb 20
Gold Warning – This is Not a Buying Opportunity - 22nd Feb 20
Is The Technology Sector FANG Stocks Setting Up For A Market Crash? - 22nd Feb 20
Coronavirus China Infection Statistics Analysis, Probability Forecasts 1/2 Million Infected - 21st Feb 20
Is Crude Oil Firmly on the Upswing Now? - 20th Feb 20
What Can Stop the Stocks Bull – Or At Least, Make It Pause? - 20th Feb 20
Trump and Economic News That Drive Gold, Not Just Coronavirus - 20th Feb 20
Coronavirus COVID19 UK Infection Prevention, Boosting Immune Systems, Birmingham, Sheffield - 20th Feb 20
Silver’s Valuable Insights Into the Upcoming PMs Rally - 20th Feb 20
Coronavirus Coming Storm Act Now to Protect Yourselves and Family to Survive COVID-19 Pandemic - 19th Feb 20
Future Silver Prices Will Shock People, and They’ll Kick Themselves for Not Buying Under $20… - 19th Feb 20
What Alexis Kennedy Learned from Launching Cultist Simulator - 19th Feb 20
Stock Market Potential Short-term top - 18th Feb 20
Coronavirus Fourth Turning - No One Gets Out Of Here Alive! - 18th Feb 20
The Stocks Hit Worst From the Coronavirus - 18th Feb 20
Tips on Pest Control: How to Prevent Pests and Rodents - 18th Feb 20
Buying a Custom Built Gaming PC From - 1. Delivery and Unboxing - 17th Feb 20
BAIDU (BIDU) Illustrates Why You Should NOT Invest in Chinese Stocks - 17th Feb 20
Financial Markets News Report: February 17, 2020 - February 21, 2020 - 17th Feb 20
NVIDIA (NVDA) GPU King For AI Mega-trend Tech Stocks Investing 2020 - 17th Feb 20
Stock Market Bubble - No One Gets Out Of Here Alive! - 17th Feb 20
British Pound GBP Trend Forecast 2020 - 16th Feb 20
SAMSUNG AI Mega-trend Tech Stocks Investing 2020 - 16th Feb 20
Ignore the Polls, the Markets Have Already Told You Who Wins in 2020 - 16th Feb 20
UK Coronavirus COVID-19 Pandemic WARNING! Sheffield, Manchester, Birmingham Outbreaks Probable - 16th Feb 20
iShares Nasdaq Biotechnology ETF IBB AI Mega-trend Tech Stocks Investing 2020 - 15th Feb 20
Gold Stocks Still Stalled - 15th Feb 20
Is The Technology Stocks Sector Setting Up For A Crash? - 15th Feb 20
UK Calm Before Corona Virus Storm - Infections Forecast into End March 2020 - 15th Feb 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Betting on Biggs and other Economic Predictions

Economics / US Economy Jun 02, 2008 - 10:51 AM GMT

By: Paul_Petillo


Some folks would like to call these days an inflection point. But that would be a prediction. The markets are going up, down and sideways in an unpredictable way and yet we are still trying to divine some semblance of normal where normal may not exist.

Douglas Noël Adams, the late author of the classic Hitchhiker's Guide to the Galaxy suggested that, "Human beings, who are almost unique in having the ability to learn from the experience of others, are also remarkable for their apparent disinclination to do so." But in days like these, where experience seems to be as passé as our dominance on the global economy, who do you listen to?

Alan Greenspan has made a few predictions of his own, carrying his post-retirement mantle as economic sage to new levels since his departure as the top US banker. His belief that “the likelihood of a U.S. recession is still more than 50 percent” was backed up by the former Federal Reserve's chairman suggestion that housing prices still have some further declines yet to go.

That may be but that, as far as predictions go, a relatively easy call. What has happened in housing has never happened before. The new gold standard for your home's resale value is now the number of foreclosures on any nearby block. If all of the homeowners in your neighborhood have held their ground, then you will be able to command better prices for what you are selling. This is the new comparable and believe it or not, the vast majority of the neighborhoods around the country have weathered this financial crisis just fine.

True, it may have been a wake-up call that was long over due, but the unprecedented decline in consumer spending, something Greenspan reacted to in 2001 by bringing the short-term overnight rate to 1% should have been equally as predictive of where we are right now as anything he has recently said.

Shortly following that prediction last week in the Financial Times, Federal Reserve Bank of Dallas President Richard Fisher expressed his concerns over inflation, predicting a reversal of interest rates if consumers expect prices to fall from their current levels.

This kind of prediction is almost counterintuitive. It is based on the belief that the economy will recover shortly. And when it does, despite a lackluster economic growth forecast, a pullback in consumer spending due in large part to credit pressures and a much smaller pool of business liquidity, according to Fisher's observation, raising rates would be the natural reaction to inflationary pressures. While it is true that the current rates are as low as they could possibly go and the Fed has explored new territory in reaction to this current crisis, any chatter about a reversal of course would add further credence to the belief that the Fed does not know which way to go either. But to turn coat before each of the previous moves has had an opportunity to fully realize itself, seems a bit pre-mature. So is such predictive Fed-speak worthy of note?

No more than Barton Bigg's latest predictions would be, I suppose. Quoting him from Saturday's Wall Street Journal that “psychology is involved here” may very well be the understatement of the year. Believing as all money managers must, if they are to attract the interest of investors, that things will get better before they get worse is justified. Even market bears predict “worse” markets in the hopes that their investment strategy will work better.

Suppose he's right? His predictions are based on what Greenspan predicts will not happen, Biggs contends that we are at a housing bottom but doesn't go on to suggest that the bottom will be long-lived or not. And even though he acquiesces on inflation – it will happen no matter what the Fed does and if oil tops $175, anything you might think about his predictions are now “all bet's are off”.

So whom do you listen to? Greenspan covering his tracks, the Fed covering their tails, or Mr. Biggs covering his losses (his Traxis Partners LLP has see a 29% shift in returns from the previous year and not to the upside), each of whom offer valid predictions from what would otherwise be learned men in the field.

Or do you follow a much more long-term global path, one that doesn't mimic what has already been done? Each of these gentlemen is in wholly new territory using old school techniques to try and draw wisdom from a present they just don't comprehend.

Giacomo Rizzolatti, studying the brain by monitoring Macaque monkeys, found that imitation often occurs without thought, something reflexive and compulsively intimate. He suggested that the activity in this part of the brain was triggered by a mirror neuron. Could this offer us insight into how the average investor truly reacts?

Possibly. But more than likely, let's hope not. Each of us has an investment strategy, a philosophy we follow, if in some cases we might be unwittingly refuse to acknowledge it. Is what you believe any more wrong than these folks are right? Is a long-term diverse strategy any worse than a short-term, news-oriented trading platform?

It is time we stopped doubting ourselves. It is time we began turning off our mirror neuron and invest based on what we know, how we feel and not on some benchmark set by some other money manager/investor/talking head. Common sense has its own predictive qualities.

ven in times like this, diversity still can dominate over a long period of time. Focusing on growth (in the mid-cap/small-cap arena), value (in the large-caps were at least you get a dividend pop), emerging markets (if you believe that everywhere there is the possibility that the next great economy is incubating in some steamy far-off jungle) and international (which is almost half of the S&P 500) will still allow you to brave any rising or sinking tide, take advantage of all good news and bad, and benefit from the wisdom of those who have to deal with the markets, not those who merely try and control it.

By Paul Petillo
Managing Editor

Paul Petillo is the Managing Editor of the and the author of several books on personal finance including "Building Wealth in a Paycheck-to-Paycheck World" (McGraw-Hill 2004) and "Investing for the Utterly Confused (McGraw-Hill 2007). He can be reached for comment via:

Paul Petillo Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules