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6.7.2017 - Free Letter Bookmark



A prediction (Latin præ-, "before," and dicere, "to say"), or forecast, is a statement about an uncertain event. It is often, but not always, based upon experience or knowledge. There is no universal agreement about the exact difference between the two terms; different authors and disciplines ascribe different connotations.


Although guaranteed accurate information about the future is in many cases impossible, prediction can be useful to assist in making plans about possible developments; Howard H. Stevenson writes that prediction in business "... is at least two things: Important and hard."


If you really want to make a fool of yourself, attempt making predictions about things and then post it publicly. It has quite the humbling affect, let me tell you.


Sometimes you can line up the dots, and a clear picture emerges. Other times, even with the best intentions, your concept of what “should” happen in the future, simply dissolves.  It’s probably not a wise business to be in.


Here’s an example of how despite your best intentions and research, things don’t always pan out. In 2000 we had just come through the Y2K scare and into a new “century” mark. In my “what’s in store for the future” letter in early 2000 I made these two predictions… 1) Gold would hit 1000 dollars an ounce within 10 years. Well that came true, exactly as planned. But my second prediction was….2) they’d cure most cancers within 10 years.  As you know, that one certainly has not come true.


So, why did one prediction work and the other didn’t? Weren’t they coming out with new genetic research almost daily? Wasn’t there a slew of new high tech biotech companies coming out with new drugs? Weren’t millions of dollars being spent on research? Yep, all that and more. But here we are 17 years after I made that prediction and my Uncle is suffering from the horrors of cancer. 


Yet “investing” is indeed connected to making predictions. If you buy the stock of the XYZ company because according to all your data, they 1) make money, 2) they’re growing and 3) they seem to have a good product line, you are still “predicting” that this will continue into the future and you’ll be rewarded by either dividends, a rising stock price, or both. It can go wrong. Sometimes horribly.


The accuracy of predicting the future of a specific topic often just boils down to having rock solid information which to base your prediction on. If I know my vehicle averages  20 miles to the gallon, and  I have 10 gallons left in the tank, I can accurately predict that in about 200 miles “give or take” I’m going to run out of gas and be stranded. Certainly no rocket science there.  It’s really nothing but basic math.


But the components of that math have to be right. Like in the old computer jargon “garbage in =garbage out” so if I was wrong and my vehicle only really averages 12 miles to the gallon, I’d be running out of gas some 80 miles shy of my original prediction.


Everyone has opinions about what the future is going to bring. However, as we know, the accuracy of your prediction depends heavily on the correctness of the information you’re using to amass your data plot and draw out your assumptions. Which brings up a very important question… how solid is the information you’re basing your predictions on?


My bet is that more times than not your basal grounding information is sketchy at best. One quick look at network news proves in nano seconds that there’s a lot of people basing their future outcomes based on what is being termed “fake news”.


Consider this… we’re 50 years removed from the JFK assassination, and to this day there’s still controversy over how many shooters there were. Even looking “back” in time brings us some of the same problems as trying to look forward into it. Lack of truly solid information.


I can think of very few areas that have a worse track record for basing your future predictions than in the economic game. Why? Because for the most part, most of the information that you deem to be true, is simply not. For instance I wrote on Sunday about the “Birth/Death” model that the BLS uses to help them forecast how many jobs were created each month. Then they report those jobs as if they had solid proof of them. Well, they don’t, because they don’t exist.


On Monday it was apparent that someone else was belly aching about the Birth/death model because I started getting email’s from some folks that forwarded me an article on Zero hedge. Here’s a few items in that article…

As our friends at Morningside Hill calculate, a full 93% of the new jobs reported since 2008 - 6.3 million out of 6.7 million - and 40% of the jobs in 2016 alone were added through the business birth and death model ­ a highly controversial model which is not supported by the data. On the contrary, all data on establishment births and deaths point to an ongoing decrease in entrepreneurship.


Well now, how interesting is that? Very. I’ve been harping on the Birth/Death model since about 2003 and people thought I was nuts. Now research shows that maybe 90+ percent of all the so called jobs that the non farm payroll report says we got… might be bogus. Go figure.


How about company earnings? Doctored up and tarted up to the point its own mother wouldn’t recognize it. How about our so called “inflation?”  Do any of you really believe inflation is under 2%??  If you do I want to know what planet you live on, because here in Sarasota, insurance, food, healthcare, housing, rent, movies, dinners out, and just about everything else keeps rising.


I can give you probably more than two dozen examples of “fake” information that you’re probably using to make future predictions. For another instance let’s consider the assets sitting on bank ledgers. When the 2008 meltdown hit, the FASB announced that banks would no longer have to mark the value of those assets to “market”, they could mark them to “model”.  What’s that you might ask?


Well, in the good old days when truth was reported, let’s say a bank bought an asset and it was valued at 1000 dollars. Then because of a downturn in the market, or some external issue like a war, or what have you, the value of that asset fell to just 700 dollars. Well the banks were ( are) holding so much of those toxic assets from the Housing collapse, they said “you can mark your holdings to model” meaning that even though you could only get 700 bucks for it, they can put it on their balance sheet as being worth 1000.  Is that fair? Of course not.


So let me ask you something. Do you REALLY know what the banks are worth? Nope you don’t. Do you REALLY know how well companies are doing? Not really. Do you REALLY think the unemployment rate is 4.3%?  Not really. Do you really think inflation is under 2%? Not in my world. Do you really think auto sales were as good as reported, when realistically they were counting auto’s as sold as soon as they left the factory, not the dealers lot? Not so much.


My point is this folks. Predicting the future with any accuracy is a tough game even when you have rock solid, 100% true current information. Trying to do it while being lied to on just about every topic imaginable is a recipe for defeat. My suggestion to any of you who attempt to get a handle on the real possibilities that face us in the future, first start by drilling down through the fantasy numbers we are presented and look at the “real” facts.  Just don’t frighten yourself to death when you find out how different reality is, versus what they’re spoon feeding you.

Good luck.


The Market…


Last Friday the market put in a new closing high. When we came in on Monday, they didn’t have any follow through, as we faded some on the day. Then Tuesday it was a repeat, a low volume slide for another 40 points lower.


Today however they weren’t in the mood for a 3rd day down. I think the “scary” part for them was that Tuesday the vaunted “FANG” stocks actually fell on the day, something quite horrific for them to ponder. Considering a very narrow swath of about 10 stocks has done 70% of the lifting in this market, seeing the leadership all fall in unison had them paranoid. So today… they simply bought them back up.


It was an interesting day however. In the morning the only thing they wanted to do was take us from slightly red, to “unch”. (unch simply means unchanged from the previous close in market lingo) So after a bit of a dip they came in and got us back to unch. 


Well, Unch was in place for hours.  At 1:12 PM I put out my third update of the day, and at that time the DOW was down 0.8 of one point. The S&P was down 0.24 of one point. That’s about as “unch” as it gets. But then something changed a bit. The news wires lit up with Comey’s prepared statement that he’s going to be offering up tomorrow in his testimony about what Trump may or may not have said to him.  Since there wasn’t anything new in the report, no smoking gun… the market felt a bit braver.  Instead of being “unch” …for a while we had the DOW up over 40 and the S&P up 4.  Just ahead of the close we had slipped some, but they “punched it” in the final minute and we did go out at + 37 and + 4 respectively.


Basically the market was in “treading water” mode for the past few days. Why? Tomorrow is a big day, because not only do we get Comey testifying about Trump ( and don’t forget the 400 point plunge day that we had was a political situation) we will also get the Vote out of the UK, AND we’re going to get word out of the European central bank about what they’re going to do with their QE program.


So naturally they want to hear how much dirt Comey dumps on Trump. But they also have their eye on the UK, and certainly will be honed in on the ECB. Anything that comes out of the blue and startles them, could correlate into a quick sell off.  Okay, okay don’t laugh. Yes I know it is illegal for the market to be red. I’m just sayin…


Of the 3 big news items, it’s the ECB that’s the most important. The UK vote can cause a lot of jawboning, and Comey tossing Trump under the bus isn’t out of the question. But ANY and I mean any talk out of the ECB about tightening their QE/bond  buying program and yes… we could have a smackdown.


So, tomorrow should be an interesting show. Got popcorn?  Sorry… anyway, here’s what we have to consider. Once again, the market is so long overdue for a decent correction, it’s sort of sadly funny. The last time we dropped 10% was December of 2015.  We’ve had nothing but 2 and 3% wiggles since. Even a couple weeks ago when the market puked for 400 points, they got it all back the next couple days. Down just seems illegal. Yet we know that one day…when ever that is, we’ll go down.


Is it possible the trifecta of news tomorrow could mark a short term top? Sure it could. They’re going to need an excuse to take profits, and interestingly market changes often do take place around Quad witching/end of quarter times. We’re only 3 weeks away from the end of the 2nd Q.


We’ll know by noon Friday. If they sell us off some tomorrow, and they don’t take it back Friday morning, that could signal they’re willing to let things slide a bit. If we end tomorrow green, and Friday they aren’t adding to that green…I’d be very suspect of a slide next week.


Stay alert and good luck out there. We’re certainly in interesting times. 

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