Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
BREWING FINANCIAL CRISIS 2.0 Suggests RECESSION 2022 - 28th Jan 22
Financial Stocks Sector ETF XLF $37.50 Continues To Present Opportunities - 28th Jan 22
Stock Market Rushing Headlong - 28th Jan 22
The right way to play Climate Change Investing (not green energy stocks) - 28th Jan 22
Why Most Investors LOST Money by Investing in ARK FUNDS - 27th Jan 22
The “play-to-earn” trend taking the crypto world by storm - 27th Jan 22
Quantum AI Stocks Investing Priority - 26th Jan 22
Is Everyone Going To Be Right About This Stocks Bear Market?- 26th Jan 22
Stock Market Glass Half Empty or Half Full? - 26th Jan 22
Stock Market Quoted As Saying 'The Reports Of My Demise Are Greatly Exaggerated' - 26th Jan 22
The Synthetic Dividend Option To Generate Profits - 26th Jan 22
The Beginner's Guide to Credit Repair - 26th Jan 22
AI Tech Stocks State Going into the CRASH and Capitalising on the Metaverse - 25th Jan 22
Stock Market Relief Rally, Maybe? - 25th Jan 22
Why Gold’s Latest Rally Is Nothing to Get Excited About - 25th Jan 22
Gold Slides and Rebounds in 2022 - 25th Jan 22
Gold; a stellar picture - 25th Jan 22
CATHY WOOD ARK GARBAGE ARK Funds Heading for 90% STOCK CRASH! - 22nd Jan 22
Gold Is the Belle of the Ball. Will Its Dance Turn Bearish? - 22nd Jan 22
Best Neighborhoods to Buy Real Estate in San Diego - 22nd Jan 22
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

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