Economic Forecasts Have Nothing to do With Market Direction

By: Sol Palha | Tue, Sep 6, 2016
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"Wise men are instructed in reason men of less understanding by experience; the most unknowing learn by necessity. Wise men do in the beginning what fools in the end." ~ Anonymous

Trying to gauge where the economy is headed is almost always a waste of time; other than pouring over seams of data and losing a large dose of time, you will be none the wiser. If this activity were indeed useful then almost all Economists would be millionaires; sadly, they are not. They are usually working for large multi-million or billion dollar corporations, who can afford to hire them to come out with these silly scenarios that they do not even believe in; it is not by coincidence that economics is referred to as the "dismal science."

Most successful businesses do not waste time trying to figure where the economy is headed; they are looking at what they have to do to improve their business. In today's age of hot money, there are two options on the table. Work hard and try to produce a better product or come out with something new that will replace an older product or service and offer it at a better price. The second option, borrow large sums of money and buy back your shares and magically improve your EPS, without doing anything extra. A large number of corporations are focussing on the second option as it is a very easy for corporate officers to reap to great bonuses without doing anything.

Naysayers would rant of a list of negative developments, some of which are listed below; but despite these developments the market has continued to soar higher.

We could also use data albeit manipulated data, to support a bullish picture. For example, wages are rising, unemployment has dropped, lower inflation, etc. The data used is twisted at best, so the picture they provide has to be taken with a barrel of salt.


Economic Growth (GDP) and Market performance not related especially in the era of "hot money."

The last eight years are a perfect example. On its best day, this economy can be compared to a plane flying with one engine; the second one is not working.  The plane needs both for optimal performance, but it can still continue operating with one. Mass psychology clearly illustrates that markets top when the masses are Euphoric; how did the housing bubble end. It did not end on a note of panic but on a note of euphoria.


Conclusion

Don't waste time pouring over useless economic data; all the data is twisted, so your conclusion will be flawed as it will be based on faulty data. Focus on the emotion and trend (price action); the trend is always your friend.  What investors are interested is in earnings and EPS has been improving even though in many instances the technique being used to boost them borders on fraud (increasing earnings through massive share buyback programs), earnings are still growing. Furthermore, the market does not seem to care about what method is employed to improve EPS; for if it did, the market would not be trading next to all-time new high territory.

"Success is just a matter of luck, all you need to do is ask a failure. History may be written by academics, but it's rarely created by them." ~ Anonymous

 


 

Sol Palha

Author: Sol Palha

Sol Palha
TacticalInvestor.com

Sol Palha is a market analyst and educator who uses Mass Psychology, Technical Analysis and Esoteric Cycles to keep you on the right side of the market. He and his partners are on the web at www.tacticalinvestor.com.

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