“If financial reporting makes you laugh, you’re halfway
to enlightenment”
This may come as a surprise, but given how common rationalization
is used for choosing investments these days much of it is rarely based on
verifiable fact and often inconsistent with past explanations. From my
perspective this is because of the nature of the business is that every day the
markets move there must be a reason. And while a sensible rationalization, such
as trade with China or friendly Fed speak seem to be the triggers of the day,
the immediate impact of a given external trigger is often the basis for defending
the style of analysis, where more evidence would suggest that the long term
impact of any one external event has as much available to refute the sensible
outcome as it does defend it.
I bring this up because so much effort is brought to bare
on the public to educate rather than inform. And much of that education is
based on rationalization of the present justified by cherry picking circumstances
of the past. I see that as misleading and playing into notions of time honored
styles of buy and hold, maximizing yield and compounding without recognizing
that times can change and none has been more disruptive of the norm than the
entre of the digital age.
Thematic Analysis
Thematic analysis has been around for a very long time
and mainly refers to the type of analysis that focuses on qualitative
circumstances rather than quantitative ones. As discussed last week,
quantitative analysis isn’t what is used to be. In the past this was applied to
investing in comical ways, colors that were dominant, musical trends and hemline
length were all targeted to suggest changes in consumer confidence. But was it
really that funny? Given the scale of information that comes to us today and the
global magnitude of cultural fashion, for example a closer look at the world is
warranted, but from what perspective.
Causality
My point is when deciding what to invest in I make known
from the start that there is no way to determine the future which immediately
invalidates most economic forecasters and analysts. Trends ranging from music
to movies to the food diets that seek the attention of the buying public are
all part of what track social mood. And as Robert Prechter*, the author and authority
on the Elliot Wave Theory (broad market analysis) has written about how stocks
don’t predict the future as is widely assumed, but rather stocks follow the
social mood which the economy simply takes longer to follow. Cause and effect,
think about Nike or more recently Gillette who have stirred controversy using
cultural memes to drive their advertisements in hope of reaching millennials.
Maybe they’re right, only their stocks will tell.
So when looking at the world at everything from gold to
the US dollar what matters to me is if the market is going to go down because
so many pundits are bullish on gold, perhaps rather than simply looking at
forecasts of the economy maybe instead on why Russia has been secretly
accumulating the precious metal (from CNBC). Or Saudi Arabia is manipulating
oil by cutting supply, thereby feeding the idea that strong oil translates to a
strong economy. In the end there is not much to get any more from basic
technical analysis, the new trend is social mood and trend analysis, that tells
us more of what we need to know, and does so before the economy. Easier said
than done, but with digital assistance and an open mind, we’ll see where it
takes us.
