Author Topic: Market Projections - CPI play?  (Read 426 times)

specialkayme

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Market Projections - CPI play?
« on: October 30, 2018, 09:13:18 AM »
I attended an interesting presentation from a high ranking executive at an investment firm yesterday. I'll keep it all anonymous to protect the "innocent".

First - the humorous part -
At part of the presentation, the individual attempted to predict the market direction and showed the attached slide. As a result of the information he presented, he predicted that the "market may go down [the red line], or it may go up [blue line], but most likely it will follow a period of turbulence [green line]."

Essentially, he predicted that the market has a chance to go up, a chance to go down, but will likely go up and then down. Brilliant.

Second - jokes aside -
The presentation showed fairly good evidence that a number of things are going to happen in the next few years:
1. Household savings will decrease (from the current reported 1.8%, but the revised 5%)
2. Liquidity squeeze will decrease corporate expansion, both overseas and domestically
3. Fed interest rates will rise, slowing economic growth
4. Wage growth will increase significantly for working class jobs
5. Consumer debt in relation to GDP will continue to fall

The source information was interesting and persuasive, although past performance is not an indication of future performance. But he also made a number of additional predictions that were not supported by (presented) data, including:
1. Housing market will stagnate
2. Inflation will increase, but not significantly
3. Current US battles with globalization will remain, and insourcing will support further wage growth but not to the extent of corporate growth
4. Bonds will become significantly safer than stocks
5. SP500 will come close to, but not exceed its previous high by end of the year, but pull back significantly next year.

Of course, none of those unsupported predictions are unique.

I've been noticing considerable manufacturing issues related to record low unemployment rates, that are causing increased wage rates (see Amazon's new wage rates). Assuming most of the above is true, if wage rates are increasing but the working class (i) isn't saving, (ii) isn't investing in the market, (iii) isn't investing in corporate growth, (iv) isn't buying real estate, and (v) isn't increasing consumer debt, then wouldn't it lead to higher increases in the consumer price index, and higher inflation rates? Where would that money end up going?

If the working class is making more, but they aren't saving it or investing it, they must be spending it, right? Current reports from automobile sales and automobile loan information supports it.

Of course, it's all speculation and "crystal ball reading" but it's interesting to think about.

ChpBstrd

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Re: Market Projections - CPI play?
« Reply #1 on: October 31, 2018, 01:29:32 PM »
Consumer wage/spending increases are not necessarily the same as inflation. If wages go up and/or savings rates go down, even as CPI remains low, consumers are simply buying a greater amount of stuff for similar prices as they paid before. This is known among economists and consumer-suckas as an increasing standard of living.

That said, increasing consumer demand plus increasing tariffs should, in theory, cause prices to rise. Prices have held steady in the past few years due to QE and low interest rates. Both those trends have reversed and all factors now seem to point to higher inflation.

Watch consumer discretionary spending this holiday season, before the 25% China tariffs go into effect in January. Will consumers blow their raises on plastic futurelandfill or will they hunker down amid the uncertainty? My bet is the former.

If you think inflation and interest rates are about to take off, you might consider short exposure to TLT or try an options bet on precious metals or energy.

FIRE47

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Re: Market Projections - CPI play?
« Reply #2 on: October 31, 2018, 01:57:16 PM »
The predictions reminds me of a headline I saw on CNN Business formerly "Money" 2 days ago.

"Mergers Ignite Stocks!" then 2 hours later after the markets reversed "Mergers have failed to ignite stocks!" for all I know later on when the markets plunged they changed it to "Mergers Ignite Market Selloff!"

MDM

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Re: Market Projections - CPI play?
« Reply #3 on: October 31, 2018, 04:05:02 PM »
See Swedroe: Gurus Had A Strong Half | ETF.com and other articles in that series.  In short, "experts" don't have a very good track record....

specialkayme

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Re: Market Projections - CPI play?
« Reply #4 on: November 01, 2018, 07:28:38 AM »
In short, "experts" don't have a very good track record....

Which has always been so interesting to me. Most "experts" make predictions that are more in line with horoscopes than actual stock picks. And yet they're still wrong more often than right.

Jim Cramer even used (and maybe still does, haven't checked in years) to keep a section on his website where he tracked his performance against a random money picking stocks, and would be proud if he did a few percentage points better than the monkey. And he's one of the more honest and straightforward (if not somewhat eccentric) "experts."
« Last Edit: November 01, 2018, 07:36:00 AM by specialkayme »

specialkayme

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Re: Market Projections - CPI play?
« Reply #5 on: November 01, 2018, 07:35:07 AM »
If you think inflation and interest rates are about to take off, you might consider short exposure to TLT or try an options bet on precious metals or energy.

I've never had the stomach to short a stock. And I've never been able to price options well enough to make reasonable returns on put plays. It seems even when I make the right prediction, I somehow bought at the wrong price and I still lose money (or don't make enough to make it worthwhile).

Maybe I need a better understanding of option pricing guides . . .

ChpBstrd

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Re: Market Projections - CPI play?
« Reply #6 on: November 01, 2018, 10:41:43 AM »
In short, "experts" don't have a very good track record....

Which has always been so interesting to me. Most "experts" make predictions that are more in line with horoscopes than actual stock picks. And yet they're still wrong more often than right.

Jim Cramer even used (and maybe still does, haven't checked in years) to keep a section on his website where he tracked his performance against a random money picking stocks, and would be proud if he did a few percentage points better than the monkey. And he's one of the more honest and straightforward (if not somewhat eccentric) "experts."

As I look back on my stock picking days, I realize that massive returns could have been earned if someone was watching me and making the exact opposite bets. I wondered how I could exploit my own suckiness, such as maybe intentionally trying to take positions that will lose money. It would be hard to out-psych oneself, but apparently profitable. I also thought about starting a horrible investor newsletter to let subscribers know my top picks so that could beat the market by taking the opposite stance.

But then again there are the random massive wins. I bought 100 shares of Salesforce at $68. I shorted Sears a year ago. After the August collapse of Facebook stock, I bet the floor was in and got out with a $1750 profit a week later - before the next wave of collapse. So I don't suck consistently enough to bet against.

However, I do wonder if there Is a way to go long an index portfolio and short a portfolio of stocks mentioned in Seeking Alpha, Yahoo finance, and other flavor-of-the-week stock-picker influencers. Finding a chatroom of 30 year old dudes picking stocks might be a goldmine.

h82goslw

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Re: Market Projections - CPI play?
« Reply #7 on: November 02, 2018, 08:36:55 AM »
I hope you at least got a free dinner for sitting through a worthless presentation.