Predictions, Crystal Balls and Total Balls

When I first came into the financial world of "The City" in the 1970's, it seemed in that far off time before personal computers and direct market access that the world was ruled by wise old heads whose wisdom was dispensed in bite-sized aphorisms of such blinding clarity and confidence that all I, a mere rookie, had to do was to look and learn from my betters.

It took me a very short period of time to realise that those same venerable grey heads were the ones that were being quietly ignored by the people doing the real work of poring over accounts and financial statements - and yet the equivalent is still the order of the day in the modern financial world. The main financial news services (and especially the full-time ones like Bloomberg and CNBC) would rather have a good story presented by some excitable doomster telling us the world is about to end or (more rarely except in the case of fringe investments, we all know that Gold is going to $10,000 don't we?) that everything is going to triple by thursday. Entertaining it certainly is, valid comment it might be, but a philosophy on which to base one's investments it most certainly isn't.

My post today is inspired by the number of otherwise credible people who have warned me that October is coming (duh? it is September, isn't that a fairly safe bet?) and that everything is going to crash at 2:36 pm on October 19th. 2010. The reason for this? - because 23 years ago on October 19th 1987 the US market plunged 23% in a few hours. The reason for this comparison is ... err ..... sorry, I will have to pass on that as there is clearly no correlation between markets or conditions then and now.  I am also warned of the Hindenberg Omen - a wonderful title for a bad spy thriller perhaps, but in this case a pattern on the charts that presages the end of the world. I could go on ( do I hear some of you say that I always do? ) but I am in equal parts amused and quite angry at the total b*lls that I read as serious predictive research. This includes sunspot cycles, the Mayan Calendar, and numerology. To read simple astrological analysis seems quite sane by comparison.

A problem for many of us is that these dark arts do have a sane (well saner at least ) constituency - that of pattern recognition, usually called Chartism. For any historians among you, I would hate Chartists to be confused with the rabble-rousing mob that tried to overturn the social order in 1848 and who nearly brought the country to the same state of chaos that pervaded Europe during that year. Oh no, I would not want that to happen - the modern chartists are far worse and far more dangerous to your wealth.

Every Christmas a broker sends me a thing called the Stock Market Almanack (actually I think it is spelt almanac, but I do think my spelling brings out the occult aspect rather better). It looks at patterns and trends and quite clearly there are some that have validity at times, the famous and most reliable being "Sell in May and go away, don't come back 'til St. Legers day". Unfortunately however, this is far from clear in meaning The Saint's day is in March, the St. Leger race is run in early September. Even more annoyingly, although there is a statistically clear trend (assuming we are talking about the race day in September), the number of years on which this does not happen are so violently counter-trend that there is a significant risk of losing much more than could be made.

In case anything else I say is falling on deaf ears, let me state very clearly that in all my years of experience I HAVE NEVER MET A CHARTIST THAT HAS MADE MONEY - NEVER, NEVER. NEVER. Clear enough? I could go for King Lear's five consecutive "never"s - but even I can sometimes exercise restraint.

Predicting financial markets is a fascinating and frustrating business. There have been many gurus over the years and the only ones that ever seem to be consistent are those that follow money flows and look for value. Research the facts and the fundamentals. Simples!!

Do I hear (I ought to) some say that I should put my money where my mouth is and that it is easy to be negative about others without offering something better. If so, here goes...

My view is that current financial thinking among major economies is to prevent a double dip at all costs. The weapon of choice - a second round of quantitative easing or QE2 - is less effective now that the first shot has been fired, but it will be used even if less profligately that the first round. The objective of major western economies moving forward a little either side of 1.5% GDP growth is all that is required for at least 3-5 years. (I ignore the BRIC economies in this argument). This will mean interest rates staying artificially low for that period and devastating the yield still further on government and corporate bonds. Such stimulus will feather-bed some industries and the current yield of around 4% on equities will, in my opinion , ensure a reasonably firm equity market during this period - there is almost nowhere else to go! At the end of this period there is a clear inflation risk, but one we can address when it arises.

I doubt it will be an easy ride - the worries of the last few years have built a spookiness into the market that is quite remarkable. A few bad figures can spark of falls of 10% or more, but I see these as great buying opportunities. Markets are generally driven by changes in perception and it would be hard to ignore the negative perceptions abounding in some quarters. The bad news is, again in my opinion, overly discounted.

In any case, the Moon is in the 7th. house and the entrails of a freshly disembowelled goat clearly show that when Neptune aligns with a 200 day moving average of the sunspot activity, then the 5th Elliot Wave will likely be shown clearly through the Tarot.

Or am I just talking through Uranus?

Dum Spiro Spero