Lesson: Don’t Try and Pick ‘Tops or Bottoms’

Everyone makes mistakes. In fact, I love ‘collecting’ mistakes – whether they are my own or from someone else. It’s the only way I learn. This post shares two ‘mistakes’ from a popular media personality. His name is Jim Cramer who hosts a show called “Mad Money”. Earlier this week he said “the bottom is in for CrowdStrike”. Big call given recent events. Fast forward a few days and the stock is 16% lower than when Jim called the bottom. So what can we learn from this?

Quarterly Real PCE Up YoY… As Savings Fall

The market received three important data points this week – inflation, wages and consumer spending – and it was mostly good news. First up, inflation continues to moderate. The Fed’s preferred inflation index – Core PCE – showed prices increased at a moderate pace for June— confirming excessively high inflation is behind us. However, prices are still ~30% higher than 3-years ago… they’re just rising at a slower pace. Whilst inflation is important – I wanted to know if consumers are still spending? The answer is they are – and by whatever means possible. They are drawing down on their savings and ramping the use of credit cards – which has seen card delinquencies hit decade highs. But from equities perspective – higher spending is good news. This feeds the ‘soft landing’ narrative….

The Three Stages of a Bull Market

Charlie Munger once warned us when wishful thinking takes hold – investors tend to believe that good times will be followed by more good times. This mentality feeds on itself – driving momentum – pushing prices higher. It’s what fuels the final stages of a bull market. Attributes such as independent thought, logic, rationale and objectivity give way to herd behavior. That’s when your internal alarm bells start ringing… and you start thinking differently from the crowd. Very few people have the ability to do that… but it’s what’s required.

Real Retail Sales Continue to Warn

When I caught the headline “retail sales hold up in June – better than expected” – I was curious to read the detail. Yes, it’s true that nominal sales were flat MoM. But that’s not what it states. They don’t mention “nominal”. As analysts and investors – nominal values are of very little use. What helps us more when forecasting trends (and assessing risks) is real sales. Real retail sales are those adjusted for inflation. And with inflation stubbornly high ~3.0% year-over-year (approximately) – that makes a big difference. When viewed through this prism – real retail sales have been declining for months.

For a full list of posts from 2017…