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Buying is Easy… Selling is Hard
Do you consider yourself a “good” or “bad” investor? For example, one might say a good investor is someone who beats the returns of the Index over a long period (10.5% annualized). Beating the Index over the long-run is difficult to do… very few fund managers are able to do it. But what if I framed the question this way: (i) bad investors think of ways to make money; vs (ii) good investors think of ways not to lose money. Which one best summarizes your approach to speculation? Of the several thousand posts I’ve written the past 13+ years – this is arguably the most important question you could ask. If you understand the gravity of this distinction… you have a good chance of succeeding.
Divergent Signals
The market is wildly enthusiastic about all things “AI”. If you’re a company – and you don’t have an AI narrative – the market doesn’t want to know you. However, I also think this is potentially a blind spot. AI will undoubtedly be important and will change the way we do things (as we effectively re-wire tech) – but it’s a tool. For example, whilst Wall Street celebrates that an iPhone might be able to better answer our questions – Main Street sees things very differently. Do you think the majority of consumers understand the optimism on Wall Street? And similarly, do you think Wall Street understands why consumers are complaining?
It’s Fed Week… Market Sees Cuts Coming
Are rates restrictive? And if they are – how do you know? That’s the question the Fed will address tomorrow – but it’s not easy to answer. For example, on the one hand there’s a (large) cohort who believe the Fed are falling ‘behind the curve’ – therefore increasing the odds of a recession. They feel that growth risks are to the downside – and do not need to wait for both inflation and employment data to confirm what’s ahead. On the other side of the coin – there are those who think we still run the risk of higher inflation if acting too early.
Is Momentum Waning? More on Why I’m Bullish Bonds into 2025
As part yesterday’s missive – I talked to why I think bond yields are too high. For example, I offered a chart showing the declining trend in nominal GDP growth vs what we see with the US 10-year yield. Economic growth is clearly slowing and yet yields are going the opposite way. Why? Therefore, investors should ask themselves what is the catalyst which will take us back to a 3.0% ‘growth’ mode (i.e. what we saw over Q3 and Q4 of 2023)? For example, is it the consumer? They make up ~70% of GDP with consumption – however they are mostly tapped out (as we have heard in the latest earnings reports). What will it be?