One of the great challenges of investing is the distinction between hindsight and foresight. Hindsight treats each major advance, each market crash, each recession and each expansion as if their turning points were obvious, and extrapolates prevailing trends as if their continuation is equally obvious. Foresight is much messier, because it deals with unknowns and unobservables. It recognizes that major financial and economic events are often hidden from view when they are actually already in motion. Foresight requires the willingness to rely on data that tends to precede important outcomes (recessions, market crashes, durable long-term returns), even when those outcomes can't be observed in recent economic and market behavior that we can see and touch. Most importantly, hindsight creates the illusion that uncertainty is never very great, and risk management is never very challenging. Foresight demands a much greater appreciation for randomness, noise, uncertainty, risk management, and stress-testing.
The economy: weak leading, lukewarm lagging
The most important news in the financial markets last week was undoubtedly the January employment report, which showed a 243,000 increase in non-farm payrolls, outstripping the 150,000 figure expected by a consensus of economists. Two questions immediately arise. What does this news do to change the likelihood of an oncoming economic recession? And what does this do to change the prospects for the returns and risks in the financial markets?
With regard to recession risks, the January employment report increases the divergence between leading evidence on one hand, where the broad set of data remains in a conformation that is almost exclusively associated with oncoming recession, and the more favorable, if lukewarm, signs from coincident indicators (e.g. employment, purchasing managers index, weekly unemployment claims) and lagging indicators (e.g. unemployment rate).
read the complete commentary
Also check out:
The economy: weak leading, lukewarm lagging
The most important news in the financial markets last week was undoubtedly the January employment report, which showed a 243,000 increase in non-farm payrolls, outstripping the 150,000 figure expected by a consensus of economists. Two questions immediately arise. What does this news do to change the likelihood of an oncoming economic recession? And what does this do to change the prospects for the returns and risks in the financial markets?
With regard to recession risks, the January employment report increases the divergence between leading evidence on one hand, where the broad set of data remains in a conformation that is almost exclusively associated with oncoming recession, and the more favorable, if lukewarm, signs from coincident indicators (e.g. employment, purchasing managers index, weekly unemployment claims) and lagging indicators (e.g. unemployment rate).
read the complete commentary
Also check out:
