We live, work, and play in a world where information flows constantly. Much of that information is needed to get our jobs done, and because of that, we need to know that it is reliable. This is certainly true for those whose business is the market. We need information to parse, to analyze, so we can draw conclusions. Now, the interesting and difficult part of this is that we need the information to “predict” the future. We need to know where the market is going so we can be there when it arrives.
Herein is a problem, and it is a big one at that. It is a problem I have written about before, and it is one I will write about again, I am sure. Economists are highly educated folks who live and breathe economic information. It is their job to parse, to analyze, to draw conclusions about the economy, and within that broad scope, specific markets as well. For example, the housing market is a key driver of economic activity, so it is important that economists have a handle on the particulars of that market, one of those particulars being prices. Now, take a look at the “prediction” below.
Treasuries rose before a report that economists said will show U.S. residential real-estate prices dropped.
Now, take a look at the fact, a fact that just came across the wires this morning.
Spring buying pushed home prices up for a third straight month in most major U.S. cities in June.
Okay, so if you made a play based on the prediction of the economists selected for the first news article above, you would have been wrong. So what to do? Do we simply ignore the economists? No, that is not the answer. We need them, just as we need the market analysts who, by the way, are wrong a lot. No, what we all need to understand is that economic and market analysis are an art, not a science. We need to understand that there are empirical facts, such as the one above, and it is our job, to the best of our ability, to find and analyze those facts. It is our job to then draw conclusions based on our own understanding of the economy and the market.
Then what is the value of economists and market analysts if their conclusions are suspect, hit and miss, or often wrong? Well, they have plenty of value, I say. The trick is not to rely on their conclusions. The key is to analyze their analyses. You see, within any competent analysis, there should be a process that relies on facts, and it is this process that has value. You see, economists and market analysts have facts, but they don’t always have all the facts. In fact, rarely does anyone have all the facts. So, if you are doing what you should be doing, which is learning all you can to understand the big picture, you just might have a fact or two a particular analyst did not. Better yet, you just might be able to place his or her facts in a frame better suited for predicting where your market of interest is going. That way, you can be there when it arrives.
Trade in the day – Invest in your life …
