I am always telling you that to be a successful trader, you need to understand the big picture. As I was doing my morning reading, it occurred to me that the term “big picture” is somewhat blurry. So, to bring the idea of the “big picture” into sharper focus, I decided I would tell you a bit about how I define the big picture …
To me, the big picture is about two things – the current state of the economy/markets and the future state of the economy/markets. Now, understanding both the current and future states of the economy/markets is a big project, as the volume of data flow is almost incomprehensible. It reminds me of the words in a song from the movie, Midnight Cowboy, “Everybody talkin’ at me – can’t hear a word they’re sayin’ …”
So, to deal with this, I listen little and research a lot. For example, if I were to draw conclusions about the current state of the economy/markets strictly from the multitude of talking heads, my conclusions would be as muddled as they are. No, I use the talking heads to give me clues, and then I check it out. For example, the talking heads will say, “business credit is still tight,” or “business credit is loosening up.” Well, that “information” is vague, and, as well, it might be inaccurate. I want facts, not opinion, so I check it out.
Every Thursday, the Federal Reserve releases Monetary Data, and part of that data are facts on Consumer and Industrial (C&I) lending. Recently, the data pointed to one of the most important clues that our economic recovery is in full swing, as it relates to business credit. Since October of 2008, C&I loans have fallen some $300 billion. Well, guess what? For the first time in almost two years, C&I loans increased some $31 billion. For understanding the big economic/market picture, this fact far surpasses the general conclusions of the talking heads.
Taking my thought process one step further, aside from the obvious conclusion that banks are lending to businesses again, the fact that these are C&I loans tells me that businesses are funding rising inventories, which means more production, which means more sales, which means more jobs, which means more consumer spending …
I find it fascinating that with just a bit of work, anyone can factually know as much as the talking heads, and more in some cases. It is also fascinating because in my discussions with people about the economy/markets (anything else for that matter), I constantly hear the talking head conclusions (in both directions), but the folks espousing them are parrots; they cannot go deeper than the conclusion because they have no facts. So, their knowledge is directly dependent on their talking head of choice, which means, their bias is the same as their chosen talking head’s bias. Sadly, in all areas, this is the state of “debate” in our country. When it comes to trading real money, though, debate is useless. Facts are what leads us to conclusions that help us understand the big picture, and that helps us make good trading choices.
Monday, I will give examples of how I view the big picture when it comes to the future state of the economy/markets.
Trade in the day; invest in your life …
