Forecasting Season

By: Matt Garrott
By: Matt Garrott

As the leaves fall from the trees and the temperature starts to drop here in Cleveland, I am reminded that forecasting season is right around the corner. The same people who predicted $200+ oil, hyper-inflation, and multiple Federal Reserve rate hikes for 2015 will be begging for you to believe that they know what is in store for 2016. They do not. Beware predictions of what the market will do, particularly if they are precise. It may be an interesting game to play for fun, but anyone making a prediction on the S&P 500 out to two decimal places is a charlatan.

Predicting the markets is like predicting the weather except that meteorologists realize that predicting the exact weather conditions twelve months in advance is lunacy. The financial entertainment industry is not as self-aware. On December 31st, 2016, what will Cleveland’s exact temperature be? Will there be precipitation? Snow, rain, sleet, mix? Will it be windy? From what direction? These are absurd questions to ask, just like asking where the market will be and why.

We do know that in Cleveland, it gets cold in the winter and hot in the summer. The markets have their own seasons. Dr. David Kelly of JP Morgan is fond of saying the US stock market experiences long summers and short winters. The problem is that investors have a habit of wearing shorts during the market’s winters, getting cold, then putting on parkas for the summer, making themselves uncomfortable no matter the weather. Those who got caught wearing speedos during the blizzard of the financial crisis were often wearing parkas during the recovery and missed out. It doesn’t help that experts have been warning, “Winter is coming” so often that CNBC could be mistaken for Game of Thrones.

Investors need to have a closet of investments that will keep them comfortable throughout the market cycle. During the summer, part of that portfolio will feel useless. Winter will come eventually and then it will be time to put on a coat and hat… Unless you’re my neighbor’s kid, in which case you will be waiting for the bus in shorts and flip flops no matter the weather.

Fairway Scorecard 11-30-2015