By PINCHAS LANDAU
A friend pointed me yesterday to the Pragmatic Capitalist site's "Ultimate Guide to 2010 Investment Predictions and Outlooks." Here the blog has "compiled many of the very best outlooks from various analysts, gurus, hedge funds and investors," to use its own words. This is an admirable and useful effort, although I fear that the sentiment with which readers are set to work - "We hope you find the list helpful in mapping your successful 2010" - may be overambitious, not to mention wishful thinking.
Frankly, it is difficult to see how the list can be "helpful," since even the most cursory examination of its contents reveals a huge range of opinion regarding pretty much everything on the agenda. One simple example will suffice: the views of the two Wall Street behemoths, Goldman Sachs and Morgan Stanley, regarding the direction of the equity market in 2010.
The headline over the summary of Goldman's forecast is: "The bull will continue." You can assume that means the bull market, in which prices rise - not the other kind of bull, although that will surely continue. The actual forecast is couched in suitably professional jargon; e.g., "Continued profit margin resiliency from prior aggressive cost reductions should drive strong returns in early 2010 and push the S&P 500 towards 1,300," so the headline is not missing the point.
But over at Morgan Stanley, they seem to be living on a different planet, because its summary headline is: "Stocks are set to decline in 2010."
Don't even think of reconciling these with some Talmudic casuistry, such as "Goldman is talking about early 2010, while Morgan is relating to the whole year." These are serious analyses, with clear assumptions and even clearer diagrams setting out models of business cycles and explaining why it is virtually inevitable that, given where we are in the cycle, stocks will go up (Goldman) or down (Morgan).
In other words, even the biggest mainstream players have fundamentally differing views not merely about which direction we are headed, but about where we are on the map. But there are also plenty of non-mainstream analysts who are saying that there's no use going with either Goldman or Morgan, because they are using old maps, while the topography of the area has been completely changed by recent earthquakes and meteorite showers.
The same applies to all the other forecasts, whether they relate to the global economy or that of specific countries and regions, or this or that financial market, etc. The spectrum of views has always been big, but at least in the past there was a consensus about some basic concepts. Today, even these are open to doubt, so that conclusions drawn from analyses that use these basic concepts as their implicit assumptions are inherently tenuous.
Again, a simple example: If you assume that the US is currently recovering from a recession, albeit a very severe one, then it is reasonable to use as guidelines the patterns of recovery that followed previous recessions. If, however, the recession of late-2007 to mid-2009 was not a mere cyclical recession, but rather the onset of a prolonged depression - a very different creature in every respect - then the experience garnered from post-WWII recessions is at best useless and at worst a source of confusion that will mislead you. That's why the parallel of the old map is valid.
If you were prepared to follow the analysis, conclusions and advice of any one source, you could avoid the problem of having to think for yourself. That, however, would require almost blind faith in one particular person, entity or methodology. Unfortunately, after so many reputations have been shattered and even entire institutions have collapsed because the models they built and followed failed them, there are not many people left who work on blind faith any more.
There are still many who use momentum mantra ("go with the flow," "the trend is your friend"), but that merely substituted joining the herd for following the advice of one person. In neither case is any effort made to think independently. But there again, most people have forgotten how to and would really rather not.
landaup@netvision.net.il
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