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Rex Cattanach Blog

Market Predictions and the Fall of Financial Literacy


Mid-year 2022 when the scourge of inflation was dominating news and the financial journalism it continuously feeds, I foolishly decided to keep a journal of financial predictions appearing in the media. I did that until March 2023, with a few relapses since. I didn’t start it to prove anything. We already knew the mathematical odds of predicting the market are stacked against us.


 Nobody wins that game for long.

We also knew that good asset diversification (not just stocks-to-bonds) and asset location work when we have enough time. Choose your own source: the S&P 500 has trounced treasuries, corporate bonds, gold and even real estate long-term and most shorter stretches too. (NYU Stern School of Business tracks this from 1928 to now.)

 

By the fall of 2022, the dire predictions of economic collapse reached their apex. The most noise could be heard from known actors running hedge funds, investment banks and leveraged buy-out firms.


A few of the headlines from 2022 and even early this year:


“A vicious and ferocious growling bear.”


“An economic hurricane is coming.”


 “The S&P 500 will plunge another 15-25% within the next four months [to 3,100 points (11/15/2022) stocks gained 5.4% that month, fell by (14.4%) for the year, and sits at 4,480  as I write this in mid-August 2023 ─ a phantom fall of (31%).


“The US is going through a ‘textbook’ financial crisis and the S&P 500 won’t hit a new high for a long time (May 2023). This could prove true in whole or part."


“Jerome Powell and his merry band of lunatics are destroying faith in capitalism…”


“The US is heading for a whopper of a recession next year.”


“Crash of a lifetime is here. Sell stocks now” [Aug. 29, 2022].


And my favorite, this one in March 2023 from a widely known corporate raider,


“The US economy is on the verge of collapse amid a string of bank failures and fears of international financial crisis.”


When you predict the markets, sooner or later you’ll be right. Small business hiring has slowed, access to money is tight and expensive, and it’s hurting small businesses, which employ close to half of working folks. We could have a recession in 2023, and some year we certainly will. It’s been that way for 100 years.

These ‘experts’ have deep experience in the industry, sophisticated research teams, and embarrassing riches when it comes to resources to analyze. Yet, they don’t know. Predicting markets without providing useful information and context breeds skepticism and it lowers financial literacy for the rest of us. Folks act on this.


My favorite prognosticator, professor Jeremy Siegel (the only forecaster I’ll name) is bullish today but didn’t start there in early fall 2022, amid the Federal Reserve Bank’s full assault on inflation.


“The Fed is making the same exact mistake it made a year ago, and possibly the biggest mistake in its history. It makes absolutely no sense to me whatsoever, way too tight.” “The Fed is playing with fire…” [Oct. 2022].


By December, he changed his tune: “Stocks are set for a big rally in 2023.” “Stocks are on the cusp of a new bull market” [January 2023]. At least he was consistent last year qualifying that we might avoid a recession, and that if we had one it would be short and shallow.


Whatever clouds our crystal ball, we can see that monetary policy takes time, always lags, and has a poor relationship to the political party holding office.


Could we have a 2023 recession? Of course, we could. The best defense is to have a plan. The best way to beat the market is to not try. Planning means knowing your income is safe, holding some investments where they will beat inflation and taxes over time, improving your tax position, preparing your estate, and planning for risks most of us face in life, such as health care.


A good financial plan connects the dots. It provides tools to help you live an optimal life. Optimal more often than anything else and never worst.

*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets. This material was developed and produced by Advisor Websites to provide information on a topic that may be of interest. Copyright 2021 Advisor Websites.

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