top of page
  • Martin Sosnoff

Beware Rosy Forecasters In Their Rose Gardens

Before acting on any market forecast, especially from an economist, I’d ask to see his tax returns past several years. Was he a money maker for himself at least? You don’t want to act on or even care what he thinks can happen next 12 to 24 months.  Unfolding interest rates for the country, inflation and stock market action.

Our financial press deals with 12-month forecasts from  international agencies like the International Monetary Fund. But the IMF has referred to its own forecast as normally wide off the mark and worthless for enacting any new policy initiatives. Editors don’t understand such news, incapable of analyzing all this, they endorse all such crap.  

Alan Greenspan, when head of the FRB,  changed its discount rate dozens of times over his decades of control. Today, our FRB is afraid of its own shadow and keeps hands in pockets.

Oh my God! The latest report on employment shows unexpected growth. How can they cut interest rates until job growth sloughs off? But it won’t comply. 

My own market sense has been too bearish. I’ve been wrong on trend and direction in the stock market. Unlike most analysts and forecasters, I act solely on my own conclusions. I stand approximately 50% long and have avoided many super growth like Nvidia, Apple, et al. 

For years, I’ve carried Microsoft, Amazon and Alphabet. Financials like bank stocks don’t get my money.  I do own Goldman Sachs, but not JPM. Other financial property I own is a countercyclical play on home owner’s insurance rate inflation, namely American International Group. Their rates wax so punitive that I’m thinking of selling off my three homes and moving into a double-wide.

All I need to get this done is convince my little lady that this makes sense and that we’ll be comfortable. Our Social Security stipends alone with IRA distributions can carry us comfortably .

Consequences for my bearishness and low investment profile is that my net asset value is unchanged. Not exactly a calamity.

Remaining 50% of assets rest in the fixed income sector with  high yield debentures of BB quality and average duration of five years. This paper has barely held its own in the bond sector. Residual fear of  recession and rising inflation as yet grips this market sector. 

Meanwhile, I retain a sizable position in 2-year Treasuries and some 10-year maturities, as well. There is as yet a sizable negative yield curve in the 10-year paper at 4.3% and 2-year bonds at 4.75%. 

Nobody remarks on such a singular disparity. Hey guys? Why aren’t you commenting on this unusual condition? What is such a disparity forecasting and what can make it change direction.

 Anyone holding 10-year Treasuries currently approximating a yield of 4.3% must feel recession, maybe a deep one, is around the corner.  Plus, a general collapse in inflation and interest rates coming soon. 

The low yield on 10-year bonds must be attributed to professionals who sense lower interest rates coming.  Meanwhile inventory in a typical pie chart configuration, 60/40 equity to debt, could see both bonds and stocks  decline symmetrically. This happened in 2021 and portfolio shrinkage hit 21%. Wealthy,  serious, investors who thought they were pretty much secure learned otherwise.

 I take some solace in my conservative investment posture and my sleeping comfort. What’s yours? 

Few of us recall that the market can sell closer to 10-times earnings than the present multiple closer to 20. 

It ‘s as if nobody cares to speak up on how out of whack valuation can run or the negative yield curve no longer carries any weight.

129 views1 comment

Recent Posts

See All

1 Comment

George Robertson
George Robertson
Jul 03

Think I would be worth your time to discuss. An essential error in the market now is not to realize that since Jan 2022 the US Treasury 10 year is not the US risk free 10 year rate. Once this is realized a redo of macro US is required which then fits the last 4 years of economic growth. This, I think, gives greater clarity in coming up with a forward view. Love a dialogue.

Post: Blog2_Post
bottom of page