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Forecasts vs. Expectations

We’re back with weekend reading this week after we conducted an interview with Morgan Housel last week. If you didn’t catch that interview, you can find it linked below.

Markets continued with positive momentum this week in spite of global social unrest and weak economic data. As we have been communicating throughout this crisis, the financial markets have historically demonstrated the ability to anticipate a better tomorrow in spite of negative current events. For this reason, we generally recommend having several years of expected distribution needs in short-term reserves in order to avoid the temptation to time market movements.

We hope everyone is having an enjoyable start to Summer. As always, we are available to meet at your convenience.

Below is this weekend’s recommended reading:

Permanent Assumptions (Morgan Housel, Collaborative Fund)

Another great piece by Morgan Housel. As he suggests, no one has any idea what’s going to happen next with the economy or society (or the markets, for that matter). However, there are several undeniable truths to fall back on when the world seems chaotic. He describes nine.

One of most important to understand is this:

The world breaks about once a decade. There are so few exceptions it’s astounding. It can be economic, political, military, social, or a mix. But it breaks all time, in ways few see coming. The breaks aren’t as scary if you have a permanent assumption that they’ll keep happening and don’t preclude long-term growth.

This goes back to Q&A discussion with Morgan from last week. From an investment perspective, forecasts are worthless and potentially dangerous. However, if you expect that at least once per decade the world “breaks”, then you can structure a portfolio that accounts the occasional breakage.

On May’s Big Jobs Shock (Fisher Investments)

US employers added 2.5 million jobs in May, unbelievably beating consensus expectations of 7.5 million lost jobs. This is obviously a positive signal that the reopening of the economy is happening faster than originally thought. As Fisher states, unemployment and jobs data are typically lagging and not relevant for formulating a market or economic outlook. However, it is simply great to see some positive information in the midst of the lingering pessimistic news.

Six High Frequency Indicators for the Eventual Recovery (Bill McBride, Calculated Risk)

The author goes through 6 high frequency metrics to judge the level of economic activity occurring on a daily basis. In summary, people are beginning to come out of hiding and return to a somewhat normal life. As we noted in our May 8th newsletter, activity is still below pre-Covid levels, however, it is trending in the right direction. The author points out that the following continues to increase (1) TSA daily throughput, (2) OpenTable bookings, (3) Hotel occupancy, (4) Gasoline consumption, and (5) Walking and driving. The only data point still at essentially zero is gross box office receipts. Most movie theaters are still closed across the country.

We hope everyone has a happy and safe weekend. Please give us a call if you have any questions.


This newsletter contains general information that may not be suitable for everyone. The information contained herein should not be construed as personalized investment advice. Past performance is no guarantee of future results. There is no guarantee that the views and opinions expressed in this newsletter will come to pass. Investing in the stock market involves gains and losses and may not be suitable for all investors. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security.

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