Data, what
data?
Although recently released
data indicate very little, if any, inflation in the economy, who can dispute
the profound anecdotal stories indicating to the contrary? Sometimes,
the most relevant data are those that we feel,
not just those we measure statistically. I would also argue that certain “facts” are
simply counterintuitive to what we observe, and these non-inflation data fall
into that realm.
If you have children in
school, you are paying more, not less, each year for tuition.
If you commute to work, your
transportation costs are greater, not less, than a year ago.
If you eat, you know that
foodstuffs are more expensive, not less, than last year.
And yet, food and energy (as
well as tuition, movie tickets, haberdashery, and haircuts) are not included in
the Federal data.
Look beyond statistics.
All of my quantitative tools show higher prices, not
lower, on the horizon. The current
climate of low interest rates is evolving into a secular uptrend in rates, in
part because there is nowhere else to go, but also because debt levels require that we change monetary policy
to restrict excessive borrowing and spending, and to help attract capital to
finance the debt.
Today there exists a duality
in the economic markets, one defined by what we “know” and what we “feel.” “What we feel” leads to a slowdown in capital
expenditures and little incentive for price roll-backs and inventory
expansion. “What we know” is that even
the negative trends must turn around ultimately. Thus the duality creates a fractious market
urged on by speculators, shunned by conservative investors.
Go with what you know.
As with all things, there is
no perfect solution, no black-or-white explanation. Rather than seeking answers at the margins, a
good portfolio investor finds those requirements he seeks within the bell curve
and, hopefully, with the highest probability of current and future
performance. Although what I’m
describing might seem slight, or subtle, it nevertheless defines the conundrum
of today’s volatility. What some might
see as depressed opportunity, others might see simply as depressed potential.
Investing in these subtleties
is risky, which is why I consider my tools best used to quantify, identify, and
maximize the current trends. If earnings acceleration, price performance, and
sustainability can be triangulated, one might emerge from negative trends with
unusually positive results.
That is the definition of
“methodology.”
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