Today’s durable goods report was soft and perhaps disappointing. That seems to be a recent trend. It’s easy to dismiss a bad economic number that misses as a one-offs, especially when the equity markets are in bull mode. Same goes for earnings reports.
But when does something reported become ominous? Is a flattening yield curve or equity valuations being stretched qualify as ominous? Certainly dark clouds and lightening on the horizon portend something threatening, but do we have the conviction and trust to rely on one or two, or a series of reports when we’re making our investment decisions? Doesn’t the mosaic view work best?
This weekend’s Barron’s had a small column on the Hindenburg Omen. It was designed to bring attention to an indicator that was flashing red. Ominous indeed. But I say trust the big picture and give credence to the factors that matter. By ignoring any particular or group of technical indicators we do so with the same peril that we ignore a stopped watch. Being right only twice a day or even every now and then doesn’t mean it has predictive power. Trust the data, don’t get too far removed from the important macro factors, and don’t try to predict (another word for time) where markets are headed.
Discipline is required. In the words of Lao Tzu:
“Those who have knowledge, don’t predict. Those who predict, don’t have knowledge.”
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