In Search For The Perfect Excuse

David Frost // Blog


August 28  

There are various interpretations of responsibility and leadership.  As it relates to the current economic overhang that has so many people concerned, confused and in search for a solution, we think until there is a simple acknowledgement of ownership – no solution will be agreed upon or realized.

Pointing to the recent shenanigans in Washington as the reason for our S&P Debt downgrade is at the very least, disingenuous.  It’s like a child who has a bank account for the first time, they get a check book, and think as long as there are checks left, they can spend whatever they want.  All of a sudden the day arrives where the bank sends an overdraft notice and the parents blame the child for over spending.  If nobody ever explained to the child how money and banking works, who’s fault was it?  Shouldn’t the parents take some responsibility?  Placing blame is always the path of least resistance, but in the long term never works.  Why would anyone blame Standard & Poors for our downgrade, they didn’t spend the money, we did.

It’s very reminiscent of some recent and developing events and circumstances.  Let’s go around the  globe and take a look.  Start with the horrific tsunami that hit Japan in March 2011.  As it relates to the stock market and the media – we find it fascinating that current events can be blamed for longer term problems, mainly out of convenience. Here is a typical headline found after the tsunami hit: “Japan quake and tsunami causes stock market drop”  The problem with this line of thinking is that beginning on February 18, through and beyond the tsunami, the market was extremely volatile and already in a downtrend.  However, abruptly following the events in Japan, the media immediately re-assigned the excuse which became the prevailing discussion until the market turned back up a week later.  Why would the US stock market be down because of Japan?  The short answer is, it wouldn’t.  The proof is that it was down long before the tsunami hit which you can look up and verify for yourself, the numbers never lie.

Much different and longer lasting widespread economic issues exist throughout the European Union.  Originally, the contraction and debt problems were believed to be confined to the so called “PIIGS.”  (Portugal, Italy, Ireland, Greece & Spain)  Now the discussion has been expanded to the lack of growth in Germany and France, austerity in the U.K. including budget cuts and a host of other issues.

The reason to bring up these circumstances is not to minimize them, they are certainly real and problematic, but to point out that each time our stock market begins to trend downward, the media looks to assign the excuse, and lately it’s Europe.  The problem with this line of thinking is that our current problems have nothing to do with Europe.  You won’t hear this from the mainstream media, or the published economic data, but its likely we never came out of the recession from 2008.  Employment is worse, businesses are still closing, real estate prices continue to fall, state and local governments have pension and budget shortfalls and our debt rating was downgraded to a generous AA+ for the first time in history.  These are all issues that have nothing to do with Europe or their problems.  These are our dilemmas and can only be dealt with head on.  However, whenever the stock market goes down, everyone first looks surprised, then looks to search for the “reason” why.

Unfortunately, our economy and political system is too inter-dependent upon one another, and as a result our politicians fail to realize they are mostly limited in having a direct positive impact on American prosperity or any of our capital markets.  However, during periods of tension, they can’t help themselves in participating in a massive blame game in an effort to deflect the necessary and mandatory conversations that ultimately will have to take place.  It is nearly impossible for the majority of politicians in Washington to acknowledge that they are the problem rather than the solution.  After all, how can an entire Congress and Senate admit that everyone would be better off without them – collectively.

Back to the markets.  In order to be successful, the first order of business is to disconnect from the cause and effect mentality which is found at the core of most market discussions.  For example, gold is on most everyone’s mind mainly because of two reasons, the media attention and less important, the recent rise.  Why is the recent rise less important?  Gold has been moving up in price for over 10 years.  The media attention is the reason why people are interested now.  Think back to very recent history the reasons given why gold was up on any particular day.  For several months, we heard it was the US Dollar.  The stock market was up, gold was up and the dollar was down, therefore that was the reason.  Then the conversation shifted to fear.  Gold was up because of “fear in the markets.”  Another is the “flight to safety trade.”  Since when is anything that can and does move up or down several percentage points in a given day, week or month considered safe.  Ask a simple question to anyone, “if you wanted to keep your money 100% safe, what would you put it in?”  How many people would say gold?  If gold is up now and the dollar is not moving down (it has remained steady during the recent gold rise), how could that have been the reason gold was up before?  It can’t, which is the point of the discussion.  The reasons come after a directional move and are out of necessity rather than objectivity.  When a market moves in a particular direction, the need for another market to be the reason is at best, bush league.

Our philosophy is that all markets move independent of one another, and all forecasts should be treated as such.  The majority of financial analysts and pundits simply cannot grasp this concept and will continue to manufacture excuse after excuse on why a price movement occurred.  They treat a market as a living organism rather than recognizing that its people that make a market and furthermore, the emotion of making a decision that ultimately determines price discovery.

Our forecasts are meant to provide simple directional moves for markets before they take place, not an excuse for why something happened after the fact.

We do things completely different than most analysts.  To learn more about what we do and how we do it, watch our short six (6) minute video here, and try our forecasting service for a couple of weeks, freeWhat is the best way to find out if you like something?  Try it!

About the Author

Trading and investing in markets is second nature to some, but a mystery to others. The goal is to provide a forum where everyday people aspiring to be part time or full time traders will learn how view markets differently and profit beyond their wildest dreams.

David Frost