‘There are those who do not know where it is going and those who do not know that they do not know where it is going’.  That quote is attributed to John Kenneth Galbraith, a famous economist. You’ll see how his quote fits in shortly.

This letter is about the markets, where the forecasting business is huge.

From my experience, I can say that market forecasters are no different than economic forecasters:  Even the ones who ‘have never been wrong’ probably know that any particular view of the future cannot be guaranteed. The ones who do manage to string together a number of correct forecasts usually are also wise enough to know that the more forecasts they produce that turn out well the more they have increasingly been lucky. Anyone who is in the forecasting business will eventually be wrong. Still, some of these gurus don’t see that. The worst are probably those who went against the grain of the moment, made a BIG forecast and perhaps, through some miracle of luck, actually called something right. The details may have been wrong but that is soon forgotten as he is celebrated by the financial media as the guru of the moment. They start newsletters, hold conferences and promulgate more and more forecasts because they are now the celebrated experts. Many of them – perhaps most – will rarely make another forecast as accurate as the one that made them famous.

I’ve been looking at past prognostications and words by market gurus this week, and ran across quite a number of them.  You may recall a 1987 book ‘The Great Depression of 1990′ by Dr. Ravi Batra, a professor of economics.  I’m sorry to say that I bought and read that book back then. Batra was claimed to be one of the great theorists in the world and ranked third in a group of superstars selected from all economists in American and Canadian universities.  The foreword was written by world-renowned economist Lester Thurow who said that Batra’s book was crucial reading for everyone who hopes to survive and prosper in the coming economic upheaval.

The title of Chapter 7 was The Great Depression of 1990-96, He not only predicted the start of the coming depression, but also claimed to know the end. Now for the actual history: The 1990’s saw the largest bull market in history, with the Dow Industrials* rising from 2700 to over 11,000 during that decade.  By the end of the 90’s the book market had unleashed a flood of books about the never-ending bull market.  Remember these? Dow 40,000’ by Elias, Dow 36,000 by Glassman and Hassett, and ‘Dow 100,000’ by Kadlec. The real world then gave us a bear market from 2000 to early 2003 which removed most of the gains of the previous ten years and took the Dow Industrial Index back down to about 7350.

The books were completely wrong, but the authors likely sold a lot of books.  How many forecasts do you find yourself reading and listening to?  Did you ever research to see if any of them ever turned out to be correct?  Maybe ‘close’ to correct?

Seems like I hear multiple financial forecasts almost every week on what we charitably call ‘The News’. You probably do, too. Certainly some of them will prove out to have been correct but likely an even number or more will not. Since it is impossible to actually know which is which, perhaps they should all be taken with a grain or two of salt?

By the way, I have a copy of Batra’s book in excellent condition.  It’s available for $5.


Market Minute 2/24/2017 –
Is a Record-Breaking Market Something to Fear?

The best-selling secular book of all time is the Guinness Book of World Records. This makes some sense I think, as society is often consumed with trying to be the biggest, best, or fastest. It’s human nature. 

When the market breaks records, however, the perception is often negative rather than positive. We are currently in a ‘record-breaking market’ based on the fact that it sits higher today than it has at any point in history. As we watch the S&P* and DOW Indexes* we are beginning to receive calls from clients asking ask if all is well in ‘marketland’. Yesterday (2/23/17) marked the 10th consecutive day of new all-time closing highs for the Dow (Dow Jones Industrial Average). There have only been four times in history that the Dow has closed 9 days in a row at a new all-time high, and only one other occurrence of 10 or more consecutive days at a new all-time high. While this is a note-worthy accomplishment, it’s perhaps more interesting to see what happened in markets after the strings of positive new highs.  

On average, since 1900 the 5 day, 10 day, 20 day, 30 day, and 60 day returns have been positive after a string of 9 days with new highs in the Dow Industrials. Also of interest, the 5 day, 10 day, 20 day, 30 day, and 60 day returns over all of the time periods since 1900 have (on average) been positive for the Dow. However, the average returns following one of the historic 9-day record highs has been greater than the overall averages of the market periods.  

So take a deep breath. While no one knows the future, and past performance is not necessarily indicative of the future, using history as our guide tells us there may still be additional upside potential from here before we see any meaningful decline. As always we will turn to our market indicators and the objectivity of price data to direct us moving forward. As long as the weight of the evidence remains bullish, so too will we remain bullish.  

 

Ronald P. Denk, CFP®
Investment Advisor
Denk Strategic Wealth Partners

Phone (602) 252-8700
Fax (602) 252-8701
Toll-Free (877) The-Denk
www.denkinvest.com
10000 N. 31st Avenue, Suite C-262

Phoenix, AZ 85051

This weekly article reflects news, commentary, opinions, viewpoints, analyses and other information developed by Denk Strategic Wealth Partners and/or select but unaffiliated third parties. DSWP provides Market Information for illustrative and informational purposes only. If you wish to receive this weekly commentary by email please contact us at 602-252-8700 or by e-mail at info@denkinvest.com.

Ronald Denk is an Advisory Representative offering services through Denk Strategic Wealth Partners, A Registered Investment Advisor. He is also a Registered Representative, offering investments through Lincoln Financial Securities Corporation, Member FINRA/SIPC.

Denk Strategic Wealth Partners is not affiliated with Lincoln Financial Securities Corporation. Information in this commentary is the sole opinion of Denk Strategic Wealth Partners. Past performance is no guarantee of future returns. All market related investments involve various types of risk, which include but are not restricted to, credit risk, interest rate risk, volatility, going concern risk, and market risk.

The Update provides information of a general nature regarding legislative or other developments. None of the information contained herein is intended as legal advice or opinions relative to specific matters, facts, situations or issues. Additional facts, information or future developments may affect the subjects addressed in this document. You should consult with an attorney, accountant or DSWP planner about your particular circumstances before acting on any of this information because it may not be applicable to your situation.

Lincoln Financial Securities and Denk Strategic Wealth Partners and their representatives do not offer tax advice. Please see your tax professional regarding your individual needs.

*The indices are representative of domestic markets and include the average performance of groups of widely held common stocks. Individuals cannot invest directly in any index and unlike investments, indices do not incur management fees, charges, or expenses, therefore specific index returns will be higher. Past performance is not indicative of future results.
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