9 January 2017
It is amazing how much brainpower is dedicated to thinking about the big-picture macro issues and staying up-to-date on the minutia of the daily financial news flow. News on US non-farm payrolls, China’s latest PMI reading, and Yellen’s latest utterance consume considerable media and investor attention. In our opinion, all of this can be a time-consuming distraction for investors and confuses their ultimate goal: building and protecting wealth.
The economy is unpredictable
Investment success is ultimately determined by what happens in the future, and trying to pick the big-picture macro issues is extremely difficult.
The economy is practically infinite in size, is interlinked, and is self-adapting. In science speak, the economy is a ‘complex adaptive system’. In simple terms, it is all over the place. Just one of the many reasons given for the recent run up in the iron ore price was a flower show in October in Tangshan, an important industrial Chinese city whose steel mills have been told to shut down in an effort to reduce pollution in time for the show. Notice of the shutdown brought about a build-up in steel inventories beforehand, bringing forward demand for iron ore which is used in its production. Thus, to ensure some healthy gerberas in China, we saw the iron ore price run up hard, Fortescue’s stock price double, Western Australian and Federal Government budgets get a boost, and a range of other economic consequences including a strengthening Australian dollar. It is doubtful, however, that economists will incorporate flower shows into their calendar of important upcoming events.... to continue reading, click here.