Unemployment forecasts

Equity analysts play catch-up to ever falling earnings, incrementally lowering their forecasts. Bank economists similarly profess surprise at the high number of jobless claims (at a 26 year high), and are incrementally increasing their unemployment expectations of 2009. According to a wsj survey released today, economists on average said the unemployment rate will peak at 8.4% in 2009. Much more likely is a figure above 10%, a view shared by a few prominent economists.

If anything, the constant revisons show how unreliable forecasts are, and how these sow confusion with investors.

Hard numbers for a change: 0% on Treasuries. As Bill Gross of Pimco pointed out, investors get paid zero for taking risk. If investors accept this proposition, what does that say about the stock market's near-term future? The Dow traded at 8,650 a bit earlier today. Where do you guess it will be in 6 months? Yours truly believes it will be lower - likely significantly lower.

Misguided trading strategies

Almost everyone can have an opinion about which stocks to buy or sell. The result? Confusion of the investing public. When generally respected websites like marketwatch.com give a voice to columnists who give seemingly easy to follow trading strategies, they omit to put their advice into perspective. What kind of an investor are you? Do you like to speculate (=day trade) or increase your investments over the long term? This particular advice by marketwatch.com, recommends buying three beaten down sectors once the index has reached an arbitrary technical yardstick. What it omits is the historical perspective: recently beaten down sectors underperform other sectors most of the time. There are many other reasons where the marketwatch column is wrong. I'll leave that for a future post.