October 30, 2007

Pre-Fed Update

So I was pretty much dead on: GS went to from 190 to 240; GOOG went to Pluto; oil closed at $93 yesterday; and gold went from $720 to $792. As for Dow 15000, wait a month. I was even right about Angelina Jolie; I was wrong about the corn, though.

Tomorrow the Fed will cut .25 because, and this is important, everyone expects them to. I think they would rather not cut, because they see an inflationary picture, high oil, high gold, and strong employment, and no obvious slowdown in consumption. But the Fed game is about managing expectations, because surprise actually hurts the market more than the "wrong" decision. In this case, though, it's the right one. The inflationary picture only applies to rich people; to the others, the picture is recessionary: they're living on credit. Or off their house's value, which turns out is made of gingerbread.

If you want the next investable tip, it's Vegas: put money down on a Republican President. Or, if I am wrong and they don't cut, double down on Clinton.

(Long GOOG, gold, oil; still short Iran, and about to cover on Angelina Jolie.)


Here's a psychiatry angle:<... (Below threshold)

October 30, 2007 4:10 PM | Posted by Jim Lipsey: | Reply

Here's a psychiatry angle:
Did you actually invest in your predictions? A number of studies have shown that people make better investments in simulated markets than when using their own money. When nothing is at stake, we tend to take more volatile positions that average out to a higher rate of return.
However, predictions markets, such as the ones that allow gamblers to bet on political candidates, do a better job forecasting outcomes than polling folks with no financial stake.

You are very right, but one of the reasons people seem to do better when their own money is not at stake is that there is not a rigid standard of accountability. It's easy for me to say, "buy GOOG," but unless we write down the precise time-- not just what day, the price fluctuates intraday-- then it's easy to redefine your endpoints. This is why "paper trading" is not as good practice as a "practice account" (that, strangely, only currency/commodity trading platforms offer.)

In my case, I absolutely invest the way I call it. I'm not particularly adept at reading a balance sheet, and technical analysis, while helpful seems to me only a shorthand for the method I actually use: investor psychology. Something I do-- that I'm surprised I've never heard anyone else do-- is I DVR some "episodes" of CNBC and save articles describing that day's sentiment, and go back to it on other, opposite, days. For example, it is very instructive to watch how CNBC described the GS/Countrywide/etc meltdown when the markets were tanking _on a day when the market is up_ and those same commentators are saying how good the market is. It's not enough to "remember" the coverage, you have to witness it, emotions and all, on a different day when those sentiments supposedly don't matter. Then you can really gauge how "real" todays movement is. Also, you start to be able to see who flies with the wind, and who is/was right, and under what circumstances they are right or wrong, etc.

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You do know it's not about ... (Below threshold)

November 1, 2007 9:16 PM | Posted by Stephany: | Reply

You do know it's not about oil it's about water.

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