Who To Trust?

Who do we trust? That is an open question. Lots of answers possible.  

I guess I’d have to consider the context of both the question and answer; for example:

1. Financial advice; short term or long?
2. Investment advice; market conditions; when to get in and out
3. Home sales or purchase support: what makes the most sense for me? Us?
4. International economic direction, advice, understanding; how do we make the best of international trends for them and us?
5. Political issues: understanding them in their local, regional, state and national context; they are not always the same; how insular should I be?
6. Which politicians think clearly and intelligently; which react emotionally, or at least put their emotion face toward the public? Ah. Games! Who’s playing them?
7. Which issues are the most important to our communal life?
8. Which issues are the most important to me?
9. Which issues are the most important to the world community?
10. Which priority issues list should I support?

I won’t discuss each of these questions, just a few.  First one is #1. There are a lot of financial institutions ready to ‘serve’ your needs. Which ones treat you as a potential success? Someone or your organization which will also propel the financial institution to long term success? Forget that all should treat you this way because it is in their long term interest whatever your financial status. Unfortunately we all know banks don’t always treat their customers well. They all too often see the customer as a profit center that needs to be ‘worked’ to produce the greatest income stream. The rep may even be on commission to incent him to produce those income streams.

You know when you are treated with respect, confidence and a helpful nudge toward healthy financial decisions. Options will be spelled out; risks will be laid out; benefits will be described fully. Expect this treatment. If not available, move your relationship to another institution. My favorites are credit unions. They are cooperatively owned by the depositors. Management’s mission is to help you attain your highest financial outcome. That’s good for you, and them! Check it out.

Second, financial markets: stocks, bonds, commodities, interest rates…the whole gamut. Values go up and down. They pit demand with supply and place a value on it. The nature of these markets is movement. Buy low and sell high. Do that consistently and you will do just fine. Trouble is market conditions shift and sometimes quickly; sometimes they move with sharp declines and soaring ascents. Money is made on each trade no matter what. Someone wins, someone loses. The trader or account representative earns fees for the trade whether it is good or bad for the principals.

Knowing what will happen in a market falls to the ‘experts.’ Trouble is these experts are just about wrong as much as they are right. So the risk is yours to decide. Following the Dow Industrials performance for the past 3 years, one would think the country has gone schizophrenic. Huge ups and downs. Ratcheting and dizzying market closes.

Problem is no one really knows what to expect and therefore they have little to tell you about what you should do. Current market conditions are also affected by public opinion, news reports, emotion, loyalties (both wise and misplaced!). The question of trust forces me to ask: is market behavior manipulated in any way?

My answer is yes. Sometimes cynically, I just know someone is fiddling with news, with expectations, with immediate versus longer term results; you know what I mean. If markets are driven by expectations, is the basis behind those expectations being reported accurately?  Take employment data. When monthly employment data is reported by the feds, markets expect the data to show declines, increases or stability. The latter is OK if the economy is humming along. If it isn’t, then growing or ebbing employment figures will cause price instability on the markets. But there is a problem with how these reports are processed by the markets. They appear at a moment and are digested instantly; a day or two later, sometimes weeks later, amended data is made available showing the original report was inaccurate. This happens quite frequently. Then there are those analysts who make mountains out of mole hills. And some of these have political axes to grind.

If you doubt the latter, watch CNBC on week day mornings. Early shows are often much more politically conservative than later ones. The later programs do more analysis of the data and seek broader meaning from market behaviors and prescriptions of expectation. There appears to be more thought and discipline employed in those programs than the earlier hours. Is this incompetence or deliberate misleading?

I think markets need to be viewed with a wide angle lens. View what came before, what is happening now and what will likely happen next, and by how much? Track those thoughts daily, even hourly. If you are serious about reading the markets and making investment decisions accordingly, homework is needed. Rely on your own sense of it. No one else will take responsibility for your risk. Only you can.

Today as I write this the Dow is down 168 points on a job report that was less than expected. Mind you job creation increased for the 26^th consecutive month; however, instead of 180000 jobs only 130000 jobs were created. But unemployment dropped from 8.2% to 8.1%. Oh, and the previous two months of job creation data were amended to count an additional 50000 jobs that were uncounted. So more good news.

So why did the market plummet? Because some political wags in a political season want to paint a picture that the economy is not improving. Thus Republican candidates should be supported in November. What nonsense and bosh!

Economic recovery is everyone’s job. It occurs every day. By hundreds of decisions in high places, and thousands of decisions in lower places. Which side are you on? Building up or tearing down? Now that really affects expectations!

 

In another market arena, real estate values are depressed currently. They will rise eventually due to supply and demand dynamics. A business decision made today may have an effect on the market today or 6 months from now. Those decisions need to be studied to determine if they will drive trends that will affect market pricing.

Real estate prices are a good barometer of what’s going on in our country these days. It also mirrors education, intelligence, data gathering, analysis and business acumen. Some will say low real estate prices should be cleaned up by writing off all the property values underwater, then resell them and move on to a market that is clearly straightened out! 

It is not that easy. There are tens of millions of people who need housing but no longer have the credit to purchase a home. Thus rents are rising and home prices are falling. To better stabilize the market and protect owner equity, we need to find different ways of using available housing and soak up the supply with different demand trends. Sounds easy but it isn’t. However, nothing will happen with this idea unless property owners and managers see the problem differently and more creatively. There are ideas out there to make this happen. Trouble is, using old thinking keeps the answers hidden. Fresh thinking is required. By the experts. And government agencies.

Will anyone listen? Is anyone willing to act? 

March 5, 2012