2016 Silver Bullet Awards Part Two
Each week I try to give special attention to those who do important work, even though it is probably unpopular. These contributors are so important, and their work is so helpful, that we recommend taking another look at the end of the year. (Part One is here).
One-by-one she asked all of the key questions in the current debate over Fed policy – potential for negative rates, Brexit impact, does the Fed make decisions based the economic impact abroad, the state of the economy, recession potential, employment, George Soros, and the strong bond market. Whether or not you agree with Vice-Chairman Fischer, it is important to know what he thinks.
Sara Eisen displayed first-rate journalism, as expected from a Medill School graduate. Unlike so many other financial interviewers she did not argue with her subject nor push her own agenda. She did raise all of the current Fed misperceptions common in the trading community. Her preparation and poise helped us all learn important information. It was well worth turning off my mute button and dialing back the TIVO.
We gave the Silver Bullet to Justin Fox for his writing on one of the most persistent myths – the manipulation of government statistics. His whole post is available here, but we particularly liked this bit:
First, because I know a little bit about the people who put together our nation’s economic statistics. The Bureau of Labor Statistics, Bureau of Economic Analysis and Census Bureau are run on a day-to-day basis by career employees, not political appointees. Even the appointees are often career staffers who get promoted, and many have served under multiple administrations. When top statistics-agency officials do leave government, it’s often for jobs in academia. Credibility with peers is generally of far more value (economic and otherwise) to these people than anything a politician could do for them.
To those with even basic experience in civil service, the political manipulation theory makes little sense.
Ben Carlson won a Silver Bullet for investigating the apparent link between Fed meetings and stock performance. While many (including at least one WSJ writer) took the rumor at face value, Ben asked a clever question: What happens if you change the starting date of the analysis?
As it turns out, any relationship between the two is likely a result of 2008.
Menzie Chinn was a big winner this year. Professor Chinn, a Wisconsin economist, debunked many annoying data conspiracies in one fell swoop. In so doing, he also illustrated how an inappropriate use of log scales can mislead readers.
We called his piece the most profitable thing for investors to read that week – if you missed it, be sure and catch up!
By late in the year, it was increasingly apparent that individual investors were misreading the VIX as a “fear indicator” rather than a measure of expected volatility. Chris Ciovacco did an excellent job in making that distinction. His image here is particularly persuasive.
Shiller’s CAPE method has often caused some eyebrow-raising on A Dash, most notably since he doesn’t use it himself. Justin Lahart of the Wall Street Journal thought to analyze just how this method (and others like it) would work in practice:
For New York University finance professor Aswath Damodaran, this is the real sticking point. He set up a spreadsheet to see if there was a way that using the CAPE could boost returns. When the CAPE was high, it put more money into Treasuries and cash, and when it was low it put more into stocks.
He fiddled with it, allowing for different overvaluation and undervaluation thresholds, changing target allocations. And over the past 50-odd years, he couldn’t find a single way he could make CAPE beat a simple buy-and-hold strategy. In the end, he doesn’t think it represents an improvement over using conventional PEs to value stocks.
“This is one of the most oversold, overhyped metrics I’ve ever seen,” says Mr. Damodaran.
Mr. Shiller agrees that the CAPE can’t be used as a market-timing tool, per se. Rather, he thinks that investors should tilt their portfolios away from individual stocks that have high CAPEs. But he says he isn’t ready to modify his CAPE for judging the overall market.
With the blogosphere in full election season fever, some started to worry that the 2016 stock market gains were a precursor to something much worse. We gave the Silver Bullet to Ryan Detrick of LPL Research for discrediting this argument with two easy charts:
We make a special effort to recognize writers trying to debunk the endless onslaught of recession predictions. Bill McBride of Calculated Risk did this very effectively, with a few key points:
Note: I’ve made one recession call since starting this blog. One of my predictions for 2007 was a recession would start as a result of the housing bust (made it by one month – the recession started in December 2007). That prediction was out of the consensus for 2007 and, at the time, ECRI was saying a “recession is no longer a serious concern”. Ouch.
For the last 6+ years [now 7+ years], there have been an endless parade of incorrect recession calls. The most reported was probably the multiple recession calls from ECRI in 2011 and 2012.
In May of , ECRI finally acknowledged their incorrect call, and here is their admission : The Greater Moderation
In line with the adage, “never say never,” [ECRI’s] September 2011 U.S. recession forecast did turn out to be a false alarm.
I disagreed with that call in 2011; I wasn’t even on recession watch!
And here is another call [last December] via CNBC: US economy recession odds ’65 percent’: Investor
Raoul Pal, the publisher of The Global Macro Investor, reiterated his bearishness … “The economic situation is deteriorating fast.” … [The ISM report] “is showing that the U.S. economy is almost at stall speed now,” Pal said. “It gives us a 65 percent chance of a recession in the U.S.
The manufacturing sector has been weak, and contracted in the US in November due to a combination of weakness in the oil sector, the strong dollar and some global weakness. But this doesn’t mean the US will enter a recession.
The last time the index contracted was in 2012 (no recession), and has shown contraction several times outside of a recession.
We strongly recommend reading the original post in its entirety.
Jon Krinsky of MKM and Downtown Josh Brown both earned the Silver Bullet award in late 2016, for taking on myths about currency strength and stock performance. In sum: there is zero evidence of a long-term correlation between stocks and the dollar.
Our final Silver Bullet award of the year, given on New Year’s Eve, went to Robert Huebscher of Advisor Perspectives. His full article is definitely worth a read, but choice excerpts follow below. Good financial products are bought, not sold!
But I caution anyone against buying precious metals from Lear Capital. It is not an SEC-registered investment advisor and its web site states that there is no fiduciary relationship between it and its customers.
For example, Lear will sell you a $10 circulated Liberty gold coin (1/2 ounce) for $753.00 (plus $24 shipping). I did a quick search on eBay and found a circulated Liberty coin selling for as low as $666 (with free shipping).
As always, you can feel free to contact us with recommendations for future Silver Bullet prize winners at any time. Whenever someone takes interest in defending a thankless but essential cause, we hope you’ll find them here. Have a Happy New Year and a profitable 2017.