Stepping aside from the investment markets! (page 1 of 3)

So far, I have disciplined myself to answer every e-mail I receive, although I have to admit that my responses are frequently brief and incomplete. Moreover, I am often asked questions to which I simply don't have a precise answer, or about topics for which I am not qualified to give an educated opinion.

Our global economy is as complex as life itself. The pricing of asset markets depends not only on fundamentals endemic to the specific markets we may be looking at, but also on numerous exogenous factors that can suddenly become more relevant than a market's specific fundamentals.

Most of my day is spent reading and studying, but when I see so many highly intelligent and knowledgeable analysts, strategists, and economists coming to totally different conclusions concerning the outlook for the economy and investment markets, I usually finish my reading with far more doubts than firm convictions.

I am also mindful that, as Don Marquis (the creator of "Archy and Mehitabel", a cockroach and a cat who offered witty observations about life in the 1920s and 1930s) remarked, "The more conscious a philosopher is of the weak spots of his theory, the more he is to speak with an air of final authority."

The same could be said of us so-called financial experts, whereby the problem usually arises because investors will avoid listening to or reading the comments of an analyst, economist, or strategist who expresses doubts because of the many opposing economic and financial trends.

Investors want to believe in an "expert", in the same way the sick will often believe in a faith healer. They want a clear opinion about the future direction of the investment markets, without any recognition of the fact that, at least 50% of the time, deference to such views will lead to significant losses, as, no matter how diligent we "experts" are, we nevertheless remain largely ignorant of the future.

Therefore, as I sit down every month to write this report, I frequently feel, as Wittgenstein observed in his seventh aphorism, "When you don't know what you are talking about, shut up." Moreover, in view of my conviction that the future is totally unpredictable, my insecurity about providing any advice grows when for some time my forecasts have been proficient.

I then feel that my lucky forecasting streak will inevitably be followed by some horrible calls, which will greatly disappoint investors who have built up great expectations about my ability to analyze economic and financial trends.

Now, this admission may sound like an invitation to my readers not to read this report, when it is simply a warning that, no matter how much we may study and inform ourselves, our knowledge remains extremely limited, and that the markets don't pay any attention to our "strong" convictions.

But even this observation isn't entirely correct. In the very short term, famous market timers and analysts can move markets, but I'm not aware of anyone who wasn't eventually buried by the market.

In the 1970s, Joe Granville was so widely followed around the world that his buy and sell signals could temporarily move the US stock market. However, one bad call in the early 1980s, when he remained bearish, destroyed all the credibility and fame he had enjoyed earlier. I suppose the same thing happened to some well-known high-tech analysts and strategists when, in March 2000, the NASDAQ reversed its rise and began to fall like a stone.

I have tried to overcome my inability to forecast the future by stressing relative values among the various asset markets since in a credit induced asset bubble all assets rise in price but at different rates of appreciation.