Sorting through economic forecasts

(Feature image: Confusion by Procsilas Moscas under Creative Commons license. )

If there is a running theme on these pages, it’s that investors and economic observers should try to filter a lot of the skepticism prevalent in the financial press. At the risk of beating a dead horse, this theme should be emphasized over and over again, for a number of reasons.

First, there’s the nature of the press itself, as well as that of economic observers. In many ways, it’s in their nature to look for bad news when good news is the order of the day. If you don’t think that’s true, then I suggest you look at the endless predictions over the last decade of a bursting of the bubble in Canada’s housing and construction sectors. It has yet to happen, despite many predictions to the contrary.

Learn to develop a filter

As a result, when scanning the current global economic analysis, a similar filter should be used. It’s not just that industry observers look for bad things when good things are happening, it’s that circumstances present themselves that are in some ways unprecedented. For example, is a prolonged boom in the housing sector of this nature the norm in Canada historically? Not really. So, it’s understandable that, using traditional analysis, many would expect one to happen, even though it hasn’t.

Which highlights a very important lesson for investors and economic observers: All circumstances are different. Just because something has happened in the past, it doesn’t mean that it will happen in the future. Alternatively, just because a set of circumstances are new, or unique, it doesn’t mean bad things are about to happen. The world has a way of adjusting to adversity, and recent events are proving this axiom accurate.

The sky isn’t always falling

Specifically, there is no shortage of economic and investment analysis that suggests trouble is on the horizon. However, this is in large part the result of circumstances that really haven’t occurred in the past. Namely, there is a president of the world’s largest economy who is upsetting the world order in many ways, and many observers are still adjusting to this new reality.

Therefore, when you have President Trump starting trade wars, renegotiating trade deals, engaging in unprecedented tax cuts, much of the investment and economic world doesn’t know how to react. But, again, it shouldn’t be a cause for panic. The red-hot American economy is still showing no signs of slowing down, and these trade spats have a way of resolving themselves. Just look at what happened with Nafta.

So, if there is some advice in all this, it’s to look at all the current forecasts with a filter. Don’t take everything at face value. The sky isn’t falling. There is always opportunity out there, even if people are extremely reluctant to see it, or even accept it’s possibility.

ASCEND GRP is an asset-management firm, with offices in Toronto, Richmond Hill, and New York, that services clients seeking investment opportunities worldwide.

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