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Fri, 19 Mar 2010 - 20:30
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Daily Equity Report
*Some more comments from and economist*
Earlier in the week, I discussed some comments made by Mark Vitner, senior economist at Wells Fargo Securities. He recently wrote a piece called Reflections of 25 years Following the US economy.
He compiled a list of his favourite 25 rules for analysing the economy. He notes that there are probably many more than this, but that this list has been useful to him over a quarter of a century.
Below are a few more of the interesting points that he makes.
1. *"Capital will always flow to the highest available risk-adjusted rate of return." *Every investment and business endeavor involves evaluating the risks involved in investing in that business and the return on that investment. The greater the risks, the higher the return has to be in order to attract any given amount of capital. Anything that heightens risks in the economy tends to restrain investment and business activity in general.
2. Whenever possible try to *"view the economy through the eyes of a business owner, consumer, and policymaker."* Think about how each would view the current environment and what each would view as risks and opportunities.
3. *"You can learn an awful lot by simply observing."* Some of the best economic indicators I have seen in recent years have been things that I have observed with my own eyes and then verified with the data. If the airports seem more crowded take a hard look at the airline revenue passenger miles, whose growth tends to coincide with real GDP growth. A pickup or deceleration in airline revenue passenger miles may tip you off to a shift in the economy's underlying momentum. While it may seem trivial, the same holds true with retail sales and business at your favourite restaurant.
4. *"Rapid growth nearly always sows the seeds of its own destruction."* Booms generally lead to busts because they lead to overproduction or overinvestment in the sector that is booming
5. Over the past 25 years *"the greatest forecasting mistake economists have made is to underestimate economic growth."* Paying too much attention to all the negatives in the economy tends to make economic forecast too pessimistic. Forecasters tended to overestimate the drag from federal budgets deficits during the late 1980s, the banking crisis in the early 1990s, and most of the subsequent crises that we faced during the past two decades. Many forecasters were also slow in recognizing that the potential growth rate of the economy had increased in the late 1990s with the advent of new information technologies.
Have a fantastic long weekend.
Kind regards
Ian de Lange
info@seedinvestments.co.za
Fri, 19 Mar 2010
--------------040804090109000503010802 Content-Type: text/html; charset=ISO-8859-1 Content-Transfer-Encoding: 7bit
Daily Equity Report
Some more comments from and economist
Earlier in the week, I discussed some comments made by Mark Vitner, senior economist at Wells Fargo Securities. He recently wrote a piece called Reflections of 25 years Following the US economy.
He compiled a list of his favourite 25 rules for analysing the economy. He notes that there are probably many more than this, but that this list has been useful to him over a quarter of a century.
Below are a few more of the interesting points that he makes.
1. “Capital will always flow to the highest available risk-adjusted rate of return.” Every investment and business endeavor involves evaluating the risks involved in investing in that business and the return on that investment. The greater the risks, the higher the return has to be in order to attract any given amount of capital. Anything that heightens risks in the economy tends to restrain investment and business activity in general.
2. Whenever possible try to “view the economy through the eyes of a business owner, consumer, and policymaker.” Think about how each would view the current environment and what each would view as risks and opportunities.
3. “You can learn an awful lot by simply observing.” Some of the best economic indicators I have seen in recent years have been things that I have observed with my own eyes and then verified with the data. If the airports seem more crowded take a hard look at the airline revenue passenger miles, whose growth tends to coincide with real GDP growth. A pickup or deceleration in airline revenue passenger miles may tip you off to a shift in the economy’s underlying momentum. While it may seem trivial, the same holds true with retail sales and business at your favourite restaurant.
4. “Rapid growth nearly always sows the seeds of its own destruction.” Booms generally lead to busts because they lead to overproduction or overinvestment in the sector that is booming
5. Over the past 25 years “the greatest forecasting mistake economists have made is to underestimate economic growth.” Paying too much attention to all the negatives in the economy tends to make economic forecast too pessimistic. Forecasters tended to overestimate the drag from federal budgets deficits during the late 1980s, the banking crisis in the early 1990s, and most of the subsequent crises that we faced during the past two decades. Many forecasters were also slow in recognizing that the potential growth rate of the economy had increased in the late 1990s with the advent of new information technologies.
Have a fantastic long weekend.
Kind regards
Ian de Lange
info@seedinvestments.co.za
www.seedinvestments.co.za
021 9144 966
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