Expert: Recession is coming - but we don't know when

All too often investors are faced with ambivalent forecasts that are of little use for the management of their portfolios. It is no secret that recessions happen on a regular basis. But when exactly is the next recession going to arrive?
Credit Suisse CIO says a recession is coming

How are Investment Bubbles created?

Highly paid 'experts' working for Brokerage firms or Investment Managers tend to be chasing price momentum when making investment recommendations or investment decisions. No one blames them for being wrong as a consequence of following consensus opinions but missing the boat is a big career risk for these experts. In addition their actions can deviate from what a reasonable private investor would do as their own money is usually not at risk.

Expert Watch - Stating the Obvious

Readers know that I am sceptical with regard to the value of market opinions pronounced by 'experts'. While some predictions are invariably turning out to be correct this should surprise no-one. Usually expert opinion is split and by definition that means that some forecasts will be in the right direction.

Should you listen to the Experts and Investment Analysts?

When two reputable investment experts have diametrically opposed views on the same day (here, here)you have to wonder whether or not you should pay any attention to their opinion. News media as well as brokers and investment advisors constantly have to fight for the attention of current and prospective customers and can also rely on the fact that after a few days hardly anyone will remember what they said on a given day. Investors therefore are advised to stick to a well-thought-out investment philosophy based on their personal circumstances and requirements. They should focus on eliminating any avoidable risks as well as containing the annual costs and fees associated with managing their wealth.

Beware of Economic Forecasts

When a leading investment manager states that there is a '60% Chance of Recession in the next 3-5 Years' the firm unwittingly confirms that predicting the economy is nearly worthless as a tool to base your investment decisions on. Nebulous forecasts such as these should be considered to be advertising for the fund manager and a way to get attention in the financial media circus hungry for the next eye-catching headline.

No Stock Bubble, but Crash may come later

So speaks a 'Celebrity' economist. It is not unusual for market pundits to hedge their outlook in a similar fashion and leaving the hard decision to the investor. Forecasting is difficult - especially if it is about the future. So we have some sympathy for the 'experts' that are constantly badgered by the media to have view on the markets on a daily basis. But investors are well-advised to hedge against any market development by using intelligent risk management when investing for the long term and not be distracted by what is in essence public relations and/or entertainment.

2013 Investment Outlook

The only thing I will say about the Investment Outlook for 2013 is a warning. Rather than listen to the countless experts that will volunteer their free advice in the media you should first of all have a good look at their past performance. Checking their track record is no sure way to profits in the future but at least it will help you to weed out the 'Talkers' from the 'Doers'.

Financial TV news - treat with caution

While I admit that I enjoy quite a few financial news programs on TV I would like to add a word of caution - especially for those investors that do not have the time to make financial analysis and research their main focus during an otherwise busy worklife.

Do not put too much faith into investment gurus!

The only information you should rely on is your common sense, your own investment research or investment advisers with a strong track record that pass a thorough due diligence process. Beware of investment gurus in the media or the finance profession.

What are 'complex financial products'?

An arbitration award that related to the sale of a 'complex financial product' illustrates the problem that ordinary investors face when offered these products. In nearly all such situations they find themselves at a severe disadvantage vis-a-vis the salesperson or financial adviser. It is like asking the patient to make a judgement about the correct procedure when faced with cancer. So trust is of paramount importance in any relationship between an investor and financial professionals. Sadly, we can only recommend to always get a second opinion from a neutral expert before buying any financial instrument as the layman cannot really know when an investment vehicle is 'complex' enough to warrant special caution and analysis.

When lawyers become greedy

A sobering reminder of the problems investors can face when they use a lawyer to get compensation for fraud or misdemeanour they suffer at the hands of a financial adviser. Dealing with a (real or imagined) compensation claim is a complicated affair and people are in most cases facing no option but to trust the legal expert once they have asked for his services.

Leave Derivative Esoterics to the Specialists

An article in a Swiss financial newspaper that is also widely read by more or less sophisticated private investors recently carried an article explaining how to use the 'Barrier Hit Probability' when evaluating a certain type of structured derivative product (often known as Warrant or 'Certificate'). We advise all but the most enterprising investors not only to not burden themselves with the details of such products but to stay away from any investment in them (or advisers that try to put their money into such products). Not even the experts agree on how to value these products and the underlying assumptions are so difficult to predict that the results are only giving a false sense of security.

Media Pundits: Enjoy Experts with Care

The proliferation of news outlets that operate 24 hours a day has led to the need to fill the airspace with constant comment on all markets. Investors should be careful not to confuse the permanent noise on the airwaves and the internet with advice. By all means, enjoy the entertainment and sometimes you may also find a new and useful insight that you can incorporate into your investment analysis. But be aware that the track record of most 'experts' is often less than transparent. Who really knows how the recommendations of the past have performed? Who is being warned when the expert changes his view or adjusts his own personal positions? Nouriel Roubini, Jim Cramer or Mark Faber may talk a good talk but it is not easy - or possible at all - to monitor their track record and when they change their view you may be the last person to hear about it.

Be wary of forecasts and experts!

During a recent clean-out of the library I came across the following gem: In a review and comparison of the US and UK housing market published in 2005 the 'experts' came to the conclusion that 'there is no significant macroeconomic threat to home prices if our forecasts for interest rates and income growth pan out'. We can only say 'if the word if would not exist all forecasting would be much easier.

Confused by experts?

At any time you can find prominent experts predicting that a market will go up and the similar number of experts predicting that the market will go down. Now we all know that this is what makes markets and as a consequence one should never pay too much attention to any one opinion. But when George Soros states that gold is in a speculative bubble and at the same time his funds increase their long position in gold substantially one has to wonder why one should consider expert's opinions as more than background music.