The rally in housing stocks that I wrote about last November has been proceeding pretty much according to plan. That’s the good news. The bad news for investors is that lumber prices now say the housing related sector is due for a temporary dip.
One of the most important things you learn when you start to think of the world in a macro way is that you start looking at both sides of the ledger before making sweeping conclusions. This helps you to avoid falling victim to a fallacy of composition.
One common theme I read in Austrian economics is the idea that fiat money is inherently unstable because it leads to booms and busts. Therefore, it must collapse at some point. For instance, I was reading this piece on Mises.org which argues that the cause of the boom/bust cycle is fiat money:
Global equities are notching new highs, valuations are elevated and talk of market bubbles is increasingly common. Yet, by our measure, the potential for outperformance in value stocks has rarely been better. How can that be?
“As a general rule we average across the various models we use to generate our best forecast as to where real returns are likely to head, rather than relying upon one signal model (without exceptionally good reason). Doing so currently results in our expectation of a -1.1% real return for the S&P 500 over the next seven years”
For 5 years now I’ve stated that the Great Recession was a CONSUMER credit crisis. It was not a banking crisis. It was not about “too big to fail”. It was not about Wall Street and non-banks. It was not about corporate America.
I wanted to emphasize a point I made in an earlier post with regards to index fund investing and macro trends. I view long only indexing as a subset of macro investing. That is, I think that all long only index fund investors are making an implicit bullish macro forecast because the positive performance of their underlying portfolio will rely…
In the Fortune piece I linked to earlier today excerpting Warren Buffett’s 2014 letter, he recommended a very simple approach to asset allocation – a 90/10 split between stocks and bonds in low fee index funds. As I mentioned, he also said macro views were pretty much useless. So I compared the two using the Barclay Macro Index: