The Herd Can Be Blind
The below is an abridged version of a longer article that appears in the Winter 2015 Euro Pacific Global Investor Newsletter
Going into 2015 the economic outlook held by the U.S. investment establishment could not have been much more positive, and more unified. Pundits saw all the variables aligning to create the best of all investment worlds, a virtual “no-brainer” of optimism. Many believed that the 5.0% annualized growth in 3rd quarter would stay strong in the 4th Quarter and then usher in a strong 2015, which many believed would be the best economic year since the crash of 2008. The only question that divided most forecasters was how good the year would be.
High degrees of certainty can be dangerous. Herd mentality can cause investors to chase returns en masse and pile into positions that may already be overvalued. But herds can be spooked, most often by unexpected developments which can catch the herd wrong-footed and spark major movements when the masses scatter at the same time. When that occurs, those who resisted the herd may find themselves rewarded. We believe that we are approaching such a point.
Although the employment reports continue to bathe the economy in the diffuse light of recovery, many of the less followed economic indicators have further diverged from expectations in the opening months of 2015. Many economists initially believed that GDP in the 4th quarter 2014 would come in at an annualized pace north of 3.0%. But, in January the actual number came in at 2.6%(which was revised down to 2.2%). Recent data in such categories as consumer spending (which after falling in December, declined again in January – the first consecutive monthly declines since 2009), factory orders, trade, manufacturing, and business investment have missed on the downside. But these lesser reports are often explained away and have not made much of a dent on overall optimism.
Best Selling author Peter Schiff is the CEO and Chief Global Strategist of Euro Pacific Capital. His podcasts are available on The Peter Schiff Channel on Youtube
Catch Peter’s latest thoughts on the U.S. and International markets in the Euro Pacific CapitalFall 2014 Global Investor Newsletter!
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