Rich Excell's avatar
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Chart of the day - opinion

“Opinion is the medium between knowledge and ignorance”
― Plato, The Republic

Plato's dialogues with Socrates is one of the most well-read books on my list. There is probably not a single person who took Philosophy 101 that did not read it.

There are some nuggets in there that apply to the work I try to do in discerning what will happen in the economy and markets believe it or not.

Unfortunately, so much of what I read about the markets whether in main stream or social media falls more in the realm of opinion, if not ignorance, than it does of knowledge.

It is far too easy to quote and promote the most popular narrative than to try to prevent a well-reason argument for what could happen. Well-reasoned arguments don't always turn well, but that doesn't mean we shouldn't try.

I heard a talk by Dr. Peter Kreeft where he was discussing the opponents of Socrates - the Sophists - who arose to prominence in the early court system started in Athens. It seemed eerily reminiscent of the court of public opinion on social media.

As Dr. Kreeft described it, the Sophists used neither inductive nor deductive reasoning, but seductive discussion to win their cases. And win they did. Are we following those who are seductive or those who are inductive or deductive?

“Either we shall find what it is we are seeking or at least we shall free ourselves from the persuasion that we know what we do not know.”

A powerful point that Socrates makes repeatedly in The Republic is that the wise person knows what they do not know. Only the fool thinks they know everything.

It is tempting to feel confident we know everything. I have no idea if we will have a recession this year. I try to look to the data to indicate if we will & determine the likelihood.

In the chart today, I have 4 variables that are oft-tracked - ISM, ISM new orders, yield curve and leading economic indicators. The last one includes the others but many other variables too.

The lower parallel line is drawn so that below it the yield curve is inverted, ISM is below 45 and new orders are below 30. The upper parallel such that LEI is below 0.

You can see when we are below those lines, we have had a recession every.single.time. in the last 40 years. We are below on the yield curve and LEI and have touched it on ISM and new orders but not breached. These have a 100% hit rate.

I can't have certainty it will happen again. I can't have certainty when it will happen (though summer 23 looks most likely) but I at least want to be aware of this risk and account for it in my investing. Are the mkts pricing this in? I might argue no.

I leave you with one last nugget. Remember we do this to achieve fincl freedom so as to not think about money.

“Money-makers are tiresome company, as they have no standard but cash value.”

Stay Vigilant
#markets #investing #economy2023 #stocks #bonds

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