The Markets are in the green this morning – against my prediction of a short term correction. This reaction to the terror attacks in Paris reminds me of a passage from a very good book written by Lawrence Creatura:
“There Is No Macro… … at least not for most of us. Capturing economic reward by forecasting macro variables is a strategy available to only a select few individuals, and you and I are not among them.”
Definition from Google: Macroeconomics (from the Greek prefix makro- meaning “large” and economics) is a branch of economics dealing with the performance, structure, behavior, and decision-making of an economy as a whole, rather than individual markets. This includes national, regional, and global economies.
Trying to make forecasts about Terrorism’s effect on the World’s Economies both in the short and long term would be a Macroeconomic endeavor.
If you are a Central Banker or George Soros – you could try to make money based on your Macro forecasts. For the rest of us, macro doesn’t really exist. If you find yourself in a macroeconomic debate as an investor, stop. You may as well be arguing about religion or politics. Linking your macroeconomic forecasts back to an actionable, reliably profitable idea is a low-probability outcome.
First, you need to be right about your economic forecast. Second, you need to be right about the Market’s reaction to your prediction, if it plays out the way you forecast. Very difficult – if not impossible for the average investor.
That is why I wait to see what actually happens, and invest in individual businesses when they become undervalued – and sell them when they become overvalued. This is Microeconomics – and is totally within the average investors wheelhouse. Again, from Lawrence Creatura’s book: “This opposite pole of macroeconomics is microeconomics — or by another name, business.”
I have no idea how today will play out by the closing bell – but I would not make a directional bet either way – much easier to watch what happens and invest accordingly.
For those interested in Lawrence Creatura’s book: