Policymakers and analysts who claim the outlook is “unusually uncertain” are normally overstating their own forecasting problem and understating the difficulties faced by their predecessors.
The outlook always looks more certain in retrospect, when the outcome is known, and a causal chain can be constructed that makes it appear nearly inevitable, than it does in prospect, when multiple pathways look possible.
Unusually uncertain is often a fancy way of saying “I don’t know” and concealing the limits of forecasting, which is often much less reliable than policymakers and analysts would like their audience to believe.
But there are times when it is genuinely more difficult to predict what will happen in future, especially when systems approach turning points or inflection points.
I am normally skeptical when policymakers and analysts say the outlook is unusually uncertain, but at the moment they may actually be justified in making that claim, with the economy delicately poised between moderation and recession, and hyper-sensitive to even small shocks that could nudge it towards either eventuality.
In both the economy and the oil market, forecast accuracy deteriorates around cyclical turning points, which is why almost all forecasters missed the onset of the last recession in 2007 or the collapse in oil prices in 2008.
For the same reason, most forecasters missed the slump in oil prices in the middle of 2014, the recovery in oil prices from early 2016, or the renewed fall in prices during late 2018.
“The largest errors in forecasts of real and nominal GDP growth, inflation, and the unemployment rate, are made in the vicinity of business cycle and growth cycle turning points, particularly peaks,” wrote business cycle expert Victor Zarnowitz.
“Many forecasts are overly influenced by the most recent events or developments; they rely on the persistence of local trends and are insufficiently cyclical in the sense that they miss the turns and underestimate recessions and recoveries.”
-- John Kemp, Reuters
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Stocks to ponder
SNC-Lavalin Group Inc. (SNC-T). Scott Barlow chose this company for the focus of his chart for the week’s most overbought and oversold stocks on the TSX. Under normal circumstances he wouldn’t pick a company with this much headline risk, but SNC has endured poor news flow in the recent past and the chart might provide some guidance. The stock price has been generally sensitive to Relative Strength Index (RSI) buy signals and the 200-day moving average trend line in the past 36 months. A buy signal in September 2016 turned out to be a profitable entry point as the price rose 12 per cent before mid-January 2017. Scott Barlow takes a look at the charts.
Which online brokerage is best in 2019? Rob Carrick ranks your options
The annual Globe and Mail ranking of online brokers has seem some battles over its 20 years, but never anything as tense as today. A big divide has opened up between the middling to weak players and the elite. The top firms have cut fees in a few cases while adding new features to help clients build and manage portfolios. The also-rans continue to plod along as if they’re still basically waiters taking your order for stocks or funds to buy. Rob Carrick gives an honest rating of Canada’s online brokerages.
Bank stocks rock for yield-hungry investors, so why hold bonds?
The trauma of 2008-09 forgotten, investors are once again acting like bank stocks can do no wrong. A reader of retirement age with a good pension told Rob Carrick recently he has 95 per cent of his investments in stocks, much of that in banks providing him with a yield of about 5 per cent. His question: “These banks have never suspended dividends that I know of, so why would I invest in bonds that might pay 2 per cent?” If there’s a case for using bank stocks for income and not holding bonds, it’s this investor. With a solid pension, he can afford to take risks in his stock portfolio in the pursuit of higher yields than he’d get in bonds. But let’s remember why investors hold bonds in the first place. It’s less to generate income than it is to stabilize portfolios when all hell breaks loose. Rob Carrick explains (for subscribers).
National Bank reveals its top 24 high-yielding stock picks
National Bank released its 2019 Dividend All-Stars portfolio, which consists of 24 high-yielding securities. Over the past year, the portfolio has delivered a respectable total return of over 7 per cent, outperforming the S&P/TSX composite index, which rallied 4 per cent over the same investment period. Jennifer Dowty reports (for subscribers).
Weak loonie, competition from U.S. home buyers work against Canadian snowbirds
Earlier this winter, Rob Pederson stepped out of his Regina home into the deep freeze of a Canadian prairie morning and made his way to the airport. Two hours later he was soaking up the sun in Scottsdale, Ariz., with his wife at their second property. Mr. Pederson, a real estate broker and the director of sales and marketing for Canada To Arizona LLC, helps Canadians buy properties in Arizona, Florida and other popular hot spots in the United States. Whenever he touches down in Scottsdale, which is popular especially with snowbirds from Western Canada, he feels right at home. It’s likely no surprise that the Canadian dollar’s low value is dampening sales, though. Kira Vermond reports.
U.S. fund managers brace for consumer slowdown
With expectations for slowing growth escalating, U.S. fund managers are selectively avoiding stocks in consumer companies as lofty valuations, concerns about declining earnings estimates, and consumer confidence keep them on guard. Low U.S. unemployment and rising wages should point to a healthy consumer, but worries about global growth, domestic U.S. politics and a U.S.-China trade war have been wearing on consumer and investor moods. Sinead Carew from Reuters reports (for subscribers).
S&P 500 Q1 earnings seen declining from year earlier
Analysts expect first-quarter earnings for S&P 500 companies to decline 0.1 per cent from a year earlier, which would be the first quarterly profit decline for the group since 2016, according to IBES data from Refinitiv. The latest forecast is down sharply from the start of the year, when analysts estimated growth of 5.3 per cent for the quarter. The earnings picture for this year was already much weaker than in 2018, when federal tax cuts fueled growth rates above 20 per cent for S&P 500 companies for much of the year. Caroline Valetkevitch from Reuters reports.
Others (for subscribers)
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What’s up in the days ahead
Utility stocks have been on a roll since Christmas. Is it too late to buy into this dividend-rich sector? David Berman will have some advice.
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Compiled by Gillian Livingston