This year, last year, next year; there is not one thing more important than to reason deductively. This is Arthur Conan Doyle's, Sherlock Holmes', methodology for confronting the facts and reaching correct conclusions.
This is how you do it.
I would state, with conviction, that if you do not know how to reason deductively, which most people and institutions do not, then you will err in judgment and make very costly mistakes. Most people just respond to the headlines; they do not do the homework required to understand the headlines nor do they move from 1st level thinking to 8th level thinking to assess just where we are going.
The puzzle may be complex but the answers hang, not on prejudices, but on the facts.
Whether it is debt or equities or the oil market; the stumbling continues unabated as far too many people take things at face value. I take nothing at face value. I am constantly not only looking at the statements, but looking at the source of statements, to try to determine their value, and the motivations of the people quoted, who are delivering the information.
You see, but you do not observe. The distinction is clear.
- Mr. Holmes
The markets have been reacting to the recent statements of Ms. Yellen and Mr. Fischer. Hopes and assumptions and the Futures markets are pinned to what they say. This is a mistake, in my view.
The Fed, in my opinion, is now nothing but a "lame duck walking" as Mr. Trump will soon appoint three, at least three, members of the Fed and they will be business people, in my estimation. Academics and elitists out and pragmatic corporate types will be in.
This means that all of the dot plots, comments about normalization and raising rates will be little more than chicken fodder after Mr. Trump makes his appointments. Consequently, I place little stock in what these people say these days and base my judgments upon what the newly effectuated leadership of the Fed is likely to say.
The future outlook for interest rates that is being characterized by the people now at the Fed will be a far cry, I believe, from what the people that will be at the Fed, will state. Deductive logic demands that you consider the fact, the known fact, that three new appointments to the Fed are coming. Faulty deduction does not include this fact.
The headlines scream of higher yields and protecting your portfolios from them and hedging your portfolios because of them. We had some back-up after the election, which I said would happen, and then we have stabilized between the 10-year Treasury support/resistance barriers of 2.32% and 2.51%. There has been a 4.4% rise in the 10-year Treasury yield and then it has been range-bound. This has hardly been a spike and I would point out that the new members of the Fed, soon to be appointed, will be squarely on the lower interest rate path as Mr. Trump & Co. try to ramp up the economy while holding interest rates down.
Pay little attention to "lame ducks walking;" even if they Quack magnanimously.
You know my method. It is founded upon the observation of trifles.
- Mr. Holmes
We have been trading in a range. I think we will continue to trade in this range as the OPEC nations and the other major oil producers continue to do everything in their power to hold the range. The extent of the production cheating will come out at some point but that will not be the driver. The increasing amount of American shale oil production will be the driver and there is not one thing that OPEC, and her minions, can do about it. Just wait until Mr. Trump announces the American oil tax incentives and border taxes on oil as the new baseball hat insignia is "Make America Energy Self-Reliant Again."
Ok, ok, so the letters will have to be a little smaller.
I think the oil range cracks when two things occur and then the price will be headed down to the $45 range. The first will be the reported $10 billion debt issued by Saudi Arabia and the second will be the IPO by Aramco (ARMCO). When those two deals are consummated then "Watch Out Below" in my opinion.
What one man can invent another can discover.
- Mr. Holmes
The markets are all about the facts and their discovery!