What we’re reading (9/15)
“The Illusion of Knowledge” (Howard Marks, Oaktree Capital). “Most forecasts consist of extrapolation of past performance. Because macro developments usually don’t diverge from prior trends, extrapolation is usually successful. Thus, most forecasts are correct. But since extrapolation is usually anticipated by security prices, those who follow expectations based on extrapolation don’t enjoy unusual profits when it holds. Once in a while, the behavior of the economy does deviate materially from past patterns. Since this deviation comes as a surprise to most investors, its occurrence moves markets, meaning an accurate prediction of the deviation would be highly profitable. However, since the economy doesn’t diverge from past performance very often, correct forecasts of deviation are rarely made and most forecasts of deviation turn out to be incorrect. Thus, we have (a) extrapolation forecasts, most of which are correct but unprofitable, and (b) potentially profitable forecasts of deviation, which are rarely correct and thus are generally unprofitable. Q.E.D.: Most forecasts don’t add to returns.”
“Mortgage Rates Top 6% For The First Time Since The 2008 Financial Crisis” (Wall Street Journal). “The jump in mortgage rates is one of the most pronounced effects of the Federal Reserve’s campaign to curb inflation by lifting the cost of borrowing for consumers and businesses. Already, it has ushered in a sea change in the housing market by adding hundreds of dollars or more to the monthly cost of a potential buyer’s mortgage payment, slowing what was a red-hot market not so long ago.”
“$20 Billion Figma Deal Is A Historic Coup For Startup Investors In An Otherwise Miserable Year” (CNBC). “In a year that’s featured exactly zero high-profile tech IPOs and far more headlines about mass layoffs than big funding rounds, Adobe’s $20 billion acquisition of Figma on Thursday is what some might call a narrative violation. There was no other bidder out there driving up the price, according to a person familiar with the matter who asked not to be named because the details are confidential.”
“Bridgewater's Ray Dalio Expects Stocks To Fall 20% If Rates Rise To 4.5%” (U.S. News & World Report). “Billionaire Ray Dalio, founder of one of the world's biggest hedge funds, has predicted a sharp plunge in stock markets as the U.S. Federal Reserve raises interest rates aggressively to tame inflation. ‘I estimate that a rise in rates from where they are to about 4.5 percent will produce about a 20 percent negative impact on equity prices,’ Bridgewater Associates' founder Dalio wrote in a LinkedIn post on Tuesday.”
“Meet The Young People Working For The World's Most Evil Companies” (Vice). “Answering the question of what you do for work is just draining. Who wants to be reminded of their inbox, the sad Tupperware lunch from Tuesday or the latest brain-numbing lingo handed down from corporate? But for others who work in controversial – arguably unethical – industries like fossil fuels, tobacco and nuclear arms, this question can be deeply uncomfortable to answer, and can leave the listener wishing they’d never asked in the first place.”
