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Recent interest rate drops do NOT mean stocks will go up

Posted by John Reed on

An investment article in today’s WSJ uses the present participle as part of investment analysis. That is a frequent BS twisting of words to mischaracterize the meaning of investment data.
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The present participle refers to verbs ending in “ing.” It signals a CONTINUOUS tense. Buy is present tense. Bought is past tense and now over. Will buy is future tense, not yet happened. Continuous tense buying suggests something that was going on, is still going on, and will go on in the future.
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The offending sentence in the Journal is
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“History suggests that being uninvested [in the stock market] when rates started falling is a bad idea.”
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First, let’s look at the phrase “History suggests.”
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“History” is past tense word without question. I’m fine with that.
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“Suggests” is a weasel word. It is equivocal. It is a weasel’s way of saying something, but not really saying it. Plausible deniability.
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Now let me inject a conspicuous by its absence phrase that is conspicuous by its presence in every prospectus. “Past performance is no guarantee future performance.” I prefer the wording that, “Future performance is not necessarily determined by past performance.”
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I do not believe that the stock market always goes up following a period of undefined duration of unspecified market interest rates falling. If it is to be a rule, the duration and amplitude of the interest rate drop and the duration and amplitude of the stock price climb need to be stated along with the graph that proves it.
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None of those are in the article.
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Now let’s look at the present participle: “start falling.”
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That is a blatantly misleading statement. All the writer or anyone else knows about interest rates is what they were in the past. It may only be minutes ago, but it is not now. So investors never know if rates “start falling.” They only know if rates fell in the past.
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The phrase “start falling” implies that rates are for sure going to falling more in the immediate future than where they were minutes ago.
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No one ever knows that so it is a waste of time to say “When interest rates start falling, buy stocks.”
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This is sort of like the sports momentum fallacy. If an NBA player sinks seven baskets in a row, he has a “hot hand” so you should pass him the ball.
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Total BS. The Moneyball/Bill James type math analysts have run the numbers. Hitting seven basketball shots in a row or any other number in a row tells you nothing the probability of your next shot going in. The best determinant of the probability of your next basket going in is your career shooting percentage.
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Should you buy stocks today because rates have “started falling?”
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We do not know if they are going to fall later today or tomorrow. And we also have no idea if stocks are going to go up because of recent declines in interest rates. We also have no idea whether past rate drops cause future stock prices to rise.
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Generally, declines in interest rates DO cause increases in value of capital assets. But those should already be in the stock prices. Instantly. The efficient market hypothesis. But not only does no one know if interest rates are going to drop further, it is not guaranteed that stock prices will go up even if interest rates do go down.
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Making investment advice with present participles is dishonest. It suggests knowledge of future interest rate and stock price movements. That requires a crystal ball and those have never existed.

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