Reinhard Panse's Perspectives
Reinhard Panse's Perspectives
Podcast
30.12.2022
As you may know, we do not usually venture to make short-term forecasts, neither for the economy nor for the capital markets. There is a simple reason for this: they don't work.
Let me give you two examples that should not frighten anyone: The Federal Reserve Bank of Philadelphia has been asking professional economic forecasters for over 50 years for their assessment of the likelihood of a recession. The last available value from November 2022 was by far the highest ever. The situation is similar with Bloomberg's regular survey of equity strategists. Since the survey began in 1999, November 2022 was the first time that share prices were expected to fall in the following year - just as strikingly pessimistic as the economic researchers.
Neither of these two surveys has accurately predicted recessions in the past. For example, when a recession emerged at the beginning of 1982, the economic researchers in the Fed survey had estimated its probability at 8.7 percent just one year earlier. The success rate of the Bloomberg survey is no higher.
But there are exceptions to every rule. And there are certainly figures that we rely on when analyzing economic developments in the short term. One of these is the cash ratio of large international equity funds. Experience shows that pessimistic fund managers sell some of their shares in order to fill their war chest and buy more after an expected price slump. Currently, the cash ratio is higher than it has been for 20 years. The correlation between high cash holdings and a subsequent crisis has been demonstrated time and again in the past. Surveys that measure consumer confidence are similarly precise. If this is significantly below average, a recession is usually looming. In September, the average value across several countries surveyed fell below the lows seen after the Lehman Brothers bankruptcy.
However, these statistical swings also have one thing in common: They are not only followed by recessions, but also usually by strong share price gains. For example, when consumers were particularly pessimistic, share prices rose by an average of 20.3% in the following twelve months. Overall, average share price gains since 1970 have been just under six percent per year. Worried investors and consumers are depressing share prices, resulting in some good buying opportunities. Their pessimism can therefore certainly be a reason for optimism on our part.
You can read the full capital market outlook here.
Reinhard Panse's Perspectives
30.12.2022
Reinhard Panse
Short-term economic and capital market forecasts are notoriously unreliable. But there are a few exceptions. And these indicators promise great profit opportunities on the stock market next year.
As you may know, we do not usually venture to make short-term forecasts, neither for the economy nor for the capital markets. There is a simple reason for this: they don't work.
Let me give you two examples that should not frighten anyone: The Federal Reserve Bank of Philadelphia has been asking professional economic forecasters for over 50 years for their assessment of the likelihood of a recession. The last available value from November 2022 was by far the highest ever. The situation is similar with Bloomberg's regular survey of equity strategists. Since the survey began in 1999, November 2022 was the first time that share prices were expected to fall in the following year - just as strikingly pessimistic as the economic researchers.
Neither of these two surveys has accurately predicted recessions in the past. For example, when a recession emerged at the beginning of 1982, the economic researchers in the Fed survey had estimated its probability at 8.7 percent just one year earlier. The success rate of the Bloomberg survey is no higher.
But there are exceptions to every rule. And there are certainly figures that we rely on when analyzing economic developments in the short term. One of these is the cash ratio of large international equity funds. Experience shows that pessimistic fund managers sell some of their shares in order to fill their war chest and buy more after an expected price slump. Currently, the cash ratio is higher than it has been for 20 years. The correlation between high cash holdings and a subsequent crisis has been demonstrated time and again in the past. Surveys that measure consumer confidence are similarly precise. If this is significantly below average, a recession is usually looming. In September, the average value across several countries surveyed fell below the lows seen after the Lehman Brothers bankruptcy.
However, these statistical swings also have one thing in common: They are not only followed by recessions, but also usually by strong share price gains. For example, when consumers were particularly pessimistic, share prices rose by an average of 20.3% in the following twelve months. Overall, average share price gains since 1970 have been just under six percent per year. Worried investors and consumers are depressing share prices, resulting in some good buying opportunities. Their pessimism can therefore certainly be a reason for optimism on our part.
You can read the full capital market outlook here.
About the author
Reinhard Panse
Reinhard Panse is Chief Investment Officer and co-founder of FINVIA Family Office GmbH. Until February 2020, Reinhard Panse was a member of the Management Board and Chief Investment Officer for HQ Trust GmbH, which is owned by the Harald Quandt family. From 2004 until joining HQ Trust GmbH in 2011, Reinhard Panse was Chief Investment Officer of the UBS Sauerborn business unit created within UBS Deutschland AG. From 2001, Reinhard Panse was a member of the Management Board of Sauerborn Trust AG and its legal predecessors. He was responsible for the investment strategy and played a leading role in the holistic asset management and administration of large private assets. Reinhard Panse began his career by taking over capital market and client support activities at Feri GmbH in 1989, after having founded and managed his own wealth management as managing director.
