That's probably the best advice I can give, since US stock futures are currently off about 5% from Friday's close.
Slowly increase over the next week or two... fall off a cliff the very next trading session; same things, right? At least I didn't open any positions based on my "thoughts"...
John Mauldin's Outside the Box newsletter released last Monday discussed many of the current issues facing the stock market. One paragraph in particular stood out to me, since I had read a portion of it elsewhere.
Last week's poor ISM and employment reports add further confirmation to this expectation, particularly given that total non-farm employment has grown by less than 1% over the past year, less than 0.5% over the past 6 months, and the unemployment rate has spiked 0.6% from its 12-month low (all of which have historically indicated oncoming recessions). The ECRI Weekly Leading Index is now clearly contracting as well. The expectation of oncoming recession may be gaining some amount of sponsorship, but it is still far from the consensus view, and is therefore most probably far from being fully discounted in stock prices.I had read before that a reliable indicator of oncoming recession is when the unemployment rate rises 0.5% from its recent trough. I had not seen the other two predictors of recession, although they are probably true by virtue of being correlated with one another.
This Tuesday, Ben Bernanke spoke to the NBER-sponsored Summer Institute regarding inflation expectations and inflation forecasting. On inflation expectations, Bernanke summarized recent literature focusing on defining and measuring inflation expectations, and how to use that information to forecast and control inflation.
The more interesting part of the speech concerned how the Federal Reserve Board forecasts inflation. Rather than recapitulating the most intriguing portion, I've included it below:
The Board staff employs a variety of formal models, both structural and purely statistical, in its forecasting efforts. However, the forecasts of inflation (and of other key macroeconomic variables) that are provided to the Federal Open Market Committee are developed through an eclectic process that combines model-based projections, anecdotal and other "extra-model" information, and professional judgment. In short, for all the advances that have been made in modeling and statistical analysis, practical forecasting continues to involve art as well as science.
The forecasting procedures used depend importantly on the forecast horizon. For near-term inflation forecasting--say, for the current quarter and the next--the staff relies most heavily on a disaggregated, bottom-up approach that focuses on estimating and forecasting price behavior for the various categories of goods and services that make up the aggregate price index in question. ... In making very near-term price forecasts, the staff also uses diverse information from a variety of sources, such as surveys of prices of gasoline and other important items, news reports about price-change announcements, and anecdotal information from our business contacts. Conceptually, one might think of this effort to distinguish transitory from persistent price changes as a more nuanced way of estimating the underlying inflation trend, analogous to the trend measures provided by more mechanical indicators such as trimmed-mean or weighted-median inflation rates.
An accurate forecast of very near-term inflation is important not only for its own sake but also because it provides a better "jumping-off point" for the longer-term forecast. Because inflation continues to exhibit some inertia, improved near-term forecasts translate into more-accurate longer-term projections as well.
For forecasting horizons beyond a quarter or two, detailed analyses of individual price components become less useful, and thus the staff's emphasis shifts to inflation's fundamental determinants. Food and energy inflation are forecasted separately from the core, using information from futures prices and other sources. However, forecasts of core inflation must take into account the extent to which food and energy costs are passed through to other prices.
