Thursday, Sep 09, 2010
Some harsh truths are unavoidable
The Telegraph: There is no soft option when confronting our economic reality
It was J K Galbraith, the American economist and diplomat, who concluded that there are two classes of forecasters: "Those who don't know – and those who don't know they don't know." He was right, but only partially. In today's febrile financial environment, a third class of forecaster has emerged. Those who thought they knew, but now know they didn't.
Posted by devo @ 11:24 PM (1703 views) Add Comment
32 Comments
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1. devo said...
big shout goin out to all you bankstas in da house
you suckas r goin' down
2. devo said...
when merv said today that he is KEEPING quantitative easing at £200 billion, what does he mean? wasn't it printed 18 months ago?
i know he isn't printing £200 billion per month, so what does he mean?
thanx
3. devo said...
and here's another question...
osborne said today that he's cutting a further £4 billion from benefits.
is this to allow merv to print another £4 billion for his banking buddies?
4. estrader said...
There are two classes of [mainstream] forecasters: "Those who don't know – and those who don't know they don't know."
5. rumble said...
" merv said today that he is KEEPING quantitative easing at £200 billion" - could've said "leaving", "keeping" makes it sound like an ongoing norm.... oh dear.
6. techieman said...
i dont think anybody ever really KNOWS - its just a range of probabilities attached to a range of guesses. thats one reason why looking at prior movements and extrapolating them eventually comes unstuck. sooner rather than later depending on the market thats being assessed. trying to work out when and how it will come unstuck is the holy grail.
this is one reason why i dont go along with bashing any forecasters. they dont try to get it wrong ...or do they?
7. hpwatcher said...
" merv said today that he is KEEPING quantitative easing at £200 billion"
I am not sure that the full 200 billion was completely used, so there may be some more to take the total to 200 billion. Depends if it looks like interest rates are going to rise.
The whole idea behind QE is to keep gilt prices high, bond yields low and thereby interest rates low.
8. estrader said...
Techie,
I completely and utterly disagree with you. However 'Know' and 'Understand' may be the key to the argument. There are people who understand how the current situation will play out in the future and then there are the rest, so to speak. The rest includes modern economists, journalists, politicians and their shills. These are the people who use words like "surprise" and "unexpected" when referring to monthly economic releases.
9. cyril said...
Forecasts are only as good as the assumptions they're based on so you have to take them with a pinch of salt.
Mind you, there are plenty of people on this site who believe in cycles of one sort or another - even the famous bubble graph is a sort of forecast and we all like that one.
10. hpwatcher said...
There are people who understand how the current situation will play out in the future and then there are the rest, so to speak
I think there are people who can present logical arguments to that effect, or be right intuitively, but I agree with Techie - no one really knows. Events and all that.......
Generally though, I've found prices will go up and taxes will rise - whatever else happens.
11. estrader said...
No one really knows? HP, why have you been buying gold?
12. mark wadsworth said...
Fred Harrison has called it bang on twice, and years in advance to boot. The rest is guesswork.
13. hpwatcher said...
No one really knows? HP, why have you been buying gold?
In my case, it's a just a hedge. If I knew gold was going to the moon I would have intested 100% of my cash instead of a lesser proportion.
14. Crunchy said...
NO ONE REALLY KNOWS? LOL
Many people I listen to forcasted these events over ten years ago and it wasn't guess work.
People just coudn't take it and still can't. SAD.
Look up the writings of Albert Pike 1809-1891 and you will find WWI,11 & the coming 111 Perfectly mapped out and the reasons for them.
That's just the tip of the iceburg. More homework, less housework.
The fool on the hill.
15. estrader said...
In otherwords HP, if you had enough money you would buy Commodities, Silver, Gold, Property, Stocks, Shares, Government Bonds, $US, £UK, $AUS etc because you don't know?
16. techieman said...
well this is a first hpw and i in agreement. :).
EST
i cant agree that anyone knows for sure , since there are too many variables. having said that i do agree there is a degree of predictability, but calling things to the exact year, month, week, day hour etc is extremely difficult to do - and actually easier in a liquid market.
we might agree on what we think will happen but when? est - if you want to put here the % of unemployment you see , repos etc, and what month is the highest for those 2 against a depressionary scenario, then by all means do so.
to come back with an example - i said the seeds were sown for a dcb, but i couldnt dream to say when that dcb would start to the day - 3 months yes - but day no. Similarly i have always said that when the dcb falters could only be guessed at (although that was admittedly in part because i thought it wouldn't have gone on for as long as it did). that is why i was waiting for 2 monthly drops in the n/wide index, before proclaiming the dcb over - even that doesnt look cast iron based on the halifax numbers... and i know the numbers may be suspect blah blah..
so we can be right about direction and severity but within a broad range - especially in an illiquid market like housing. in any case we have to be able to admit that we cant be right all the time - if that were the case i would beg steal and borrow to sell the top of the market and buy the bottom. i.e 2 trades with no sign of a stop - why wouild i need one? oh the holy grail! :).
17. rumble said...
"so we can be right about direction" -- knowing that we're right about all the influencing variables?
"we have to be able to admit that we cant be right all the time" -- being right by random?
18. hpwatcher said...
In otherwords HP, if you had enough money you would buy Commodities, Silver, Gold, Property, Stocks, Shares, Government Bonds, $US, £UK, $AUS etc because you don't know?
Given what I know of the circumstances, my feeling is that gold - and some other PMs - is the right place for me to be.
19. mark wadsworth said...
As to this whole "economic forecasting" thing, let's not forget that the biggest single factor is government policies - which is largely unpredictable. Except when they are entirely predictable, i.e. Soros in 1992.
Of course, government policy is entirely predictable in its intent, but as it usually flies in the face of economic commonsense, it's results are unpredictable*. I for one would not have imagined that Labour could engineer such a significant DCB in house prices. Nobody knows whether the Americans will go nuts and attack Iran, thus doubling oil prices overnight etc.
* To give an example, all this gold speculating is really just speculating that governments will try and create hyperinflation. It is quite clear that this is exactly what governments are trying to do - the only question is, will they manage it? I for one sorely doubt it.
20. hpwatcher said...
* To give an example, all this gold speculating is really just speculating that governments will try and create hyperinflation. It is quite clear that this is exactly what governments are trying to do - the only question is, will they manage it? I for one sorely doubt it.
I see gold specifically as a guard against bad government and uncertainly, as opposed to anything else. Moreover, I don't think governments are consciously trying to create ''hyperinflation'' - if they were they could easily flood the economy with money - just wipe off all debts, increase all benefits, double the wages of government staff etc.
21. techieman said...
"if they were they could easily flood the economy with money " - so why dont they? perhaps because they really actually cant (rather than dont want to) because they are political and ultimately controlled by the electorate.
hi rumble - "so we can be right..." could also be "so we could be wrong...." :). if random then you believe in EMH - that was all the vogue for a while but now thats been pretty much squashed as a theory. any TA involves the likely reaction of people to events - i.e. current price / momentum etc is a determinant of future price . the same event can cause the exact opposite movement in markets depending on where we are in the cycle. i am sure you dont want me to bore you with all this stuff, but if you want you can look at http://en.wikipedia.org/wiki/Efficient-market_hypothesis.
22. uncle tom said...
The truth is that history never quite repeats itself, and when you couple that uncertainty to previously untried remedies such as QE, the immediate outlook becomes more opaque that at any time in the post-war era.
My preference is to look at the simpler fundamentals rather than complex technical theories, and that in turn takes me to the time honoured mantras - the wisdom of Mr Micawber, and that there's no such thing as a free lunch..
I personally think the chances of a general deflation are very low, but that the chances of high inflation are considerable.
But I also think that before that happens, there will be another major financial upset, possibly centering on the matter of sovereign debt, and a loss of confidence in one or more major currencies.
There is a huge amount of money invested in government stock around the world, where it earns derisory interest. This does not seem terribly rational, and it appears to be driven by the belief that such investments are defensive.
An exodus of such funds into more tangible investments, could gain traction; pushing the price of a wide range of commodities and equities upward, and drawing in further funds as it does so.
As this happens, the value of government stocks would fall, and auctions might fail, leading to renewed QE. This could further accelerate the exodus of funds, while the raised price of commodities would start to drive inflation.
This is a recipe for an intense inflationary spiral - Zimbabwe on a global scale - and it won't take much to kick it off..
23. estrader said...
Someone told me this many years ago and I didn’t fully understand it at the time but I can now say with certainty that I do. I have said it here before but now I will say it again, with even more confidence and conviction.
There are 3 types of market participants:
1) Strong Hands – They know EXACTLY what they are doing ALL THE TIME.
2) Weak Hands – They sometimes know what they are doing and sometimes take guesses.
3) The Public – They never know what they are doing and are usually wrong.
24. techieman said...
"est - if you want to put here the % of unemployment you see , repos etc, and what month is the highest for those 2 against a depressionary scenario, then by all means do so."
or... alternatively dont :).
25. estrader said...
Techie,
Are you suggesting that knowing those answers will help me decide whether I should be buying Wheat or Silver...or whether I should be long or short the ES? You need one of those really smart analysts to tell you what the unemployment rate will be next month, they are always on Bloomberg telling you what to do with your money *LOL*
26. techieman said...
aha - well i think you were talking about the general economy and this is house price site after all! your point @ 22 isnt too helpful really. its like the treasure is buried, but you have to work out who has the map and how to get it!
basically if you knew the answers to those questions we both know that it would be extremely lucrative. but that's my point no one knows although we can say that [house] prices [in the uk] are going down with a degree of certainty (but not absolute certainty) we cant say with any degree of certainty by how much they will fall or when they will bottom. of course the current degree of certainty has a higher probability when we start to see some momentum to the downside. once we get some "proper" downside moves we can estimate where they will bottom with more accuracy.
its interesting to me that(as MW pointed out) the dcb retraced 50% of the initial falls on the nationwilde index..... hmmm.
27. braindeed said...
mark wadsworth@12 said...
Fred Harrison has called it bang on twice, and years in advance to boot. The rest is guesswork.
Then surely Fred was wrong too. If you sell up prior to any pop or crash, and everyone else continues making money for 'years' , then it is just guess work too. I can predict that there will be other bubbles, they'll pop and things will go on, eventually returning to 'normal' - but without an accurate timeline it is a meaningless ego trip.
28. mark wadsworth said...
Braindeed.
Nope.
In 1983 Fred said house prices would bubble and then pop in 1989.
In 1997 Fred said that house prices would bubble and then pop in late 2007.
29. braindeed said...
Primary evidence please.......whilst I prepare a little side salad for my hat.
30. techieman said...
braindeed - actually mark is right - it is an historical fact that Harrison based that on cycles that he had discovered. his book "Boom Bust" and various articles. in particular when others were saying that the falls in 205 were the start of the down move fred was arguing that it wasnt quite finished then.
my point was fred "nailed it" to the year not the day though.
Crunchy ... whatever.. its timing innit. yes lots of people said "it" would happen but did they say EXACTLY when. WD Gann time and price mate.
31. mark wadsworth said...
No Fred did not nail it to the day, but with things like land and buildings, getting it to the year ten years in advance is quite good enough.
We're not talking futures trading here where it's down to split seconds.
32. techieman said...
mark - i agree - in any case properties arent homogeneous so yes good enough, although having said that a few months at the end of a boom with a blow off could make a big difference!
really only posting now to correct 205 to 2005!