Comments on: Mystery of the Awful Economists, part 2 http://www.ritholtz.com/blog/2005/04/mystery-of-the-awful-economists-part-2/ Macro Perspective on the Capital Markets, Economy, Geopolitics, Technology, and Digital Media Mon, 15 Mar 2010 04:15:29 -0400 http://wordpress.org/?v=2.9.2 hourly 1 By: Read It Here First: “What Good Are Economists?” | The Big Picture http://www.ritholtz.com/blog/2005/04/mystery-of-the-awful-economists-part-2/comment-page-1/#comment-165159 Read It Here First: “What Good Are Economists?” | The Big Picture Sat, 25 Apr 2009 18:30:55 +0000 http://thebigpicture.dev.wilder.ca/blog/?p=1435#comment-165159 [...] Mystery of the Awful Economists, part II (April 8th, 2005) http://www.ritholtz.com/blog/2005/04/mystery-of-the-awful-economists-part-2/ [...] [...] Mystery of the Awful Economists, part II (April 8th, 2005) http://www.ritholtz.com/blog/2005/04/mystery-of-the-awful-economists-part-2/ [...]

]]> By: spencer http://www.ritholtz.com/blog/2005/04/mystery-of-the-awful-economists-part-2/comment-page-1/#comment-2989 spencer Mon, 11 Apr 2005 13:55:35 +0000 http://thebigpicture.dev.wilder.ca/blog/?p=1435#comment-2989 The above post on recessions occuring when business makes a mistake also applies to the major econometric models. It is almost impossible for one of the major models to forecast a recession -- they have to really be forced into generating a recession forecast. But since the typical wall street economists takes the big old models and tweak them to change their forecast by a 0.1% to get an "independent" forecast it just reinforces the above comments.Wall street economists are like portfolio managers, if they are wrong doing what everyone else does they probably will keep their job. But if they are out on a limb and are wrong they are in real danger of losing their job. The above post on recessions occuring when business makes a mistake also applies to the major econometric models. It is almost impossible for one of the major models to forecast a recession — they have to really be forced into generating a recession forecast.

But since the typical wall street economists takes the big old models and tweak them to change their forecast by a 0.1% to get an “independent” forecast it just reinforces the above comments.Wall street economists are like portfolio managers, if they are wrong doing what everyone else does they probably will keep their job. But if they are out on a limb and are wrong they are in real danger of losing their job.

]]> By: spencer http://www.ritholtz.com/blog/2005/04/mystery-of-the-awful-economists-part-2/comment-page-1/#comment-2988 spencer Mon, 11 Apr 2005 13:49:12 +0000 http://thebigpicture.dev.wilder.ca/blog/?p=1435#comment-2988 If you take the premise that recessions occur when the business community makes a mistake and is too optimistic about final demand and has involuntary inventory accumulation, or as last time had excess capital spending, it is nearly impossible for the consensus to correctly forecast a recession. To get a recession you would have to forecast that the consensus forecast of final demand is too high, or that the consensus is wrong. Since the consensus is unlikely to forecast that the consensus is wrong, it is unlikely that the consensus will ever correctly forecast a recession. If you take the premise that recessions occur when the business community makes a mistake and is too optimistic about final demand and has involuntary inventory accumulation, or as last time had excess capital spending,
it is nearly impossible for the consensus to correctly forecast a recession. To get a recession you would have to forecast that the consensus forecast of final demand is too high, or that the consensus is wrong. Since the consensus is unlikely to forecast that the consensus is wrong, it is unlikely that the consensus will ever correctly forecast a recession.

]]> By: calmo http://www.ritholtz.com/blog/2005/04/mystery-of-the-awful-economists-part-2/comment-page-1/#comment-2987 calmo Sun, 10 Apr 2005 04:33:45 +0000 http://thebigpicture.dev.wilder.ca/blog/?p=1435#comment-2987 Rational minds might be tempted to think that since there are no alternative energy initiatives, there must be no immediate supply shortage as widely reported. Brandon discounts/forgets the role that speculators play even though his analysis suggests that the minor supply disruptions could not possibly have accounted for the price volatility. The numbers that the Economists have come up with, express the same volatility giving one the impression that those calculations are as useful as the dart board. Barry thinks $80 is the brick wall, but I refuse to throw my dart. I want a different metric. Something that gets away from not just the dollar but any currency. Something tied to exports or GDP but if possible not those stinky productivity numbers. Seems to me that we should be looking at the portion we are laying aside of our GDP to carry the show. There is some magic number/fraction, 1/6 say, that we can handle before we hit the wall. Rational minds might be tempted to think that since there are no alternative energy initiatives, there must be no immediate supply shortage as widely reported.
Brandon discounts/forgets the role that speculators play even though his analysis suggests that the minor supply disruptions could not possibly have accounted for the price volatility.
The numbers that the Economists have come up with, express the same volatility giving one the impression that those calculations are as useful as the dart board.
Barry thinks $80 is the brick wall, but I refuse to throw my dart. I want a different metric. Something that gets away from not just the dollar but any currency. Something tied to exports or GDP but if possible not those stinky productivity numbers. Seems to me that we should be looking at the portion we are laying aside of our GDP to carry the show. There is some magic number/fraction, 1/6 say, that we can handle before we hit the wall.

]]> By: Brandon Starr http://www.ritholtz.com/blog/2005/04/mystery-of-the-awful-economists-part-2/comment-page-1/#comment-2986 Brandon Starr Sat, 09 Apr 2005 16:11:28 +0000 http://thebigpicture.dev.wilder.ca/blog/?p=1435#comment-2986 This hits on two issues that I've been thinking--and blogging--about a lot. First, oil. Demand basically rises or falls pretty slowly, based on demographics, economics, and so on. Price doesn't move demand much--it's inelastic, since people have to drive to work/fly/etc. almost regardless of the price. Supply can go up only slowly, as new fields are explored and drilled. It's a lengthy process. However, supply can go down very quickly, such as an explosion at a refinery or major oil pipeline. Prices were low for so long that supply has been flat. Now, we have demand banging up against the supply ceiling and pushing up prices. In other nothing can change quickly--except that we CAN hit a supply shock, which would cause the price to rocket. Conclusion? While traders can take oil up or down a few dollars pretty quickly, the supply/demand equation pretty much says oil will stay high and possibly go higher. I have bullish positions in oil companies. Two: why the economists are wrong Basically, my thesis, which has been borne out for some time now, is that any numbers not having to do with real estate or credit card purchases are going to be missed on the downside. Our economy is choking on debt. Mortgages, credit card, federal, you name it. While the economy is nominally expanding, it's an unhealthy expansion bought at the expense of the future. A society can buy its way to a higher GDP for a time; but it cannot buy real affluence that way. I'm not bearish by nature, that's just how I see things for now. I hope that soon we in the U.S. will start saving and slow our spending. It'll feel painful in the short run, but it'll help us all in the long run. This hits on two issues that I’ve been thinking–and blogging–about a lot.

First, oil.

Demand basically rises or falls pretty slowly, based on demographics, economics, and so on. Price doesn’t move demand much–it’s inelastic, since people have to drive to work/fly/etc. almost regardless of the price.

Supply can go up only slowly, as new fields are explored and drilled. It’s a lengthy process.

However, supply can go down very quickly, such as an explosion at a refinery or major oil pipeline.

Prices were low for so long that supply has been flat. Now, we have demand banging up against the supply ceiling and pushing up prices.

In other nothing can change quickly–except that we CAN hit a supply shock, which would cause the price to rocket.

Conclusion? While traders can take oil up or down a few dollars pretty quickly, the supply/demand equation pretty much says oil will stay high and possibly go higher.

I have bullish positions in oil companies.

Two: why the economists are wrong

Basically, my thesis, which has been borne out for some time now, is that any numbers not having to do with real estate or credit card purchases are going to be missed on the downside.

Our economy is choking on debt. Mortgages, credit card, federal, you name it. While the economy is nominally expanding, it’s an unhealthy expansion bought at the expense of the future. A society can buy its way to a higher GDP for a time; but it cannot buy real affluence that way.

I’m not bearish by nature, that’s just how I see things for now. I hope that soon we in the U.S. will start saving and slow our spending. It’ll feel painful in the short run, but it’ll help us all in the long run.

]]> By: touche http://www.ritholtz.com/blog/2005/04/mystery-of-the-awful-economists-part-2/comment-page-1/#comment-2985 touche Sat, 09 Apr 2005 16:02:22 +0000 http://thebigpicture.dev.wilder.ca/blog/?p=1435#comment-2985 Other than Stephen Roach, which other economist has been beating this drum? Its been awfully quiet out there. Other than Stephen Roach, which other economist has been beating this drum? Its been awfully quiet out there.

]]> By: Barry Ritholtz http://www.ritholtz.com/blog/2005/04/mystery-of-the-awful-economists-part-2/comment-page-1/#comment-2984 Barry Ritholtz Sat, 09 Apr 2005 14:49:53 +0000 http://thebigpicture.dev.wilder.ca/blog/?p=1435#comment-2984 Understand that I am not dismissing it; I find it hard to believe that its not fully -- or even mostly -- accounted for in most econometric models. I may tweak the economists, but I do not beleive they are totally incompetent. Yes, global labor arbitrage has pressured US job creation. Is there anyone in the Dismal set who doesn't know that yet? Understand that I am not dismissing it; I find it hard to believe that its not fully — or even mostly — accounted for in most econometric models.

I may tweak the economists, but I do not beleive they are totally incompetent. Yes, global labor arbitrage has pressured US job creation. Is there anyone in the Dismal set who doesn’t know that yet?

]]> By: touche http://www.ritholtz.com/blog/2005/04/mystery-of-the-awful-economists-part-2/comment-page-1/#comment-2983 touche Sat, 09 Apr 2005 14:35:26 +0000 http://thebigpicture.dev.wilder.ca/blog/?p=1435#comment-2983 You dismissed it last time, but offshoring is the reason. See my belated comment from "Part 1". The chief economist at Morgan Stanley holds similar views: "The big question is, why? What is it about the macro climate that is squeezing labor income generation as never before in the US and elsewhere in the developed world?" "My vote for the explanation continues to go for the “global labor arbitrage”" http://www.morganstanley.com/GEFdata/digests/20050404-mon.html You dismissed it last time, but offshoring is the reason. See my belated comment from “Part 1″.

The chief economist at Morgan Stanley holds similar views: “The big question is, why? What is it about the macro climate that is squeezing labor income generation as never before in the US and elsewhere in the developed world?”

“My vote for the explanation continues to go for the “global labor arbitrage””
http://www.morganstanley.com/GEFdata/digests/20050404-mon.html

]]> By: anne http://www.ritholtz.com/blog/2005/04/mystery-of-the-awful-economists-part-2/comment-page-1/#comment-2982 anne Sat, 09 Apr 2005 14:00:13 +0000 http://thebigpicture.dev.wilder.ca/blog/?p=1435#comment-2982 John Are utilities typically strong in a slowing economy or weakening market? Why, because of steady earnings or expected lower interest rates? But, utilities were strong last year. They can fairly readily adjust prices when energy costs increase. Well, I like regulated utilities. John

Are utilities typically strong in a slowing economy or weakening market? Why, because of steady earnings or expected lower interest rates? But, utilities were strong last year. They can fairly readily adjust prices when energy costs increase. Well, I like regulated utilities.

]]> By: John http://www.ritholtz.com/blog/2005/04/mystery-of-the-awful-economists-part-2/comment-page-1/#comment-2981 John Sat, 09 Apr 2005 03:37:42 +0000 http://thebigpicture.dev.wilder.ca/blog/?p=1435#comment-2981 While I have drank the coolaide of energy supply limitations and China / India demand growth it would seem appropriate to caution against irrational expectations of cyclical immunity to energy. Slowing economies will see contracting requirements for oil. So while believing in the secular growth story keep in mind that cyclical swings in the world economy will likely create many doubts about the durability of that secular story and therefore some significant pullbacks (200 dma?) and buying opportunities in the stocks. The bond market, utes, drugs and staples are saying a slowing is coming. If so, a real estate contraction coupled with a secular bear market in equities could easily unhinge the global growth story and therefore energy demand. Don't get me wrong, I believe we will likely hold at higher lows than the last cyclical trough and ultimately run to higher levels. Just trying to keep a realistic perspective. While I have drank the coolaide of energy supply limitations and China / India demand growth it would seem appropriate to caution against irrational expectations of cyclical immunity to energy. Slowing economies will see contracting requirements for oil.

So while believing in the secular growth story keep in mind that cyclical swings in the world economy will likely create many doubts about the durability of that secular story and therefore some significant pullbacks (200 dma?) and buying opportunities in the stocks.

The bond market, utes, drugs and staples are saying a slowing is coming. If so, a real estate contraction coupled with a secular bear market in equities could easily unhinge the global growth story and therefore energy demand.

Don’t get me wrong, I believe we will likely hold at higher lows than the last cyclical trough and ultimately run to higher levels. Just trying to keep a realistic perspective.

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