Posts filed under “Philosophy”
his morning, I tweeted out Spencer Jakab’s WSJ column on NFP — It’s a Hard Job Predicting Payrolls Number, with the annotation “Its pointless, too.”
While I understand the obligation many economists have to their employers to make a jobs forecast, you have no such obligation. You don’t have to make a prediction, weigh in, make a guess, create a forecast model or even read other people’s forecasts.
Here are three reasons:
1) People are really, really bad at making accurate forecasts: Most forecasts are at best, an educated hypothesis and at worst, a blind guess. A glance at the history of these sorts of predictions reveals that everyone gets these things wrong. I have yet to see someone consistently forecast these things. Indeed, I have yet to see a good 3 month in a row streak forecast by any economist. We simply lack the ability to predict the future.
2) Modelling isn’t much better: The combination of a huge number of known variables, poor data assembly, and a number of unknown variables — plus a healthy dollop of unforeseen randomness — makes employment data forecasting at best slightly better than raw guessing.
3) Even if you could make an accurate forecast, it wont help you in the markets: That’s the funny part of all this — it is a meaningless exercise for investors, and a dubious one for traders. This is especially true in the present investment environment where the FOMC looms as large as they do. The next level analysis is whether the good news is bad (meaning less accommodation) or good (economic improvement) or conversely where bad news is good (meaning more accommodation) or bad (economic deterioration).
Our time would be better utilized trying to discern the current state of the labor market — what actually is (and recently was) rather than what might be. This is useful data for companies, policymakers and labor participants. It has actual utility. Predictions don’t.
Apprenticed Investor: The Folly of Forecasting (June 8th, 2005)
NFP Day: The Most Over-Analyzed, Over-Emphasized, Least-Understood Data Point (February 4th, 2011)
Consensus forecast is for 140,000 in April, with jobless rate at 7.6%.
Employment situation report released at 8:30am
Rocky Balboa: “Let me tell you something you already know. The world ain’t all sunshine and rainbows. It is a very mean and nasty place and I don’t care how tough you are, it will beat you to your knees and keep you there permanently if you let it. You, me, or…Read More
“We are in the business of making mistakes. The only difference between the winners and the losers is that the winners make small mistakes, while the losers make big mistakes.” -Ned Davis If you are a regular main street investor, you may never heard of Ned Davis. If you are a market technician,…Read More
Holy Snikes, this is HUGE, from Mike Konczal: “In 2010, economists Carmen Reinhart and Kenneth Rogoff released a paper, “Growth in a Time of Debt.” Their “main result is that…median growth rates for countries with public debt over 90 percent of GDP are roughly one percent lower than otherwise; average (mean) growth rates are several…Read More
Don’t just do something, sit there! I love that purposefully juxtaposed Yogi Berra-ism. I have been thinking about nothing on this lovely Friday morning. More precisely, why doing nothing — or at least much less — is better for your long term investing outcomes than doing something, also known as more. Don’t. Don’t…Read More
Regular readers know I am a fan of Scott Adams, creator of the comic Dilbert and occasional commentator on a variety of matters. He has a somewhat odd blog post up, titled, Here Come the Market Manipulators. In it, he makes two interesting suggestions: The first is to decry “market manipulators,” who do what they…Read More
I’m a researcher. Let me give you the latest example… My headphones broke. You know, the connection, by the plug, so that one ear goes in and out. In the seventies, you’d get this fixed. Today, it costs more to repair than to rebuy, and the art of repair seems to have gone by the…Read More