Posts filed under “Really, really bad calls”
In this morning’s NYT, Joe Nocera takes on one of my favorite subjects: Why the market is neither rational nor efficient.
He does a nice job, interviewing both Jeremy Grantham and Burton Malkiel. Along the way, he mentions Justin Fox’s new book, The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street.
“In the last decade, the efficient market hypothesis, which had been near dogma since the early 1970s, has taken some serious body blows. First came the rise of the behavioral economists, like Richard H. Thaler at the University of Chicago and Robert J. Shiller at Yale, who convincingly showed that mass psychology, herd behavior and the like can have an enormous effect on stock prices — meaning that perhaps the market isn’t quite so efficient after all. Then came a bit more tangible proof: the dot-com bubble, quickly followed by the housing bubble. Quod erat demonstrandum.
These days, you would be hard-pressed to find anybody, even on the University of Chicago campus, who would claim that the market is perfectly efficient. Yet Mr. Grantham, who was a critic of the efficient market hypothesis long before such criticism was in vogue, has hardly been mollified by its decline. In his view, it did a lot of damage in its heyday — damage that we’re still dealing with. How much damage? In Mr. Grantham’s view, the efficient market hypothesis is more or less directly responsible for the financial crisis.
I prefer Res Ipsa Loquitur, but hey, its all Latin to me.
I am about halfway through The Myth of the Rational Market, and so far, its good wonky fun. (Justin, there’s your pull quote: good wonky fun“). When I’m finished, I will post a review, though I expect my experience in writing a book to have eliminated all objectivity when it comes to reviewing other books.
Poking Holes in a Theory on Markets
NYT, June 5, 2009
Will someone please explain to me why we are giving $22 Billion to Insurers? “The Treasury Department will make federal bailout funds available to a number of U.S. life insurers, acting on the embattled sector’s long-running effort to get government help. The Treasury is prepared to inject up to $22 billion into the insurers under…Read More
“We are finally beginning to see the seeds of a bottoming [in the housing industry. The U.S. is] at the edge of a major liquidation [in the stock of unsold properties, which may help to stabilize prices].
—Alan Greenspan, May 12 2009
“I don’t know, but I think the worst of this may well be over.”
—Alan Greenspan, October 2006
Why does the public — and the Press — constantly seek out reassurances from the same people who misled them time and again in the past?
That was the question on my mind as I pondered yet another declaration from Alan Greenspan that the Housing Market has bottomed. That he has consistently made similar such statements before is cause for doubting him here. That these prior bottom calls were as far back as 2006 is cause for ridicule.
Few people have been worse than Greenspan in analyzing the Housing market. In fact, the only person / group I can think of with a consistently worse track record than Greenspan’s of analyzing the housing market was the group he spun his foolishness to yesterday: The National Association of Realtors.
Indeed, consider this golden oldie from David Lereah, the NAR’s chief economist, circa December 2005:
Home sales are coming down from the mountain peak, but they will level out at a high plateau, a plateau that is higher than previous peaks in the housing cycle.
That 2005 declaration, made 5 months after Hosuign prices had topped out, was typical of the reality denial we saw from the NAR over the entire housing cycle. They continuously got it wrong, spinning all data, good or bad, in a shamelessly self-promotional manner.
That this group of blind flacks paid Greenspan $100,000 plus to spin them lies is somewhere between ironic and pathetic. At least it wasn’t taxpayer monies . . .
NOTE: These older Greenspan/Lereah quotes were were pulled from Chapter 21, The Virtues of Foreclosure, Bailout Nation.
“Close them down, get them out of business. If they’re dead, they ought to be buried.” -Richard C. Shelby, the senior Republican on the Banking Committee, on ABC’s “This Week” > Thus, the strangely inverted world of bank bailouts continues. Republicans who started the entire lurch towards Socialism under George W. Bush at least understand…Read More
Yesterday, in Backdoor Bailouts for Goldman Sachs?, we noted that GS, as well as Morgan Stanley, Merrill Lynch, and Deutsche Bank, were all made whole on their bad bets with AIG. That’s right, what was misleadingly described as systemic risk turned out to be in large part little more than a counter-party bailout — money…Read More
The incessant parade of bad advice, partisan quackery and general ignorance about the way markets work is fascinating to watch. I used to find it annoying, but now I simply use it as a way to make money. Just find the dumbest of the group, and take the other side of their trades. The latest…Read More
Here we go again: It looks like you and me and that guy behind the tree are going to be on the hook for a few billion more dollars: “Citigroup Inc. is in talks with federal officials that could result in the U.S. government substantially expanding its ownership of the struggling bank, according to people…Read More
There is a surprisingly interesting article at Money Magazine on why so many so-called experts utterly missed the market crash, credit crisis, and housing collapse. Its an interview with Philip Tetlock who is (with no small amount of irony), an expert on experts. He is a professor of organizational behavior at the University of California-Berkeley’s…Read More
Mark Faber wants to do nothing and let the free market correct the excesses. I agree — but I know its only a pipedream. Given we have already had unprecedented interventions, the let-the-market-correct ship has already sailed. And, no US politician has the stomach for that. Excerpt: “As a consequence of this expansionary cycle, the…Read More