Posts filed under “Really, really bad calls”
You might have missed yet another smackdown yesterday: A debate on the Efficient Market Hypothesis in the FT vs the WSJ:
• Martin Wolf: How mistaken ideas helped to bring the economy down (FT)
• Jeremy Siegel: Efficient Market Theory and the Crisis (WSJ)
My read is Wolf trounced Siegel, but as a non-fanboy of EMH, I am biased.
My own short but devastating critique of Fama’s EMH, which according to Siegel, “states that the prices of securities reflect all known information that impacts their value.”
That assumes that their is nothing in the price that is non-informational in nature — no emotion, no panic, no greed.
That is simply wrong. It is the fundamental failure of EMH.
It seems to be Real Estate Monday, as a series of intriguing articles have broken recently. First and foremost, the Seattle Times has a fascinating two parter, that you must not miss: A series of interviews with former WaMu executives and employees, as well as a survey of internal company documents, reveals that management plotted…Read More
You gotta love the hard core ideologues: Its almost cute they way they stick to their theories, facts be damned. Cute, except for the amount of damage they caused. (Hmmm, this Kool aid is delicious!) Case in point: The latest work of fantasy from the CATO Institute. They are now insisting that a stricter fed…Read More
David Leonhardt has a terrific piece in the Times today on Bruce Bartlett — “the most persistent — and thought-provoking — conservative critic” of the GOP. The discussion of tax cuts is fat too common sense to be seen in print very often: “His conservatism starts with the idea that high taxes are no longer…Read More
One of our favorite bugaboos is finally getting its due: The horrifically misleading Birth Death adjustment. It is finally being recognized in the mainstream as the massive data distorter that it is. The latest BLS analysis and data revision shows that during 2008, the Birth Death adjustment caused NFP payrolls to be significantly under reported….Read More
Jim Bianco has some comments on this year’s horrific analyst misses:
At Bianco Research, we have demonstrated that earnings forecasts are missing by their widest margin ever in 2009. While we have over 140 years of actual earnings data, IBES earnings estimates date back to 1985.
The chart to below shows the error rates in forecasting operating earnings for both top-down forecasters (strategists) and bottom-up forecasters (company analysts). It measures the forecast one-year forward versus what actually happened one year later. The data covers the period from 1985 to 2002, and unfortunately we have been unable to secure an update. It shows that the largest forecasting errors ranged from +30% in the late 1980s (meaning the forecasters were far too optimistic) to -20% during the recession of 2000 (meaning they were far too pessimistic). Data from 2002 to 2006 is missing, but it is a safe assumption that the earning misses that occurred during this period were not as extreme as the previous records set.
The next chart uses Bloomberg data for bottom-up forecasts. By mixing IBES and Bloomberg forecasts, we risk comparing apples to oranges. But, if the surveys are done properly they are both surveying the same people and should offer a very similar data set. As highlighted on the chart below, the current forecasting error is now near 100%, more than three times the largest error seen from 1985 to 2002. No other period has ever come close to the current period.
There is an interesting (albeit flawed) analysis in this month’s New Yorker by John Cassidy: Rational Irrationality. The subject is “the real reason that capitalism is so crash-prone.” The author’s main point seems to be its rational to pursue profits even in an irrational manner when everyone else is profiting from it. Indeed, to miss…Read More
A quick look a chart on Money Market Mutual Funds belies the common belief that “cash on the sidelines” is what powers markets higher. As the chart below reveals, the Market goes up, and as we saw in the 1990s and from 2005-08, so too MMF goes up. This is evidence against the standard sideline…Read More
I’ve always been grateful that Rudy Giuliani was NYC mayor during the 9/11 attack. He was reassuring during a moment of crisis, when leadership was otherwise missing. He stepped into the void after the attack, while others seemed to disappear. Giuliani’s political career — which was in tatters at that time — was rescued by…Read More