Posts filed under “Research”

The Punditry Chronicles

Forecasting is a rough gig that often confounds even those who do it for a living and generally do it well.

Situational awareness (see e.g., this and this), on the other hand, is all about knowing “what you need to know not to be surprised,” and having “the ability to maintain a constant, clear mental picture of relevant information and the tactical situation…” It’s making sense of the world around us in real-time, whereas forecasting is an attempt to extrapolate those current events to figure out some future outcome.

In the real world, the latter (situational awareness) is an easier task than the former (forecasting). It’s hard to imagine a decent forecaster not having good situational awareness; those folks with bad situational awareness make for awful forecasters.

Of course, we’ve all been wrong in both assessing situations and in forecasting. There are times when situations are so obvious, I’ve often wondered what might be at play beyond incompetence for those who get it so wrong. Is it Upton Sinclair-ism: “It is difficult to get a man to understand something, when his salary depends upon his not understanding it!” Is it a variant thereof in which we substitute “ideology” for “salary,” as I believe is very often the case (Kudlow, Luskin, Bowyer, Laffer)?

Among the reasons I’ve always had a great deal of respect for two commentators in particular — Paul Krugman and David Rosenberg — is because they have consistently exhibited superior situational awareness and forecasting skills, a rare combination to be sure. Their records speak for themselves. The knock on Krugman — that he’s an ideologue — in no way diminishes or tarnishes the fact that he’s been spot-on in his situational awareness and forecasting since well before the crisis began to unfold in 2007. If anything, his accuracy and astuteness support his ideology in the same way the ideologies of the likes of Kudlow, Bowyer, Luskin and Laffer have been discredited as a result of their being woefully, painfully wrong. [BR: Though Laffer did get the Recession call correct circa February 2008]

Below are several examples of situational awareness, both good and bad. Some of it is striking for its insight, some of it for its total lack thereof. Consider it an object lesson in the ever-present need to consider the source, and the source’s motivations and incentives.

[NOTE: Über-hacks like David Lereah and Lawrence Yun were simply not worth researching. They're in a class by themselves.]

A Decade of Punditocracy, Pathetic Edition

George W. Bush, June 17, 2002

“Now, we’ve got a problem here in America that we have to address. Too many American families, too many minorities do not own a home. [...] Freddie Mac will launch 25 initiatives to eliminate homeownership barriers.”

David Rosenberg, August 6, 2004

“We assess the likelihood that the housing sector has entered into a“bubble” phase. There are numerous shades of gray, but when we examine the classic characteristics of a“bubble,” it seems to fit the bill.”

Ben Bernanke, August 9, 2005

“There’s a lot of good news on housing. The rate of homeownership is at a record level, affordability still pretty good. [Ed Note: The first part of that statement was true, the second part demonstrably false.] The issue of the housing bubble is one that people have — whether there is a housing bubble is one that people have raised. Housing prices certainly have come up quite a bit. But I think it’s important to point out that house prices are being supported in very large part by very strong fundamentals.” [Ed Note: In fact, it was exactly at this time that we were beginning to see cracks in the housing market as prices peaked in Boston, Detroit, Atlanta and Charlotte.]

Paul Krugman, August 12, 2005

“How does the country [U.S.] earn its money? The answer, these days, is that we make a living by selling each other houses. [...] Over the past five years housing prices have grown much faster than the overall cost of living, adding about $5 trillion to the public’s wealth.”

Alan Greenspan, September 26, 2005

“In summary, it is encouraging to find that, despite the rapid growth of mortgage debt, only a small fraction of households across the country have loan-to-value ratios greater than 90 percent. Thus, the vast majority of homeowners have a sizable equity cushion with which to absorb a potential decline in house prices.”

Ben Bernanke, March 28, 2007

“At this juncture, however, the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained.”

Tim Geithner, May 15, 2007

“Financial innovation has improved the capacity to measure and manage risk. Risk is spread more broadly across countries and institutions.”

Henry Paulson, July23, 2007

“There has been a very significant housing correction. I think we’re at or near a bottom there,” Paulson said on CNBC television. “I don’t deny there’s a problem with subprime mortgages but…it’s quite containable.”

Brian Wesbury, July 26, 2007

“The current financial environment does not reflect conditions normally associated with a credit crunch. The bottom line is that fears about the underlying health of the economy and financial markets are more about hypochondria than reality.”

Martin Feldstein, August 31, 2007

“Martin Feldstein, president of the National Bureau of Economic Research, said that there’s a “significant” chance the U.S. economy will sink into recession.”

Joseph Stiglitz, November 16, 2007

Joseph Stiglitz, a Nobel-prize winning economist, said the U.S. economy risks tumbling into recession because of the “mess” left by former Federal Reserve Chairman Alan Greenspan. “I’m very pessimistic,” Stiglitz said in an interview in London today. “Alan Greenspan really made a mess of all this. He pushed out too much liquidity at the wrong time. He supported the tax cut in 2001, which is the beginning of these problems. He encouraged people to take out variable-rate mortgages.”

Larry Kudlow, November 2007

Three More Years of Goldilocks? (“Too much is being made of both the sub-prime credit problem and the housing downturn.”)

Paul Krugman, December 3, 2007

“But the [financial] innovations of recent years — the alphabet soup of C.D.O.’s and S.I.V.’s, R.M.B.S. and A.B.C.P. — were sold on false pretenses. They were promoted as ways to spread risk, making investment safer. What they did instead — aside from making their creators a lot of money, which they didn’t have to repay when it all went bust — was to spread confusion, luring investors into taking on more risk than they realized.”

George W. Bush, March 12, 2008

“I think when people take a look back at this moment in our economic history, they’ll recognize tax cuts work.” [Ed. Note: I'm thinking not so much.]

Jerry Bowyer, May 16, 2008

Recession? Not so fast, I say (“But as a member of the “some say no recession” camp, I’m here to say the economy still looks pretty good.”)

Ben Stein, July 8, 2008

Don’t Panic – Buy Index Funds and Real Estate (“The truth is that while the economy is clearly slowing down we are not yet in a recession.”) [Ed. Note: S&P500 closed that day at 1,273.70, on its way to a 676 close in March 2009.]

Phil Gramm, July 9, 2008

“You’ve heard of mental depression; this is a mental recession. We may have a recession; we haven’t had one yet. We have sort of become a nation of whiners. You just hear this constant whining, complaining about a loss of competitiveness, America in decline…”

Amity Shlaes, July 12, 2008

“Phil Gramm was right…”

Jerry Bowyer, Sept. 2, 2008

The Recessionistas Were Decisively Wrong (“I’ve spent much of the past year both on Kudlow & Co. and in columns arguing with Jared Bernstein, Robert Reich, Barry Ritholz, Jonathan Chait, and others about whether or not we’re in a recession. These folks were certain we were, while I, along with Larry and other supply-siders, thought we were not.”) [Ed Note: We were.]

Don Luskin, Sept. 14, 2008

Quit Doling Out That Bad-Economy Line (“Things today just aren’t that bad.”)

Christopher Cox, Chairman, Securities and Exchange Commission, October 2008

“There is no question that, somewhere in this terrible mess, many laws were broken. Right now, the criminal authorities and the civil authorities, not only in the federal government and the state governments, but in other countries, because this is now, as you know, a matter of intense international focus, are working to make sure that lawbreakers are held accountable and people are brought to justice.” [Ed. Note: It's now almost three years later. How are those investigations progressing? Seems the list of folks "brought to justice" could fit on an M&M.]

Alan Greenspan, October 2008

“And what I’m saying to you is, yes, I found a flaw. I don’t know how significant or permanent it is, but I’ve been very distressed by that fact. [A] flaw in the model that I perceived is the critical functioning structure that defines how the world works, so to speak. That is — precisely. No, that’s precisely the reason I was shocked, because I had been going for 40 years or more with very considerable evidence that it was working exceptionally well.””

David Rosenberg, December 16, 2008 (The Frugal Future, no link)

“The macro themes we are developing now are much more secular in nature. We are witnessing epic changes in the ways in which people approach how they move around and how they allocate their budgets, especially with respect to discretionary spending and their attitudes toward debt. Whether or not this turns into a Japanese-style “kyoukou” remains to be seen, but we are convinced that historians will label the environment we are in today as something different from a garden-variety recession.”

WSJ Editorial Page, May 29, 2009

The Bond Vigilantes (“They’re back. We refer to the global investors once known as the bond vigilantes, who demanded higher Treasury bond yields from the late 1970s through the 1990s whenever inflation fears popped up, and as a result disciplined U.S. policy makers. [...] It’s not going too far to say we are watching a showdown between Fed Chairman Ben Bernanke and bond investors, otherwise known as the financial markets. When in doubt, bet on the markets.”) [Ed. note: What would the WSJ tell us the markets are saying now as that is, after all, what we should "bet on"? The 10-yr was around a 3.70% then vs. about 2.25% now; place your bets.]

Arthur Laffer, June 11, 2009

Get Ready for Inflation and Higher Interest Rates

Paul Krugman, July 2, 2009

“Once again a Democratic president has pushed through job-creation policies that will mitigate the slump but aren’t aggressive enough to produce a full recovery. Once again much of the stimulus at the federal level is being undone by budget retrenchment at the state and local level.”

Jerry Bowyer, July 21, 2009

We’re All Inflation Hawks Now

Andrew Bary, Barron’s Cover Story, October 19, 2009


We make our case for the Fed to increase short-term interest rates to a more normal 2% — or risk fostering another financial bubble.

Nassim Taleb, February 4, 2010

Nassim Nicholas Taleb, author of “The Black Swan,” said “every single human being” should bet U.S. Treasury bonds will decline, citing the policies of Federal Reserve Chairman Ben S. Bernanke and the Obama administration.

It’s “a no brainer” to sell short Treasuries, Taleb, a principal at Universa Investments LP in Santa Monica, California, said at a conference in Moscow today. “Every single human being should have that trade.”

Christina Romer, August 2011

“The basic idea that if you increase government spending or you cut people’s taxes that stimulates the economy and lowers the unemployment rate, is a very widely accepted idea. It’s in every economics textbook, that’s what we teach our undergraduates, and I certainly try to teach them the truth. It is a very known and accepted idea and fact and the empirical evidence is definitely there, and people just want to say the sky is green.”

Did I miss anyone . . . ?

Category: Analysts, Contrary Indicators, Really, really bad calls, Research

FRED Gets Even Better: Excel Add-in

The St. Louis Fed’s huge data repository, FRED, now has an incredible new feature:  an Excel Add-in, which is available here.  I’ve been test-driving the add-in for a month or so, and am very impressed with its capabilities.  If you’re a user of the FRED database, you may want to check it out for yourself….Read More

Category: Data Analysis, Research

Bob Farrell’s Rule #9 in Action

I think it’s likely that I introduced Bob Farrell’s Market Rules to Remember to the blogosphere (albeit to a smaller audience), as they’d been an integral part of my upbringing in the business and I was eager to share them when I started blogging.  (BR posted them here in August 2008.) That said, let’s have…Read More

Category: Analysts, Data Analysis, Economy, Really, really bad calls, Research

Not Too Stimulative

Obama had one shot at a stimulus package when the economy was reeling from the near economic collapse of 2008.  Some members of his team argued it needed to be bigger (it did), but for whatever reasons they did not prevail.  What was needed then — as now — was to put money to work…Read More

Category: Current Affairs, Data Analysis, Economy, Research

Rosie v Krugman

Invictus writes: I could not help but be struck by the different positions — both articulated on Friday –  on federal spending taken by two economists for whom I have the utmost respect — Paul Krugman and David Rosenberg.  In his daily missive Friday, Rosie went off on federal spending: Government spending, in the United…Read More

Category: Economy, Research

CFNAI — Toeing the Line

The Chicago Fed’s National Activity Index (CFNAI) printed this week.  The CFNAI is among my favorite indicators that no one seems to follow (though it is covered monthly by Calculated Risk and usually David Rosenberg).  It is an amalgam of 85 distinct economic indicators that gives a very accurate read on the economy.  The folks…Read More

Category: Data Analysis, Economy, Research

Read It Here First: Labor Market Slack

A Bank of America Merrill Lynch research note on the abysmal nonfarm payrolls number for June contained this graph: A February 2010 Big Picture post on slack in the labor market contained this graph: My comment at the time, which holds true today: I’d postulate that only when this gap starts to close meaningfully will…Read More

Category: Data Analysis, Economy, Employment, Research

Time Running Out?

A mention by David Rosenberg in a recent note sent me scurrying to find this report from the San Francisco Fed in August of last year.  The report — remember, it was almost one year ago — used the Leading Economic Indicators to assess the probability of another recession within the next 24 months (from that date,…Read More

Category: Analysts, Cycles, Data Analysis, Economy, Research

Fade the Inflation Hysteria

Tons of talk and pixels being spilled over the imminent inflation threat.  It bears an eerie resemblance to what we heard from the likes of Jerry Bowyer and Art Laffer two years ago.  I’d fade it now, exactly as I suggested back then (here and here, the latter piece co-authored with Bonddad): Exhibit A —…Read More

Category: Commodities, Current Affairs, Cycles, Data Analysis, Economy, Inflation, Markets, Research, Wages & Income

MER: Pondering How Things Might Have Been Different

Invictus here. I’m halfway through Greg Farrell’s Crash of the Titans: Greed, Hubris, the Fall of Merrill Lynch, and the Near-Collapse of Bank of America. Perhaps I’ll post a thorough review when I’m done with it. So far, so good, though I’ll confess it’s a bit like watching one’s own funeral — very morbid; sad…Read More

Category: Research