Posts filed under “UnGuru”
“They’re in the business of flattering the prejudices of their base audience and they’re in the business of entertaining their base audience and accuracy is a side constraint.”
The quote explains quite perfectly why most forecasters appear to stink at their jobs. The answer is that, all appearances to the contrary, they are not actually trying to predict the future.
Instead, they are appealing to their audience — not the broad public, but a much narrower group — generating a specific response that is belied by the apparent question.
When making forecast about where markets might be one year from now, the goal is not to accurately foretell the future. Rather, it is to create interest in trying to forecast the future, to market time, to pick stocks or funds. Specifically, to generate commission driven business. Whether the pundits are right or wrong is irrelevant — what matters is the activity their blatherings produce.
The political pundits generate campaign donations; the sports pundits create ratings excitement for a given playoff series. Even the Oscar pools / forecasters are an attempt to generate an audience.
All of this translates into a thinly veiled form of marketing. In other words, its all about Sales & Revenue, not accuracy.
It is all very meta.
Thus, it is helpful to understand that Pundits suck at what you think is their job, But its really not. The accuracy portion of what you see is irrelevant.The buzz, the marketing, the ratings, and of course, the commissions — THAT is what the true job of the Pundit is.
Suckitude: Its a feature, not a bug.
Apprenticed Investor: The Folly of Forecasting (June 2005)
The Dangers of Non-Modeled Narrative Story Tellers (December 3rd, 2012)
Are You an Investor or a Story Teller? (April 25th, 2013)
More on Munis, Detroit, Bloomberg, Whitney & Wilson David R. Kotok Cumberland Advisors, July 24, 2013 In our recent commentary on municipal bonds and Detroit, we argued in favor of buying the highest-grade AAA tax-free municipal bond It currently yields more than the corresponding taxable US Treasury obligation. Meredith Whitney, Muni Cassandra emeritus…Read More
Last week, I noted my preference for Fed Chief was Anyone But Larry Summers. So you can imagine my disappointment when Ezra Klein posted this today: Right now, Larry Summers is the front-runner for Fed chair. Oy. This nation faces too very large political problems related to economics: 1. The President of the United States…Read More
Take The Zero-Hedge Test
Being permanently bearish on equities definitely pays.
Just ask Zero-Hedge. Unfortunately, for wool-dyed pessimists and the other overly-skeptical black sheep of the thundering herd, it pays apocalyptic newsletter writers’ paychecks, and Zero-Hedge/Tyler Durden’s Manhattan bar tabs rather than those who permanently position against market priapism. And it’s worse than zero-sum because those who are optimistically-challenged often pay for the bad advice – whether directly in subscriptions, inflated margins on retail bullion products, or indirectly via page-views and click-throughs AND then they get hosed by the market.
The first step to improving behaviour toxic to one’s own self interest is admit one has a problem. As an aid to help those who have difficulty in distinguishing “a bearish trade” from “the lead boots of anger and pessimism”, I’ve devised a little something I call the Zero-Hedge Test to determine more precisely whether readers objective realities are sufficiently paranoid, pessimistic, anti-social and rantingly angry to warrant more serious help.
Instructions: Circle the letter that best describes the adjacent image:
a. a glass of water
b. glass of water, half-empty
c. glass of water, half-full
d. glass of errrr ummm , Grey Goose vodka? (NB: ed. choice)
e. The US Government must have stolen half of a glass of water.
a. First black elected (and first to be re-elected) President of the USA
b. Barack Hussein Obama
c. A Former Senator from Illinois
d. tall guy who used to like to sneak a cigarette now & then
e. Jezebel, dark Sith Lord Vader Emperor & Chief of the Plunge Protection Team. Odious non-American african muslim responsible for taking away our world-beating healthcare, encouraging the immigrants and foreigners who took our our jobs, and formulating a secret plan to put two-dads in every home .
a. Something that still buys a 12oz can of Coca-Cola
b. A greenback, worth a dollar, which, on average, an American is paid each 4 minutes of work
c. A US Federal Reserve Banknote almost universally accepted in exchange for goods and services the world over
d. A cocaine hoovering apparatus c.1978
e. Worthless fiat toiletpaper, so useless that bric-a-brac, watches, baseball cards or bitcoin should be more preferred than this P.o.S. that forms part of the elders of Zion grand plan to steal your labour savings before eating your babies.
a. six would-be wedding bands
b. 1oz novelty of pure gold smelted by JM
c. Au = element #79 on Periodic Table
d. Reward for a 9.59 sec 100m
e. The solution to all our financial problems…changer of men from liberal faggot zionist atheist swine into god-fearing hardworking people of fortitude and rectitude…curer of cancer, balancer of budgets….purifier of all our precious bodily fluids and divinely-given laws….come, my preciousssss…
“If you chained a thousand Boskins to a thousand keyboards for a thousand years, eventually one of them would make a correct prediction.” Over the years, I have been critical of economist Michael Boskin: I have critiqued his market forecasts (“Obama’s Radicalism is Killing the Dow“) that were made literally on the day…Read More
The Big Lie Annotated: An AEI History Of The Financial Crisis
February 26, 2013
“There was never any significant debate about the causes of the 2008 financial crisis,” argues Peter Wallison, who must believe that his stint on the Financial Crisis Inquiry Commission was a complete waste of time. Two years ago, he blamed the other nine FCIC commissioners, for “ignoring” the research of Edward Pinto, who proclaimed that the crisis was caused by Fannie, Freddie and affordable housing goals.
Now Wallison blames the media. ”Although there were two narratives about why it happened, only one of them was accepted and propagated by the media,” he says. “And in effect the necessary competition in ideas never occurred.” For $72 you can read all about it in his new book, Bad History, Worse Policy: How a False Narrative about the Financial Crisis Led to the Dodd-Frank Act.
The irony could not be more rich. Neither Peter Wallison nor Edward Pinto would ever subject themselves to a free and open competition of ideas, because their “research” cannot withstand a modicum of scrutiny. FCIC staffers carefully reviewed Pinto’s work, but neither they nor Pinto were ever able to reconcile his risk categories with actual loan performance, which seemed to nullify Pinto’s thesis. So Wallison simply lied to Congress, when he testified that the FCIC never reviewed Pinto’s work.
The schism described by Wallison is not between left and right, between Democrats and Republicans, or between regulation and laissez-faire. It is the divide between capitalists and crackpots. In the world of capitalism, everyone takes risks. Some pay off; some do not. Capitalists study the results in order to ascertain who was lucky and who was smart. Not crackpots like Wallison and Pinto. They declare that, “28 million mortgages, were subprime or otherwise low-quality,” of which, “three quarters were on the books of government agencies.” But they refuse to examine loan performance over time.
Wallison and Pinto maintain their media platforms because they are protected by a vast conspiracy of silence–an informal agreement among conservative think tanks, Republican politicians, academic shills, and friendly media outlets–which insulates the words of Wallison and Pinto to any kind of fact checking.
Consequently, there has never been an adequate takedown of the multifarious lies and deceptions embedded within the Wallison/Pinto “narrative.” So, what follows is a description of the elephant in the room, a brief explainer of some of Wallison’s more egregious whoppers. The list is by no means comprehensive. And it merely touches upon Pinto’s new disinformation campaign against FHA, which deserves a separate debunking. (Spoiler Alert: If you believe Pinto’s claim that, “FHA’s Estimated GAAP Net Worth Equals –$26.27 Billion,” you don’t know much about GAAP or finance.)
A Few Basic Metrics
But first, a few basic metrics.
Best Loan Performance: Over the past few decades, Fannie and Freddie’s loan performance has always been exponentially superior to that of any other segment in the mortgage market. The first chart covers the period of 1998 – 2010, the second from the beginning of the 2008 crisis until now.
$216 Billion versus $888 Billion: Similarly, the total credit losses incurred by the GSEs are about one-fourth those incurred about by private label mortgage securitizations, which are packaged and sold by Wall Street.
Laurie Goodman of Amherst Securities estimated that losses on private label securitizations issued between 2005 – 2007 total about $714 billion, a number fairly close to Moody’s current estimates. Add in another $133 billion in losses from synthetic subprime CDOs, which never financed a single mortgage, plus another $41 billion from CDOs issued before 2005, and the total approaches $888 billion.
If you hang around these parts for any length of time, you will occasionally run across one of my jeremiads complaining about the Financial Services Industry. I’ve been thinking about this more than usual lately. This has led to some correspondence with Helaine Olen, whose book Pound Foolish: Exposing the Dark Side of the Personal…Read More
My wife happened to mention hearing a financial guru on the radio a little while back. I am always interested in knowing what financial gurus are saying (and thinking maybe it was Ritholtz or Rosenberg or Levkovich or someone else I personally know). I asked her who it was.
“Dave Ramsey,” she said.
“Dave who?” was my reply.
So I asked around – colleagues, friends in the business, etc. etc. Couldn’t get a bid. I turned to The Google and in short order realized that Dave Ramsey is the male version of Suze Orman. He seems to be a self-promoter with little actual experience or knowledge of financial markets or economics. But what really struck me was the condescending, patronizing tone he directs toward his callers. This a site refers to him as a “Christian financial guru,” yet he doesn’t seem to preach in very Christ-like manner.
I could write a thesis about all that’s wrong with this ilk. But rather than take the 30,000 feet view (that’s BR’s province), let’s get granular:
Once again, investors are reacting to the uncertainty in the stock market by investing in gold. Since the third quarter of 2010, the price of gold has jumped 40%, peaking at just over $1,900 an ounce. The “experts” are touting gold as the only “safe” investment in a volatile market.
So is now the time to buy gold?
Think about it: Why would you buy something at its all-time high?
Before we move on to the idiocy of the final sentence, let’s consider another aspect of what’s going on here.
Later in that same post:
Gold Stash is a quality company that will gladly buy any of your unused gold and silver. They do business the right way, going above and beyond. Dave wouldn’t endorse them if they did any less. With Gold Stash, you can take advantage of the high gold prices in a safe and responsible way.
So, not only is Mr. Ramsey advising against gold under nearly all circumstances, he’s recommending selling it to a company he “endorses,” who coinicentally happens to be an advertiser?
Oct. 13, 2009: “He never has, and he never will [advise buying gold]. Companies like GoldStash.com offer an outlet for you to make some money on your unwanted or unneeded jewelry. Dave will only endorse companies that he trusts, and Gold Stash is reputable, honest and absolutely trustworthy.” Gold price then: About $1,050/oz.).
Who is Gold Stash? Hmm. Well, there’s a tab that allows us to see who “Dave Recommends.” There’s Gold Stash. Funny thing is that at the bottom of that drop down is a link for us to “View all Advertisers.”
Gold Stash is an advertiser of his, and Dave wholeheartedly endorses them (and only them, apparently) and, coincidentally, is always – 100 percent of the time – bearish gold. Dave is so concerned about your financial well-being that he’s going to let those suckers at Gold Stash take the hit on your soon-to-be-worthless gold. What a guy.
Paul Farrell responded to Wharton School prof Jeremy Siegel’s most recent predictions for the Dow by year-end 2013, who said: “My Dow 17,000 projection may turn out to be too timid.” He channels William Sherden, author of “The Fortune Sellers: The Big Business of Buying and Selling Predictions.” Sherden decided to test the accuracy of…Read More
Pundit tracker is an interesting new site that proclaims its mission as bringing accountability to the prediction industry.
The site notes the Media’s lack of institutional memory. This creates perverse incentives — Pundits learn that brash predictions generates news coverage. If it turns out that they are wrong, well, it hardly matters, as no one ever remembers or calls them out on it. On those occasions when the blind squirrel finds the occasional nut, they can selectively tout that correct call for self-promotional purposes. The entire cycle then repeats.
I am especially keen on these Pundit excuses:
Too early: “I was simply too early; just wait and see, that stock market crash is still coming.” (see: Broken Clock Pundits)
Black swan: “Sure, our credit rating models failed, but who could have predicted that housing prices would fall across the country at the same time?”
Close enough: “Hey, I said the stock market would go up more than 10% and it went up 8%. I was basically right.”
Self-negated: “It was our own beliefs and actions that spared the world from catastrophe.” (see When Prophecy Fails)
Hedged: “I only said that it could happen.” (See: The 40% Rule) — note: when pundits are correct, they strangely fail to mention the hedge.
Pundit tracker wants to create a permanent catalogue / track record for the punditocracy’s predictions.
It is an interesting site that has the potential to correct some abuses. It will really have an impact once the media starts to use it in questioning or even booking their guests.
More from the site after the jump…