Why economists are good contrary indicators

[dhukka]

A great piece on why it pays to be skeptical of economists courtesy of THE BIG PICTURE. Below is an excerpt. Click here for the full post.

Back to the Trouble with Economists: The real issue I have with Brian's Op-Ed piece has to do with this section:

There are at least a half-dozen other institutions publishing surveys, and all of them report very similar results among the 100 or so active professional forecasters. Except for two well-known economists (Nouriel Roubini at New York University, and Gary Shilling of A. Gary Shilling & Co.), who are not in many surveys, a super-duper majority of professional forecasting economists believe the economy will continue to expand during the next year and have believed so for the past four or five years" . . .

In short, over the past five years, forecasting economists from academia, consulting shops, financial services and industry have a perfect 5-0 record against a random sample of American citizens. (emphasis added).

That's a slick trick: My issue is with the phrase "the past five years." That time period was no doubt chosen because it omits the last recession.

Why? There is a specific reason for omitting that time period: Economists, as a group, failed to forecast the 2001 recession. In fact, even when we were smack dab in the middle of it, the group failed to notice it.

AS A GROUP, ECONOMISTS HAVE NEVER CORRECTLY FORECAST A U.S. RECESSION. EVER.

For sure, certain Individuals may have gotten it right, but the collective group has a perfect record of missing the major turns.


~~~

I laid out my views on forecasting several years ago in a column titled "The Folly of Forecasting."

Essentially, most forecasters fall into one of two camps: Camp one are the extrapolaters. They take whatever trend exists at present, and project them out to infinity and beyond. This makes them right in expansions, but causes them to miss major turning points.

Camp two are the anticipators: They look for signs that the present trend is about to end. They often are too early, and miss some of the existing trend in order to capitalize on the reversal. (I have struggled to keep a foot in both camps, sometimes less successfully than others).

The bottom line is this: Economists as a group are a paid part of the Wall Street machinery. They do not get raises or promotions even when they correctly forecast a Recession. Its verbotten. Outside of academia, its even referred to as The "R" word.

~~~


A perfect 5-0 record? Perhaps that's their pre-season score. But when the big money is on the line, when its crunch time in the SuperBowl, you can expect the entire group of on the dismal scientists -- as a whole -- to do what they have always done: choke big time . . .

 

[theasxgorilla]

You might like this link:

http://www.cxoadvisory.com/gurus/

They rank gurus based on their track record of making calls. Included are the liks of people like Jim Cramer and John Mauldin.

ASX.G

 

[dhukka]

You might like this link:

http://www.cxoadvisory.com/gurus/

They rank gurus based on their track record of making calls. Included are the liks of people like Jim Cramer and John Mauldin.

ASX.G

Thanks ASG.

Although it would never stack up to academic scrutiny it's still interesting stuff. Note that 21 of the 42 have accuracy of 50% or better. So basically your average market economist is just as likely to be wrong as right on any given call.

 

[Garpal Gumnut]

Thanks ASG.

Although it would never stack up to academic scrutiny it's still interesting stuff. Note that 21 of the 42 have accuracy of 50% or better. So basically your average market economist is just as likely to be wrong as right on any given call.

I'd agree, and most Australian tipsters, economists and experts wouldn't even reach 50%. They give so much advice and cover so many stocks and use such imprecise language as speculative hold/buy, and hardly ever suggest a sell or a bear trend that they have as much reliability as they would have sexing chooks.

Garpal

 

[wavepicker]

Interesting article, especially this observation:-


"Essentially, most forecasters fall into one of two camps: Camp one are the extrapolaters. They take whatever trend exists at present, and project them out to infinity and beyond. This makes them right in expansions, but causes them to miss major turning points"

Economists love to project the current trend into the future. Probably because it's safer in the short to medium term, specially if the trend has persisted. (The Trend is your friend)

For those in Camp 2 it's much harder as it is for mostly everyone else.

In the end boils down to just 3 things:

-To decide if the market is trending
-To participate in the trend
-To recognize when the trend is at risk of ending

Interesting that just after he crash iof 1929, Economists had no answers. The US government hired Edward Dewey who was not your average Economist but one that incorporated Cycles into his thinking.

http://en.wikipedia.org/wiki/Foundation_for_the_Study_of_Cycles

 

[fimmwolf]

Interesting.

I saw Nouriel Roubini on Hardtalk a while ago and thought his view on what needs to be done in the current crises was insightful.

You can view that discussion on youtube: http://www.youtube.com/results?search_query=Nouriel+Roubini+hardtalk&search_type=&aq=f

 

[Glen48]

Does this mean your own opinion is better than the high paid advisers?
Other than Steve Keen I have yet to hear of one economist who will tell us if we are in or could be in a recession or heading for a recession.
The amount of info now available on the net is huge and we are able to digest a lot more this time than ever before.
If we had to rely on the local papers for info. we could be forgiven for thinking all this bad news is in USA and we are saved by China.

 

[MS+Tradesim]

You can get full access to Nouriel Roubini's thinktank for a trial period. Well worth the bother of signing up.

http://www.rgemonitor.com/

Even the free analysis there is good stuff.

 

[MRC & Co]

Other than Steve Keen I have yet to hear of one economist who will tell us if we are in or could be in a recession or heading for a recession.

An official recession is just a number.

I am technically an economist, "we are in a recession".

 

[fimmwolf]

Does this mean your own opinion is better than the high paid advisers?

Other than Steve Keen I have yet to hear of one economist who will tell us if we are in or could be in a recession or heading for a recession.

You don't need Steve Keen or any other economist to tell you when we are in a recession or not. The accepted definition is 2 consecutive quarters of negative growth. But what will you do with that knowledge ?

If you watched the Roubini interview, you'll see that he provides several clear steps to address the current situation.

They included:
*taking the assests off the banks balance sheets
*recapitalising the banks
*reducing the debt burden to mortgagees perhaps through reform to existing bankruptcy laws.

Now compare what he said to the original Paulson plan and tell me what you prefer.

 

[fimmwolf]

You can get full access to Nouriel Roubini's thinktank for a trial period. Well worth the bother of signing up.

http://www.rgemonitor.com/

Even the free analysis there is good stuff.

Thanks for that.