Posts Tagged ‘Fortune telling’

Why economic forecasters underperform fortune tellers

In Economy, Financial competency on 20/10/2013 at 5:23 am

(Taz all the more reason to stick to stocks that make can make sustainable (we hope) good payouts. Check Temasek’s Fab 5 out: they have consistently made gd payments but the prices reflects this i.e. better yields available elsewhere but at greater risk.)

[A]n advance estimate showing the city-state’s economy shrank 1.0 percent on quarter in the July-September period, better than expectations for a 3.6 percent contraction, but a significant deceleration from 16.9 percent growth in the previous three months.

Opps wrong again. And govt isn’t that gd either at forecasting. A few months ago: The Republic’s economy is expected to do better this year than previously expected, with the growth forecast raised to between 2.5 and 3.5 per cent, Prime Minister Lee Hsien Loong said yesterday.

The previous official forecast was between 1 and 3 per cent. [Today]

In both cases, in percentage terms, the changes are significant: a fortune teller would lose his credibility with such forecasts. All finance ministers, their advisers, economists, central bankers and analysts always get their forecasts wrong: nothing uniquely S’porean.

In addition to the general reasons I gave here, here are two more reasons for them being sotong in the post 2008 environment.:-

— The experts are lost because the conventional model of how the financial system interacts with the real economy has evolved too little since the huge and largely unexpected financial crisis. Now as then, there is too much debt in the world for either monetary or fiscal policy to have the effect that the textbooks say.

The stimulative efforts of governments and central banks help the highly leveraged financial system stay afloat, but only a small portion of the funds actually reach the real economy. In such an unconventional financial world, the conventional wisdom is likely to stay wrong. Expect more of the unexpected.

— Economics is an inexact science, with exceptions to almost every pattern of behaviour that economists take for granted. For example, economists predict that higher prices for a good will reduce demand for it. But students of economics will no doubt remember an early encounter with “Giffen goods”, which violate the usual pattern. When tortillas become more expensive, a poor Mexican worker may eat more of them, because she now has to cut back on more expensive food like meat.

Such “violations” occur elsewhere as well. Customers often value a good more when its price goes up. One reason may be its signalling value. An expensive handcrafted mechanical watch may tell time no more accurately than a cheap quartz model; but, because few people can afford one, buying it signals that the owner is rich. Similarly, investors flock to stocks that have appreciated, because they have “momentum”.

The point is that economic behavior is complex and can vary among individuals, over time, between goods, and across cultures. Physicists do not need to know the behavior of every molecule to predict how a gas will behave under pressure. Economists cannot be so sanguine. Under some conditions, individual behavioral aberrations cancel one another out, making crowds more predictable than individuals. But, under other conditions, individuals influence one another in such a way that the crowd becomes a herd, led by a few.

Unfortunately, many of these methods [to get clear-cut evidence of causality. If high national debt is associated with slow economic growth, is it because excessive debt impedes growth, or because slow growth causes countries to accumulate more debt? cannot be applied to the most important questions facing economic policymakers.] So the evidence does not really tell us whether a heavily indebted country should pay down its debt or borrow and invest more.Moreover, what seem like obvious, commonsense policy solutions all too often have unintended consequences, because a policy’s targets are not passive objects, as in physics, but active agents who react in unpredictable ways. For example, price controls, rather than lowering prices, often cause scarcity and the emergence of a black market in which controlled commodities cost significantly more.


Thai market to collapse?

In Uncategorized on 13/07/2012 at 1:40 pm


Thailand’s SET index was up 18% from end of last yr to 11 July. BUT …

Thailand’s constitutional court is set to make a ruling on Friday which could spark a new round of political unrest.

It will vote on whether politicians can start work on drafting a new constitution, or whether that process could undermine the monarchy.

If the judgement goes against the ruling Pheu Thai party, it could be dissolved and senior members banned from parliament.

Markets: Like last yr meh?

In Financial competency on 13/07/2012 at 7:57 am

So, is this July and August going to be as bad as last year’s for the stock markets? Remember the plunges: Reasons to think things why could get steadily worse.

— jobs are being created at a snail-like pace in the US,

— in  China the decision to cut interest rates suggests the economy there could be in a worse state than had been feared,

— last Friday, German bonds and US Treasuries rose sharply and the euro tumbled to the lowest level against the dollar since the beginning of June,

— France has to cut reduce its budget deficit when it has promsed to spend, spend, and

— the Greeks, Italians and Spainards are trying to weasel out of their promises to reform.

The oil price fell 3.2% in New York last Friday – and this was at the end of a week when Iran had been testing missiles and threatening tanker supplies in the Persian Gulf, which should normally have jerked prices upwards.


The best investments since 2007

In Financial competency on 04/07/2012 at 6:28 am

With perfect hindsight, an ideal portfolio in 2007 would have been stuffed with gold, white sugar, Swiss francs and German bunds. Anyone holding that mixture of assets when the crisis began would have seemed either eccentric or confused.

Property: So long as prices don’t go up in a str line, Colin

In Financial competency on 03/04/2012 at 11:41 am

It’s a correction, Colin. ))) This is S’pore. If prices really correct, PAP government will have lost its “mandate from heaven to rule us for forever and a day.

Is this the worst that the most drastic set of cooling measures ever to be imposed can do to prices and sales? And that its future impact can only dissipate over time? It certainly doesn’t look good.

Note: I deleted an earlier posting on this topic because of “font” issues. The “fonts” were in Italics despite indications to the contrary. Couldn’t fix the problems. So thrashed it.


Bond cycle turning?

In Financial competency, Financial planning on 18/03/2012 at 9:25 am

US tresuries are weakening (The interesting issue is the bond market which (as a regular commenter astutely noted on the last post) has seen a steady decline, taking the 10-year Treasury yield to a five-month high) while retail investors here are rushing into perpetual bonds (prices will fall, if interest rates go up) and retail investors globally are piling into bonds or bond funds. They are expecting a Japanese-like scenario with interest rates falling even lower.

Dow at 13,000

In Financial competency on 03/03/2012 at 4:59 am

This chart shows how the Dow regained 13,000. It is just below that level now.

As to whether it will correct seriously, keep an eye on the Dow Transport . The theory is that the Dow cannot maintain a trend, if the Dow Trasport does the other way. Well transport stocks are affected by higher oil prices and you know the price of oil.


Beware of distorted markets

In Economy, Financial competency on 28/02/2012 at 2:30 pm

Investors now live in a sort of fairground hall of distorting monetary mirrors. Their perception and motions are twisted by negative real policy interest rates, by topsy-turvy government bond markets, by fiscal deficits which range from large to enormous and by a financial system still considered so fragile that it needs extensive official support. Until the mirrors are straightened – a process that will take years – it would be dangerous to feel too happy about rallying markets.

Another great insight an the Economist blogger

a big enough rise in oil prices that translates into a big enough decline in expected growth and inflation may nudge the Fed from the rates-will-be-low-because-we-want-catch-up-growth interpretation toward the rates-will-be-low-because-the-economy-will-be-weak interpretation.

One reason why equity mkts are bullish

In Economy on 25/02/2012 at 5:37 am

BUSINESSPEOPLE around the world are still gloomy about the outlook for the global economy, but they are a bit less gloomy than they were last October, according to The Economist/FT survey of over 1,500 senior executives, conducted by the Economist Intelligence Unit.

Cheong all the way?

In Financial competency on 20/02/2012 at 7:49 am

This guy’s a bear.

The S&P 500, in the past week, rose 18, or 1.4 percent to 1361, and it is now up 24 percent from its October low and nine points below its 2011 high. The Dow, up 1.2 percent for the week to 12,949 is in reach of 13,000, a key psychological level. It is also at the highest level since May, 2008.

“The market continues to work its way higher. We are knocking on the door of the April 29 recovery high. It feels like there are an awful lot of people calling for a correction—or at least a digestion—and I’m one of them,” said Sam Stovall, chief equity strategist at S&P Capital IQ.

Stovall said with history as a guide, when stocks rally, off a ‘baby bear’ correction, like the one that ended in October, they on average rebound by about 23 percent within six months. The current market rally is ahead of schedule, and stocks have made similar gains in just 4-1/2 months.

Joker in the World Economy

In Economy, Energy on 31/01/2012 at 10:47 am

If the US is Superman and Batman is China, and both want a growing world economy, their enemy is the Joker super-enhanced with kryptonite, or otherwise known as “Iranian oil”.

Extract from BBC Economics blogger, Stephanie Flanders:  

Iranian oil

All the mainstream forecasts for global growth in 2012 assume a flat or falling price of oil. Last year’s updated IMF forecasts, for example, assume the average price of oil falls from around $105 per barrel last year to $100 in 2012 and $95 in 2013.

For the UK, you’ll remember the likely fall in inflation (helped by stable or falling oil prices) was one of my biggest “reasons to be cheerful” in 2012.

US and EU sanctions on Iran could well mess with these hopes, especially if Iran decides to cut oil shipments well before the EU sanctions formally come into force. In the past few weeks, Iran’s leaders – and its parliament – have been talking about doing precisely that.

Iran exported roughly 2.2 million barrels of crude per day in 2010, equivalent to around 2.5% of global demand. A good chunk of that oil went to Europe, unfortunately quite a lot of it to the countries in crisis. Around 15% of the oil imported by Spain, Greece and Italy comes from Iran.

The oil price has crept up in recent weeks, but if you want to insure yourself against a major price spike later in 2012, you can do it very cheaply. The market just doesn’t think it’s very likely.

There are lots of sensible reasons for traders to be relaxed. Saudi Arabia has pledged to increase its production, if necessary, to keep the oil price stable; the US financial sanctions, which would make it very difficult for Iran to get paid for its oil, have quite a lot of flexibility built into them; and the EU sanctions are likely to be phased in.

And yet, this is the oil market we are talking about. And Iran. Neither exactly has a reputation for stability, or predictability.

Senior Israeli politicians at Davos were suggesting privately that there was a one in three chance of some form of violent confrontation with Iran this year.

Of course, Israel has an interest in talking up the threat posed by Iran. But the noises coming out of Tehran are not exactly reassuring. You have to wonder whether the rest of the world – including traders in oil futures – is taking it seriously enough.

Apple’s Third Founder

In Uncategorized on 26/01/2012 at 5:13 am

During this period, we traditionally wish one another, “Wealth, prospeity” and  nowadays add, “Good health”. Here’s shumething on a man who missed a fortune by being super KS.  Or maybe it is a lesson on why lawyers’ advice should be sought.

The documents reveal that Mr Wayne was paid $800 when he decided to hand back his 10% stake in the firm. He later received a further $1,500.

Mr Wayne played a crucial role in the firm’s creation, helping Mr Jobs convince his friend Mr Wozniak to leave Hewlett-Packard and set up the new company.

He was given a 10% stake in the company so he could act as a tie-breaker if the other two men had a disagreement.

However, Mr Wayne left the company after less than a fortnight because he was worried that if it failed his assets could be seized by Apple’s creditors.


Antidote on all the gloom towards Euro

In Currencies on 25/01/2012 at 8:23 am

(Or “Why I keep some small change in Euros”)

China’s collapse ‘will bring economic crisis to climax in 2012’

In China, Temasek on 15/01/2012 at 5:56 am

But it’s sunshine from 2013 onwards, if you still got the money.

A looming hard landing in China will bring the financial and economic crisis of the past five years to a climax in 2012, one of the City of London’s leading analysts has warned.

Albert Edwards, head of strategy at Société Générale and one of the UK’s leading “bears”, said the next 12 months would be the “final year of pain and disappointment”.

SDP, KennethJ and the usual grumblers will have a field day if this guy is right (he has a good track record, this last few yrs) what with Temasek’s and its TLCs’ (Think DBS, CapitaLand, KepLand), and other GLCs’ (Ascendas for example)  big bets on China.

Predicting a sharp slowdown in activity in the world’s fastest-growing emerging economy, Edwards said: “There is a likelihood of a China hard landing this year. It is hard to think 2013 and onwards will be any worse than this year if China hard-lands.”

UBS: View of 2012

In Economy, Financial competency, Financial planning on 10/01/2012 at 1:17 pm

With equity markets likely to be trading sideways albeit in a high volatility range, investors should continue to invest in defensive, high-dividend stocks and complement that with exposure to the fixed income space.

The stock dividends and bond coupon payments will provide a valuable income stream for investors as we expect the current environment of almost zero deposit rates, relatively high inflation to persist amidst slowing economic growth.

My tots exactly: Go buy stocks that pay good, sustainable dividends


2012: Not so bad leh?

In Economy, Investments on 09/01/2012 at 5:41 am

The outlook for 2012 is neither promising nor hopeless. Collapse of the global financial system, a return to the 1930s, a new depression, deflation – each threat to the world economy since 2008 has been real and has so far been averted. Euro collapse is the next threat. Policymakers will have to be resourceful again. That the world is still just about recovering shows that unlike in the 1930s they haven’t got everything wrong.