For those interested in forecasting (particularly for political outcomes) as a field of study, Philip Tetlock is a name you should know. Here’s an insightful interview: http://edge.org/conversation/win-at-forecasting. A few of my favorite quotes:
“I naively thought that pundits were in the business of accurately making forecasts” but really they are “flattering the prejudices of their base audience” and routinely “insulate themselves on vague verbiage…cushion themselves with rhetoric”.
Why be optimistic a deal can be struck on the fiscal cliff? Because there are weak links in the Congressional strongholds. Not only has the GOP shown some willingness to negotiate, but there are also a handful of Democratic senators up for re-election in two years, hailing from largely traditional GOP red zones, who will want to keep their jobs. Look for at least a few of them to show “temperance” and move to the middle on the Fiscal Cliff.
Red-State Senate Democrats May Be Hard to Corral on Cliff– Bloomberg Businessweek
By now, folks have gleaned the Sandy storm won’t have as much economic impact as feared. On the Monday of the storm I saw figures speculating upward of $75 billion in damages. By Wednesday’s end it was knocked down to ~$15 billion, depending who you ask. But it’s clear widespread consensus overestimated by multiples.
Acts of God are often a case study in bad economics. Though, it’s probably not the calculations so much as the psychology of the matter: it’s far better in most folks’ minds to overestimate than underestimate. If you worry too much, no one will blame you. But if you worry too little, fingers will wag in your direction. (In my view, most economists could use a crash course in Bastiat and Broken Window Fallacies before publishing their guesstimates, too.)
Natural disasters have rarely or ever had lasting deleterious effects on capital markets. It’s quite a statement about the durability and plasticity of global capital markets that the NYSE along with US markets generally can be closed for two days and one could barely tell come Wednesday’s trading action. And yet people worry over and over about this stuff.
Fisher Investments (the firm I work for), along with MarketMinder, has posted several good resources on the upcoming US elections and the stock market:
Oh, what a world, what a world! While media chatterheads go on about Libor and other financial chicanery, this sneakily one of the most depressing financial news stories in some time:
Firms Pass Up Tax Breaks, Citing Hassles, Complexity – John D. McKinnon
But executives, particularly at small and medium-size companies, complain that many of the tax deductions are either too cumbersome or too confusing. In some cases, the cost of obtaining the tax benefit is greater than the benefit itself—a wrinkle that has helped spawn a cottage industry of tax-credit consultants. Also problematic is the threat of pushback from the Internal Revenue Service.
The result: many companies are saying “no, thanks” and are likely paying more taxes than legally required. And corporate breaks that Washington hopes will boost the economy often prove ineffective.
You’re thinking, well, of course they’re talking about Greece. No! The US ! A world where the tax code is so convoluted that small businesses pass up tax breaks in the world’s breadbasket of capitalism is a miserable world indeed. It also starkly displays how, 10 years hence from Sarbanes-Oxley, big firms with big accounting and audit budgets have an advantage over smaller firms… all due to a bloated tax code.
One of my largest recurring gripes is the way economic and financial theory hems folks in to narrow modes of thinking. Every single day for the last two years there have been oodles and oodles of economic analyses on the Europe situation in attempt to figure out how capital markets will react. Stop thinking like an economist—this is a political issue now.
It’s a common debate, as old as economics itself, to ask: Which trumps the other—economics or politics? This is a world where many unfathomable things take place regularly. Virtually no one could envision the LTRO, the EFSF, or any of the other creative “solutions” of the last couple years. And even if you could predict what the next jury-rigged mechanism will be, there’s no telling who or how or when it’ll happen. That’s because, yes, economics are forcing the hands of Europe ’s politicians, but in the end decisions are being made in the political forum.
There is no model or theory that guides here.
I often get asked about the importance of reading and writing—what it does to the mind and the long-term positive effects. Particularly because few in investing and finance learn to speak and write with acumen.
There is Cicero, who is wonderful on most of these subjects. But why not study Winston Churchill? I make it a point to read something of his every year. Not only was Churchill a prolific writer and tremendous orator, he was also a great exemplar of the making of wit, intellect and psyche via the acts of writing and reading.
I consistently hear from US investors that today’s politics “have never been more divided.” Hardly. One of the many great benefits of studying history is to understand what is truly precedented and unprecedented. David S. Reynolds’s new book offers some insight on what’s been centuries of excoriating debate in the US Congress—often with the country’s very existence on the line. Today is not so new—what’s new is the bluster and shrill of today’s internet and cable media culture.
Statesmanship In a Divided Era – David S. Reynolds
A really fun, and quick election year read is Philip Freeman’s translation of Cicero : How to Win an Election. These are still, essentially, the rules they all still play by. Also, here’s a link to Freeman’s recent WSJ article on the book:
If you haven’t heard of Intrade, read this article: It’s not always right, but over the last decade or so, Intrade has been a fascinating case study in the power of market wisdom. For those market watchers also keeping an eye on political outcomes, bookmark it.