The Executioner’s Face Is (Always) Well-Hidden


Whew mercy, I’ve been busy of late. However, the the unsleeping eye picked up this short post (and graph) from my ancient nemesis and it illustrates perfectly what I am always trying to talk about.

I’ll say it bluntly. Economic forecasting, economics, market predictions, financial analysis and all other related jobs are all complete bullshit. You’d be better off relying on astrological charts or shaking magic stones and peering into a fucking hat.

But of course nobody ever believes me because the “science” that they use is cloaked in complicated mathematics and only the opinion of an “expert” counts.

Well, look at the linked article:

Two years ago economists thought Germany’s economy would grow by 1.5% in 2011. They underestimated the country’s output by as many percentage points; GDP grew by 3% according to the Bundesbank, Germany’s central bank.

In other words, they were dead wrong. They weren’t even close! They were off by billions and billions of dollars (euros). Oh well!

More from Ye Olde Economist:

Our pollsters were pretty accurate in forecasting GDP in the euro area throughout the two-year forecasting period [once you remove from the results what] they could not have foreseen, the earthquake and tsunami that hit Japan a year ago.

This is exactly my point. They cannot foresee certain things. It is literally impossible. And these unforeseen things always, always change what’s going to happen. Billions and billions of euros changing hands, pension funds, stock market choices, treasury bond sales, even government policy all depend on these kinds of analyses.

Want to see some more magical thinking? Check this out (all links in Romanian):

Romanian economy will shrink in the first four months of 2012 – How much? The Chief Economist of Raiffesen Bank (in Romania) says 0.5%. But the Chief Economist of ING Bank (Romania) says 0.3%. So which is it? BCR “analyst” Eugen Sinca can’t even come up with a number at all. But wait, Andrei Radulescu of SSIF Broker says the economy might grow in the first four months! So should I invest my money or not? Quit fucking around and tell me.

Remember folks, these are the experts and I am just a humble blogger.

But wait, what about this?

Romania’s GDP will grow by 2% in 2012 – Chief Economist of BRD bank (Romania). The IMF says Romania’s GDP will grow from 1.5-2% in 2012. Sounds good!

But wait a goddamn minute. Now who here remembers this besides me?

We completely failed to predict 2009’s economic recession – BNR (Central Bank of Romania)’s vice governor Cristian Popa. Yeah, no shit because the IMF, those Wise Old Elves who now tell Romanian politicians what to do, predicted a 3.5% increase in the GDP for Romania in 2009. Actual GDP in 2009? 7.1% loss! They were wrong, wrong, wrong! Meanwhile a year ago Jeffrey “Pig Man” Franks of the IMF said Romania’s economy is like a “sick patient”. Well who was giving the patient the bad medicine?

Of course I’m not allowed to criticize (and neither are you) these Wise Old Elves because don’t you know that it’s hard work being a banker? And you thought you could understand it, fool? Think of the risks they have to calculate so efficiently and correctly! Wise words indeed from Dan Pascariu of Unicredit Tiriac Bank, reminding us little people never to dare question our financial masters.

I will let you know, in case you are unaware (if you are unaware it’s probably because you’re not a Big and Important Person) that the CFA is holding a conference in Bucharest on April 4 for people who want to invest in Romania. Actually it’s for people who want to make enormous profits in Romania, not really invest in this country’s future or its people. I’m half tempted to go to this conference just to report on all the bullshit.

I notice that the prime speaker they’re so proud about is none other than Jim Rogers, the guy who along with George Soros, nearly bankrupted the British government back in 1992 and walked away with a cool profit of 1 billion (yep, billion) dollars. I am sure he will have delightful advice for those who wish to feast on Romania’s assets so get your reservation made today!

The organization hosting this conference, CFA, is an offshoot of an American organization of Certified Financial Analysts. See? They are officially certified in how they calculate bullshit so that makes it okay. I took the time to read through their website and found their “charming” history (PDF) to be amusing:

Notwithstanding heavy foreign ownership of the railroads, three-quarters of the $2 billion invested in American corporate securities on the eve of the Civil War [1860] came from domestic sources.

Intelligence about how it all worked and about how securities prices might be expected to behave grew along with the markets themselves. While no one then called himself a “financial analyst,” there were, pretty clearly, market observers out there thinking the way analysts think and using some of the same constructs, like business cycle forecasting, to make judgments about the investment business.

It reminds me of the old joke about the fortune teller. If they can see the future, why don’t they play the stock market and get rich? Well I’d ask the same thing to these “wizards” who have failed to predict anything reliably since 1860.

But just like the Economist article linked at the beginning, there’s always a reason to “explain” their wrong guesses, always some “unforeseen” event or factor, always some new calculation, always some new theory and if you just will trust them with all of your money one more time then tomorrow by golly, tomorrow they (and you) will make a huge profit.

Ah well, what can I say except sing along with me if you know the words.

God have mercy on us all.

Tagged as:

Categorised in: A few of my all-time favorite posts that I've written, Money, probability and predicting the future

9 Responses »

  1. I can’t stop asking myself why don’t you write for The Economist, Time magazine or something similar. Your writing is a truly undiscovered gem.

  2. I have two things to say.

    Speculation (as in “economic speculation”) is always A GOOD THING. Stop feeling with your gut and start thinking with your brain.

    In 1992 Soros saw that the pound was overvalued – and the fact that he made a huge profit proves that he was right.
    How the f*ck can you say that what he did was wrong – when, in fact, he did everyone a huge favour – by bringing the value of the pound back to reality.
    It was the Brits’ fault for trying to fight the law of supply of demand.

    So, once again, stop it with the two-bit moralizing and learn to accept reality.

    And, second of all. You might want to learn of the existence of such a thing

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

    They are pretty darn effective. The fact that they are not widely used only proves that people with power (you know, those politicians that you trust to manage the economy) have real agendas that differ greatly from their stated promises.

    • Daniel, I think it’s about incentives. I suspect experts whose livelihoods depend on the predictions they make are more accurate than those who only provide advice with no risk to their operations if they make a miscalculation (e.g. IMF, or Standard and Poors and those rating agencies largely responsible for the world economic meltdown). I read an interesting article that some nationwide farmers’ association in the US has much better predictions regarding the weather than most meteorologists! It’s pretty obvious why – their crops and livelihoods depend on it! And then there are experts who have a vested interest in skewing the results even against their better judgment (climate scientists on both sides of the global warming argument, inflation forecasters, rating agencies again, and so on). For example, in the Persian Gulf countries, there is a rule that the workday must be shortened for construction workers on days with temperatures above 50 degrees Celsius; there are many rumors of meteorological forecasts being altered to 49.5 degrees for many days in a row (and then the measured temperature happens to be higher…) So to go back to Sam’s post, we must always look at the incentives of the experts and those who hire them. I believe in anarcho-capitalism and all that great stuff, but let’s not forget that even Adam Smith admitted many of these capitalists were total assholes and let’s at least admit that there is an incentive for some (even foreigners!) to take advantage of the Romanian population in order to advance their agendas. And Sam is right in a way, that these “banks” are shoving loans down the throats of the Romanians – and they have every incentive to be alarmist in order to scare the Romanians into accepting more loans, since they stand to benefit. It might not be as simplistic as these greedy bankers wanting to make loads of money, maybe they are ideologues and are only using this method to have the upper hand in influencing policy. I don’t know what they are about, but I am very skeptical about their intentions. And if I am to make a prediction, I don’t think their intentions correspond with the well-being of the Romanian nation.

      • It’s not about trusting banks. Moral hazard has been institutionalized – and that means banks have every incentive to misbehave.

        It’s about rejecting the free-market in favour of … well, I don’t even understand what the alternative would be.

        Look, we (the human species, that is) left the garden of Eden long ago – when we gave up on being hunter-gatherers and decided on agriculture. So we’re stuck in a mess – and it means we have to make the most of it.

        Saying that “foreigners want to feast on Romania’s assets” or harping in favour of some sort of “democratic socialism” is pure nonsense.

      • Daniel, since when have the IMF and those geopolitical game-makers had anything in common with anything resembling a free market?

  3. Those graphs show that the predictions have been getting better over time. On the other hand I recommend this short video: http://topdocumentaryfilms.com/the-trouble-with-experts/ (a biased but cute film). The site itself is amazing, I have learned about everything from the history of the Vandals and Lombards, sexual deviations like objectophilia and mechanophilia, the last voyage of Columbus to the Indies, the art of Russia, why Beethoven was such a genius (one of the best documentaries I have ever seen), monkey behaviors, and so on. But I digress…

  4. Sam,

    I found this link via BucharestLife that might be of interest to you. I think it really identifies the underlying problems of Romania’s economic situation in a way that I’ve never seen in print before. The guy’s writing style is a bit dense and convoluted, but the message is good. Definitely worth taking a look.

    http://www.agri-focus.ro/governance/bureaucracy/january-26th-2012/

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