A new year has arrived and that can only mean one thing: forecasts. Lots of ’em. There’s something about a fresh calendar that promotes prognostication in ample quantities. Predicting is still hard, even if supply exceeds demand. But like a highway accident, we can’t avert our eyes. Adjust your expectations accordingly. “In the end the only certainty is that the forecast will either be wrong or lucky,” advises the Colorado-based Business and Economic Research’s warning in its economic outlook for the year ahead. “Either way, the value of the forecast is not in the numbers, but in the forecast story.” It’s a long and winding story, of course, and one that has no end. Where to start? How about right here, with an assorted list of predictions that caught my eye for one reason or another. Who knows? Some of them may actually be accurate.
Best of Book Bits 2011 (Part II)
Here’s the second installment of my bids for the best economic and finance books for 2011 (you can find Part I here). Yes, it’s subjective and there are other worthy titles that go unmentioned. Space may be unlimited on the web, but time is still finite. On that note, here’s one that got away: Pandora’s Risk: Uncertainty at the Core of Finance
Thinking Optimistically For The Year Ahead
As 2011 comes to a close, the risk of a new economic recession in the U.S. looks low. Or at least lower than it was a few months ago. Not everyone agrees, but you’ll have no trouble rounding up dismal scientists who think that better days are coming. For instance, 20 economists polled by CNN this week collectively estimate the odds of a downturn at 20%, or down slightly from 30% three months earlier. “Preliminary data is pointing to a solid fourth quarter of GDP growth that should carry the economy through the next 6 months,” says Sean Snaith, a University of Central Florida economics professor.
Re-reading Irving Fisher
Irving Fisher had it all figured out in real time. His investment advice was famously ill-timed, but he redeemed himself in macro. As the Great Depression was unfolding, he identified the disease and the cure. That’s old news, but it’s debatable if it’s widely understood. But it can be, and for free. The St. Louis Fed has generously re-published several of Irving Fisher’s books, including 1932’s Booms and Depressions: Some First Principles. Among dead economists with relevant advice in the here and now, this dismal scientist is the first among equals. The details of our current troubles are different, and the disinflation/deflationary winds are comparably mild by the standards of the early 1930s. But it’s hard not to recognize the parallels across time. History doesn’t repeat, but it does seem to rhyme at times. The same might be said of the recommended cures. There’s nothing new under the sun, even if we’re told otherwise. Maybe we didn’t see it coming, but it still looks rather familiar in hindsight. Judge for yourself with a few excerpts from Booms and Depressions… and then read the book.
Research Review | 12.28.2011 | Forecasting: What Have We Learned?
Predicting Recessions: A New Approach for Identifying Leading Indicators and Forecast Combinations
Chikako Baba and Turgut Kisinbay (IMF) | October 2011
This study proposes a data-based algorithm to select a subset of indicators from a large data set with a focus on forecasting recessions. The algorithm selects leading indicators of recessions based on the forecast encompassing principle and combines the forecasts. An application to U.S. data shows that forecasts obtained from the algorithm are consistently among the best in a large comparative forecasting exercise at various forecasting horizons. In addition, the selected indicators are reasonable and consistent with the standard leading indicators followed by many observers of business cycles. The suggested algorithm has several advantages, including wide applicability and objective variable selection.
Sometimes Inflation Is Less (Or More) Than It Seems
Inflation is uncomplicated… most of the time. But sometimes economic conditions turn it into a vexing subject. The American mindset is conditioned to treat high/rising inflation as forever bad, and low and falling inflation as perennially good. Thinking in these terms is understandable, given the inflationary bias through time for a fiat monetary system. Most of the time the relevant analysis can be reduced to a simple rule: higher inflation is bad; lower inflation is good. The trouble arises in those rare periods when disinflation/deflation dominates. Recent history is one of those periods.
The Nature Of The Beast
Models have the capacity for behaving badly, warns Emanuel Derman
But I heard him exclaim, ere he drove out of sight,
“Happy Christmas to all, and to all a goodnight!”
Best of Book Bits 2011 (Part I)
The year behind us delivered one of the better runs in publishing for finance and economic books. What follows are some of the more memorable names from my weekly Book Bits column over the past 12 months. Next week I’ll follow up with Part II. Meanwhile, here’s the first installment of a somewhat arbitrary listing of worthy titles from 2011:
November’s Weak Spending & Income Report Clouds Outlook
Disposable personal income (DPI) fell slightly last month while personal consumption spending for November rose by a mere 0.1%, the Bureau of Economic Analysis reports. It’s a disappointing report overall and one that adds up to the softest month for spending and income since August.