5 ms·

Just out of curiosity, did any of your economists predict the US recession back in 2007, or the US housing crisis? From what I recall, almost none did.

silverbax88 15y ago
Actually, many did. Economists were telling us that the economy was shaky all through the 00's. Economists told us in 2006 that the market problems from Wall Street would spread into housing. Again, there is a difference between stock analysts and economists. Economists are looking at numbers, trends and history more like a computer scientist. Economists are even often specialized into various regions of the country. A stock analyst is going off of timing and trends more than data. If you've ever traded stocks heavily, you learn quickly that traders throw away yesterday...'that money's gone'. Having worked to make companies profitable, it's unsettling to realize that the stock market is full of people who know how stocks work but have no idea how business works. I think I've posted this before but in one past company we moved millions of dollars of product around before we did our annual inventory just so our numbers would match what Wall Street expected. We actually needed much more on hand than the stock market wanted just to do business, but they wouldn't have any idea about that.
- steve8918 15y ago
  I've always found that economists for the most part have been extremely unreliable in forecasting things like recessions. (Also stock analysts are useless too) Case in point, an article from 2007, pre-recession: http://www.nytimes.com/2007/03/04/business/yourmoney/04view.html http://www.nytimes.com/2007/03/04/business/yourmoney/04view....
  - silverbax88 15y ago
    I remember that article. It had two glaring ommissions: 1. Economists were not aware that there would be a major terrorist attack six months later 2. Economists did predict the recession that occurred in March 2001 due to the Bush administration's desire to weaken the dollar. When polled, a few economists were polled if there would be a double dip recession and 95% said no- a fact that changed six months later.
- lionhearted 15y ago
  I'm enjoying this discussion heavily, particularly your contributions to it which are great. Just a minor (but important) nitpick - > A stock analyst is going off of timing and trends more than data. Not necessarily. You can broadly divide analysis into two camps - "technical analysis" [1] which is what you're describing, and "fundamental analysis" [2] which is looking more at intrinsic value, numbers, assets, things like that. Warren Buffett, for instance, does plenty of stock analysis and he's not a technical trader at all. He repeatedly says he doesn't try to time the market. [3] The first book I read on trading - Technical Analysis of the Financial Markets [4] - was from a technical analysis perspective, and I lost money trying to implement it. Then I read about value investing and started trying to apply those principles - only buying fundamentally sound stocks trading at a favorable price earnings ratio, either in fundamentally defensible businesses or with lots of solid assets on their books, and buying with a big margin of safety. I haven't had a losing trade since then, though in fairness my sample size is small and I don't sell unless the price of a stock I bought gets over what I consider reasonable. I'm currently holding Microsoft and HP which are down, but both I think are way undervalued (Microsoft is extremely stable, has some upside in the way of a strong research division, and could potentially translate a hit like the Kinect into alternate input devices. HP is being treated as toxic despite owning some nice high margin businesses that most people don't think about when they think of HP, as well as a huge patent portfolio and some good assets... yeah, their management sucks lately, but who cares if a company is trading below its liquidation value? anyways, do your own research, check the financials, etc, etc) Anyways. Not all traders are technical traders. Fundamental analysis is also analysis, and probably easier to implement to be consistently successful. The top book on that is "The Intelligent Investor" [5] by Ben Graham, which Warren Buffets calls the best book on finance ever written (I agree). [1] http://en.wikipedia.org/wiki/Technical_analysis http://en.wikipedia.org/wiki/Technical_analysis [2] http://en.wikipedia.org/wiki/Fundamental_analysis http://en.wikipedia.org/wiki/Fundamental_analysis [3] “If you’re an investor, you’re looking on what the asset is going to do, if you’re a speculator, you’re commonly focusing on what the price of the object is going to do, and that’s not our game.” (1997 Berkshire Hathaway Annual Meeting) [4] Generally considered one of the best intro books to technical analysis. http://www.amazon.com/gp/product/0735200661/ref=as_li_ss_tl?ie=UTF8&tag=sebastianmcom-20&linkCode=as2&camp=217145&creative=399369&creativeASIN=0735200661 http://www.amazon.com/gp/product/0735200661/ref=as_li_ss_tl?... [5] http://www.amazon.com/gp/product/0060555661/ref=as_li_ss_tl?ie=UTF8&tag=sebastianmcom-20&linkCode=as2&camp=217145&creative=399369&creativeASIN=0060555661 http://www.amazon.com/gp/product/0060555661/ref=as_li_ss_tl?...
SkyMarshal 15y ago
No, plenty did. From the more famous Nouriel Roubini, Nassim Taleb, and Peter Schiff, to lesser known money managers like Mike Shedlock and Karl Denninger, there were many. Just because the market-cheerleading media hardly covered them doesn't mean no one saw the housing crisis coming.
- steve8918 15y ago
  I said economists, not money managers. Of the group you mentioned, only Roubini and Taleb are economists. Taleb did not predict a recession. He made money off the financial crash of 2008, which is entirely different. Of course there will be people who say there is a crash. That's what makes a market. But economists don't predict market crashes, they predict recessions. And very few economists predicted a recession, which is what I said.
skylan_q 15y ago
When looking for a reason why the economy crashed, I dug through a lot of rubbish until I found Peter Schiff. http://www.youtube.com/watch?v=Z0YTY5TWtmU http://www.youtube.com/watch?v=Z0YTY5TWtmU
Duff 15y ago
It didn't take an economist or soothsayer to call these things. A war economy with a massive run-up in property prices that were clearly irrational is a formula for disaster. Hell, the financial crisis had a early warning alarm. Bear Sterns imploded in the Spring... was the subsequent collapse of Lehman and the crisis really a big surprise?
trustfundbaby 15y ago
Yes ... go google 'Nouriel Roubini' and 'Charlie Rose Show'
mg74 15y ago
The Economist in 2005: http://www.economist.com/node/4079027 http://www.economist.com/node/4079027
wnight 15y ago
I don't recall economists saying it (I didn't listen) but every trivial housing metric said we'd been overpriced since the 90s. I saw people buy condos they couldn't pay for with rent in twenty-five years, if ever - if all went well. The rule is that 10-12 years gross rent is the highest reasonable purchase price. Any economist who didn't call the bubble, and painful end of it, wasn't trying. It will get worse. Our economy is debt all the way down.
trevelyan 15y ago
You might want to follow Brad DeLong's blog. Krugman also talked about housing bubbles (http://delong.typepad.com/sdj/2006/01/paul_krugman_on.html http://delong.typepad.com/sdj/2006/01/paul_krugman_on.html) back in 2006. He wrote a column that said so explicitly, arguing that "part of the rise in housing values since 2000 [has been] justified given the fall in interest rates, but at this point the overall market value of housing has lost touch with economic reality. And there's a nasty correction ahead." My memory of the blogosphere is that people knew housing was overvalued and a lot of people were taking equity out of their homes by remortgaging them at high valuations. But I do not remember discussion of how much fraud there was in originating and repackaging housing loans, and no-one was talking about how these were getting securitized and distributed.

silverbax88 15y ago

Actually, many did. Economists were telling us that the economy was shaky all through the 00's. Economists told us in 2006 that the market problems from Wall Street would spread into housing. Again, there is a difference between stock analysts and economists. Economists are looking at numbers, trends and history more like a computer scientist. Economists are even often specialized into various regions of the country. A stock analyst is going off of timing and trends more than data. If you've ever traded stocks heavily, you learn quickly that traders throw away yesterday...'that money's gone'. Having worked to make companies profitable, it's unsettling to realize that the stock market is full of people who know how stocks work but have no idea how business works. I think I've posted this before but in one past company we moved millions of dollars of product around before we did our annual inventory just so our numbers would match what Wall Street expected. We actually needed much more on hand than the stock market wanted just to do business, but they wouldn't have any idea about that.

steve8918 15y ago
I've always found that economists for the most part have been extremely unreliable in forecasting things like recessions. (Also stock analysts are useless too) Case in point, an article from 2007, pre-recession: http://www.nytimes.com/2007/03/04/business/yourmoney/04view.html http://www.nytimes.com/2007/03/04/business/yourmoney/04view....
- silverbax88 15y ago
  I remember that article. It had two glaring ommissions: 1. Economists were not aware that there would be a major terrorist attack six months later 2. Economists did predict the recession that occurred in March 2001 due to the Bush administration's desire to weaken the dollar. When polled, a few economists were polled if there would be a double dip recession and 95% said no- a fact that changed six months later.
lionhearted 15y ago
I'm enjoying this discussion heavily, particularly your contributions to it which are great. Just a minor (but important) nitpick - > A stock analyst is going off of timing and trends more than data. Not necessarily. You can broadly divide analysis into two camps - "technical analysis" [1] which is what you're describing, and "fundamental analysis" [2] which is looking more at intrinsic value, numbers, assets, things like that. Warren Buffett, for instance, does plenty of stock analysis and he's not a technical trader at all. He repeatedly says he doesn't try to time the market. [3] The first book I read on trading - Technical Analysis of the Financial Markets [4] - was from a technical analysis perspective, and I lost money trying to implement it. Then I read about value investing and started trying to apply those principles - only buying fundamentally sound stocks trading at a favorable price earnings ratio, either in fundamentally defensible businesses or with lots of solid assets on their books, and buying with a big margin of safety. I haven't had a losing trade since then, though in fairness my sample size is small and I don't sell unless the price of a stock I bought gets over what I consider reasonable. I'm currently holding Microsoft and HP which are down, but both I think are way undervalued (Microsoft is extremely stable, has some upside in the way of a strong research division, and could potentially translate a hit like the Kinect into alternate input devices. HP is being treated as toxic despite owning some nice high margin businesses that most people don't think about when they think of HP, as well as a huge patent portfolio and some good assets... yeah, their management sucks lately, but who cares if a company is trading below its liquidation value? anyways, do your own research, check the financials, etc, etc) Anyways. Not all traders are technical traders. Fundamental analysis is also analysis, and probably easier to implement to be consistently successful. The top book on that is "The Intelligent Investor" [5] by Ben Graham, which Warren Buffets calls the best book on finance ever written (I agree). [1] http://en.wikipedia.org/wiki/Technical_analysis http://en.wikipedia.org/wiki/Technical_analysis [2] http://en.wikipedia.org/wiki/Fundamental_analysis http://en.wikipedia.org/wiki/Fundamental_analysis [3] “If you’re an investor, you’re looking on what the asset is going to do, if you’re a speculator, you’re commonly focusing on what the price of the object is going to do, and that’s not our game.” (1997 Berkshire Hathaway Annual Meeting) [4] Generally considered one of the best intro books to technical analysis. http://www.amazon.com/gp/product/0735200661/ref=as_li_ss_tl?ie=UTF8&tag=sebastianmcom-20&linkCode=as2&camp=217145&creative=399369&creativeASIN=0735200661 http://www.amazon.com/gp/product/0735200661/ref=as_li_ss_tl?... [5] http://www.amazon.com/gp/product/0060555661/ref=as_li_ss_tl?ie=UTF8&tag=sebastianmcom-20&linkCode=as2&camp=217145&creative=399369&creativeASIN=0060555661 http://www.amazon.com/gp/product/0060555661/ref=as_li_ss_tl?...

SkyMarshal 15y ago

No, plenty did. From the more famous Nouriel Roubini, Nassim Taleb, and Peter Schiff, to lesser known money managers like Mike Shedlock and Karl Denninger, there were many. Just because the market-cheerleading media hardly covered them doesn't mean no one saw the housing crisis coming.

steve8918 15y ago
I said economists, not money managers. Of the group you mentioned, only Roubini and Taleb are economists. Taleb did not predict a recession. He made money off the financial crash of 2008, which is entirely different. Of course there will be people who say there is a crash. That's what makes a market. But economists don't predict market crashes, they predict recessions. And very few economists predicted a recession, which is what I said.

skylan_q 15y ago

When looking for a reason why the economy crashed, I dug through a lot of rubbish until I found Peter Schiff. http://www.youtube.com/watch?v=Z0YTY5TWtmU http://www.youtube.com/watch?v=Z0YTY5TWtmU

Duff 15y ago

It didn't take an economist or soothsayer to call these things. A war economy with a massive run-up in property prices that were clearly irrational is a formula for disaster. Hell, the financial crisis had a early warning alarm. Bear Sterns imploded in the Spring... was the subsequent collapse of Lehman and the crisis really a big surprise?

trustfundbaby 15y ago

Yes ... go google 'Nouriel Roubini' and 'Charlie Rose Show'

mg74 15y ago

The Economist in 2005: http://www.economist.com/node/4079027 http://www.economist.com/node/4079027

wnight 15y ago

I don't recall economists saying it (I didn't listen) but every trivial housing metric said we'd been overpriced since the 90s. I saw people buy condos they couldn't pay for with rent in twenty-five years, if ever - if all went well. The rule is that 10-12 years gross rent is the highest reasonable purchase price. Any economist who didn't call the bubble, and painful end of it, wasn't trying. It will get worse. Our economy is debt all the way down.

trevelyan 15y ago

You might want to follow Brad DeLong's blog. Krugman also talked about housing bubbles (http://delong.typepad.com/sdj/2006/01/paul_krugman_on.html http://delong.typepad.com/sdj/2006/01/paul_krugman_on.html) back in 2006. He wrote a column that said so explicitly, arguing that "part of the rise in housing values since 2000 [has been] justified given the fall in interest rates, but at this point the overall market value of housing has lost touch with economic reality. And there's a nasty correction ahead." My memory of the blogosphere is that people knew housing was overvalued and a lot of people were taking equity out of their homes by remortgaging them at high valuations. But I do not remember discussion of how much fraud there was in originating and repackaging housing loans, and no-one was talking about how these were getting securitized and distributed.