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DriftingDudeSC
Joined: 13 Jul 2008
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larryswedroe
Joined: 22 Feb 2007
Posts: 5419
Location: St Louis MO
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 Posted: Tue Aug 11, 2009 11:54 am Post subject: |
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| There is something called Bentley's second law of economics: The only thing worse than an economist is an amateur economist. Investors should ignore all economic forecasts as they have no been demonstrated to have value. "Naive" forecasts work just as well |
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stratton
Joined: 04 Mar 2007
Posts: 8172
Location: Puget Sound
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| Posted: Tue Aug 11, 2009 11:58 am Post subject: |
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| larryswedroe wrote: | | There is something called Bentley's second law of economics: The only thing worse than an economist is an amateur economist. Investors should ignore all economic forecasts as they have no been demonstrated to have value. "Naive" forecasts work just as well |
Buy, hold and rebalance avoids a lot of problems.
And I've been happily rebalancing out of a few equities into bonds.
Paul |
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Sonoran
Joined: 27 Jan 2008
Posts: 108
Location: Arizona
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| Posted: Tue Aug 11, 2009 12:38 pm Post subject: |
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Investors should ignore all economic forecasts as they have no been demonstrated to have value.
That's not true, they're entertaining. 
_________________
Beware of little expenses. A small leak will sink a great ship - Benjamin Franklin |
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Valuethinker
Joined: 11 May 2007
Posts: 13357
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| Posted: Tue Aug 11, 2009 12:42 pm Post subject: |
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| larryswedroe wrote: | | There is something called Bentley's second law of economics: The only thing worse than an economist is an amateur economist. Investors should ignore all economic forecasts as they have no been demonstrated to have value. "Naive" forecasts work just as well |
1. yes for investment purposes economic forecasts are generally useless.
That's because markets have priced consensus relatively quickly.
2. for personal planning purposes I find they can be useful.
For example, the recent book by Ken Rogoff, showing what happens in economic recoveries after a financial crisis: look at 12 or so historic examples.
the answer is, almost invariably, very slow recoveries. |
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StephenT
Joined: 02 Feb 2008
Posts: 47
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| Posted: Tue Aug 11, 2009 3:49 pm Post subject: |
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| Valuethinker wrote: |
1. yes for investment purposes economic forecasts are generally useless.
2. for personal planning purposes I find they can be useful.
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Value -- I would appreciate your elaboration on the difference between using economic forecasts for investment purposes versus personal planning purposes. Where do you draw the line between the two? Maybe the trouble, for me, is your definition of "investment purposes." To me, it would seem forecasts would be either generally useless or useful for either purpose.
Many thanks. |
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ddb
Joined: 26 Feb 2007
Posts: 4411
Location: Manhattan
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| Posted: Tue Aug 11, 2009 4:00 pm Post subject: |
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| larryswedroe wrote: | | There is something called Bentley's second law of economics: The only thing worse than an economist is an amateur economist. Investors should ignore all economic forecasts as they have no been demonstrated to have value. "Naive" forecasts work just as well |
I'd reverse the law: the only thing worse than an amateur economist is an economist. At least the former doesn't pretend s/he should be taken seriously!
Partly tongue-in-cheek, of course. I enjoy hearing from certain economists as long as they aren't trying to forecast the future. As Valuethinker notes, they can be helpful in giving a historical perspective to current events.
- DDB
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"I know that your friends are my friends and, uh... I've thought about that. You can have 'em" - PB |
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boball23
Joined: 06 Aug 2009
Posts: 35
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| Posted: Tue Aug 11, 2009 4:30 pm Post subject: |
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| Okay, it’s fun to take pot shots at economists. Do others actually believe that, say, a broad consensus of economists on some economic forecast has zero merit and is of no value? That economists make no better forecasts than the man on the street? Or what? Why do you think so? |
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Valuethinker
Joined: 11 May 2007
Posts: 13357
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| Posted: Tue Aug 11, 2009 5:05 pm Post subject: |
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| StephenT wrote: | | Valuethinker wrote: |
1. yes for investment purposes economic forecasts are generally useless.
2. for personal planning purposes I find they can be useful.
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Value -- I would appreciate your elaboration on the difference between using economic forecasts for investment purposes versus personal planning purposes. Where do you draw the line between the two? Maybe the trouble, for me, is your definition of "investment purposes." To me, it would seem forecasts would be either generally useless or useful for either purpose.
Many thanks. |
For example, I have argued here that those in the private sector (and state and local government) should have significantly increased their emergency fund reserves.
That is based on my view of the likely track of US (and global) unemployment in the next few years.
Also as a voter I have some pretty clear ideas what I think governments should do-- again informed by my view of macroeconomics.
Investing the future is unknowable. High economic growth is not necessarily good for equities. In fact, negative correlation.
I do have a view on inflation (which is fairly relaxed) but I still suggest investors should load up on TIPS (because it hedges inflation risk).
I don't think the US economy is doomed so I am not suggesting US based investors massively increase their diversification outside the USD.
I guess those latter are where I am using economic forecasts to inform investments-- but with proper humility about the interaction between the two. |
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ddb
Joined: 26 Feb 2007
Posts: 4411
Location: Manhattan
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| Posted: Tue Aug 11, 2009 5:13 pm Post subject: |
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| boball23 wrote: | | Okay, it’s fun to take pot shots at economists. Do others actually believe that, say, a broad consensus of economists on some economic forecast has zero merit and is of no value? That economists make no better forecasts than the man on the street? Or what? Why do you think so? |
Does a "broad consensus of economists on some economic forecast" have zero merit? I'd say yes. Just look at their history of forecasting something as basic as interest rate movements.
- DDB
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"I know that your friends are my friends and, uh... I've thought about that. You can have 'em" - PB |
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newbie001
Joined: 24 Nov 2008
Posts: 202
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| Posted: Tue Aug 11, 2009 6:32 pm Post subject: |
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| ddb wrote: | | boball23 wrote: | | Okay, it’s fun to take pot shots at economists. Do others actually believe that, say, a broad consensus of economists on some economic forecast has zero merit and is of no value? That economists make no better forecasts than the man on the street? Or what? Why do you think so? |
Does a "broad consensus of economists on some economic forecast" have zero merit? I'd say yes. Just look at their history of forecasting something as basic as interest rate movements.
- DDB |
Reminds me of Harry Truman's quote about yearning for a one-armed economist, because his advisors would always sprinkle their advice with "on the one other hand"'s. |
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Valuethinker
Joined: 11 May 2007
Posts: 13357
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| Posted: Wed Aug 12, 2009 4:14 pm Post subject: |
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| ddb wrote: | | boball23 wrote: | | Okay, it’s fun to take pot shots at economists. Do others actually believe that, say, a broad consensus of economists on some economic forecast has zero merit and is of no value? That economists make no better forecasts than the man on the street? Or what? Why do you think so? |
Does a "broad consensus of economists on some economic forecast" have zero merit? I'd say yes. Just look at their history of forecasting something as basic as interest rate movements.
- DDB |
There's a huge difference between macroeconomists and microeconomists.
Micro governs a huge part about how we organise the world: look at the EPA sulphur dioxide trading scheme as an example (which reduced SO2 emissions at less than half the forecast costs).
On macroeconomists, they are normally suitably humble. They are, generally, not so much seeking to predict future variables as to look at the implications of macro trends. |
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Ron
Joined: 23 Feb 2007
Posts: 4019
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| Posted: Wed Aug 12, 2009 4:20 pm Post subject: |
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| larryswedroe wrote: | | There is something called Bentley's second law of economics: The only thing worse than an economist is an amateur economist. |
How can you tell the difference? 
- Ron |
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Adrian Nenu
Joined: 12 Apr 2007
Posts: 4475
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| Posted: Wed Aug 12, 2009 4:23 pm Post subject: |
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Just as bad as investors who rely on past performance to decide on asset allocations and determine future performance.
Adrian
anenu@tampabay.rr.com |
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