A good economist will always give you a prediction or a timeframe, but never both. This applies to a great deal of people outside of economists and market pundits and I think it also has to do with the fact that asset managers generally garner more respect regarding predictions than economists do. You see, a money manager HAS to give you both. There is no hedging in the commentary from an asset manager because they’re backing up predictions with an investment portfolio. Portfolio managers are in the business of making predictions AND offering timeframes.
But economists and market pundits have the luxury of offering you a prediction and then essentially saying “it will happen, just you wait….and by the time it hasn’t happened you’ll have forgotten I ever made the prediction”. It’s a glorious business, the business of making predictions in the world of economics. That’s why I generally don’t trust or put much credence in the predictions made by most mainstream economists. In fact, I’d say that most economists don’t even make predictions. They just make really loosely described macro comments and then cherry pick the ones they want at a later date.
Anyhow, I was having a discussion Twitter with some smart people about the Kyle Bass trade on Japan. As you may or may not know Bass has been betting on higher rates in Japan based on a debt crisis like that in Greece. According to Business Insider it’s turned into a total disaster because Bass predicted that Japan would default like Greece. He made this very vocal prediction about 2 years ago. I came out at the same time and stated the opposite. I said Japan would not default because their monetary system was totally different from Greece’s. In essence, Japan has the same institutional structure as the USA so solvency or “running out of money” is never an issue. The USA is an operational currency issuer while Greece is an operational currency user. Granted, we hadn’t even created Monetary Realism back then so the precise details on this thesis were not complete, but I understood that Japan wasn’t going to “run out of money” unless they chose too. Some of the people I was discussing this with said Bass was early, not wrong. They might be right. But as a money manager, Bass can’t leave this trade on forever like a market pundit can.
But still, I have to wonder – how much longer do we have to hear about surging interest rates, bond vigilantes, hyperinflation, imminent USA default and all of the other terrible predictions made by various market pundits over the years before people start to just flatly reject the framework from which they work? Or do we just live in a world where anyone can say anything and no one is held accountable for being totally wrong? What do the readers think? Is it too early to proclaim all these predictions wrongs? Or can we finally start to question the theoretical framework that is the basis of these ideas?
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.
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