Risks Moving Forward

Should you squeeze the toothpaste tube in the middle or from the end?
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Chad
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Risks Moving Forward

Post by Chad » Tue Jan 03, 2017 10:54 am

The Eurasia Group has a nice summary of macro risks out today. The biggest surprise is how the listing is not a normal list for a 2017 forecast. As they mention, the US is the largest risk on the world stage. We seem to have gone from the possibility of a black swan in a world power and maybe one or two in emerging markets, to the possibility of black swans with all the major world powers and in many emerging markets.

http://www.eurasiagroup.net/issues/Top-Risks-2017

Ian Bremmer (Eurasia Group) on Bloomberg Surveillance for those that want a really short primer.
https://www.bloomberg.com/news/videos/2 ... arket-risk

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Dragline
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Re: Risks Moving Forward

Post by Dragline » Tue Jan 03, 2017 1:59 pm

Here's another set of 2017 predictions, these from Thomson Reuters:

http://fingfx.thomsonreuters.com/gfx/br ... _LR_nc.pdf

As with all of these SWAGs, they are "for entertainment purposes only."

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Chad
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Re: Risks Moving Forward

Post by Chad » Wed Jan 04, 2017 6:50 am

I disagree. These aren't just for entertainment purposes. That does not mean one should act like these events will happen, which is always the assumption everyone makes. This stuff should be used to focus on potential events and other indicators of these events, but not to act on these events at this time.

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Riggerjack
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Re: Risks Moving Forward

Post by Riggerjack » Wed Jan 04, 2017 8:26 pm

This year marks the most volatile political risk environment in the postwar period, at least as important to global markets as the economic recession of 2008.
Or, OMG! Neoliberals are not in charge, and we're discredited. The world will totally end this year.

We are due for some economic fallout over the actions of the last 8+ years. But I wouldn't class that as a political threat.

Methinks nobody there was out of highschool in 2008, so today's problems seem larger than they should. For instance, right now, we aren't forming a naval Blockade to keep Russian nukes out of Cuba. Yeah, there are political problems, no I don't think Trump will make any of them better, but let's keep some perspective.

Overall, not very impressive.

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Dragline
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Re: Risks Moving Forward

Post by Dragline » Wed Jan 04, 2017 10:51 pm

What actions over the past 8 years will cause any economic fallout and what will it be? Be specific.

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Chad
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Re: Risks Moving Forward

Post by Chad » Thu Jan 05, 2017 6:42 am

Was that really necessary? Now you sound like the posts I made about Trump, that you chastised.

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Riggerjack
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Re: Risks Moving Forward

Post by Riggerjack » Thu Jan 05, 2017 8:54 am

We are over 7 years from the end of the last recession. We are due.

We have built up a Federal and state and local debt load that can't be sustained with higher interest rates.

While QE is officially over, the Fed's balance sheet isn't showing those debt payments. This means the Fed is still buying MBSs with debt payments. They don't have to keep announcing new rollout of another QE, we have done enough that it is self sustaining. QE infinity.

Look at mortgage rates. Look at bond rates. Look at stock and housing prices. Is there anything that looks natural and sustainable there?

Before any accusations of partisanship comes up, this was done under both Dems and Repubs.

I would love to get you a specific prediction of how and when this will go wrong. But hell, look at my DOOM predictions from the time of QE I, I have been wrong for 8 years straight.

Yes, this has caused some reflection. But while I am personally bullish, I can't help but look at these monster headwinds, and not feel good about my odds of tacking into a hurricane. This isn't me babbling about the end of the world. This is me preparing for a storm. I am, as I write this, using vacation time to fix a rental house to sell. I am holding a far larger than normal amount of cash in my 401k.

Yes, I think we are due economic fallout. Price manipulating always comes with a price of it's own. That price will be paid.

That we now have a Douchebag in the Whitehouse to blame, is just my conspiracy theory.

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Riggerjack
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Re: Risks Moving Forward

Post by Riggerjack » Thu Jan 05, 2017 9:18 am

Was that really necessary? Now you sound like the posts I made about Trump, that you chastised.
That may be accurate. :oops:

I admit I didn't get past reading the summary. The whole tone got under my skin. The idea that America is some shining light, beaconing the world to a shiny new future is just so creepily 1960's. Then to read their grave predictions of the doom and gloom the world faces, without American leadership, is to ignore the realities of the fallout from American leadership over the last 50 years.

I believe we, and the world at large, will do better with less leadership. We have gotten caught up in promoting democracy, rather than freedom. As though having the right to choose your oppressor makes lives better.

So, from this perspective, the premise of the linked article seemed misguided.

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Dragline
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Re: Risks Moving Forward

Post by Dragline » Thu Jan 05, 2017 9:28 am

I don't think the last eight years have been significant in terms of actions taken that will affect the next eight (and why 8 and not say 5, 6, 9 or 15 or 30 -- 8 is cherry-picked), except for comparing them to what was predicted was about to happen, yet didn't, viz: I've been told since the financial crisis that I'd be living under martial law now and paying $10 gallon for gas, the dollar would implode (hyperinflation) and LT government bonds were the worst place to be and would blow up any minute (by NN Taleb himself circa 2010; also enjoyed Robert Kiyosaki claiming all through 2014-2016 that he predicted the big market crash was coming in 2016 just like he predicted in 2002; Harry Dent and some of the others have been fun, too) and there would be more 9/11s and the country would be overrun by a host of zombies and foreigners with strange ways. Instead, I've been living in a golden era and have prospered, a lot of my friends have been able to get married legally and have families, crime and terrorism in the US is down, our business has been hiring and expanding, and the internet has made life a whole lot easier generally.

AFAIC, today's decision makers are not entitled to waive their hands and blame a cherry-picked time frame from the past when they screw up in the present or the future. If there's a problem they think needs fixing based on something that happened in the past 8 years (or 5, 6, 9 or 15 or 30), they can fix away and then take responsibility for the decision.

As for expert predictions, I tend to agree with Tetlock's research, which is they are usually no better than that of informed amateurs, and often worse due to biases:

"We found two things. One, it's very hard for political analysts to do appreciably better than chance when you move beyond about one year. Second, political analysts think they know a lot more about the future than they actually do. When they say they're 80 or 90 percent confident they're often right only 60 or 70 percent of the time.

There was systematic overconfidence. Moreover, political analysts were disinclined to change their minds when they get it wrong. When they made strong predictions that something was going to happen and it didn’t, they were inclined to argue something along the lines of, "Well, I predicted that the Soviet Union would continue and it would have if the coup plotters against Gorbachev had been more organized," or "I predicted the Canada would disintegrate or Nigeria would disintegrate and it's still, but it's just a matter of time before it disappears," or "I predicted that the Dow would be down 36,000 by the year 2000 and it's going to get there eventually, but it will just take a bit longer."

So, we found three basic things: many pundits were hardpressed to do better than chance, were overconfident, and were reluctant to change their minds in response to new evidence. That combination doesn't exactly make for a flattering portrait of the punditocracy."

https://www.edge.org/conversation/phili ... orecasting

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cmonkey
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Re: Risks Moving Forward

Post by cmonkey » Thu Jan 05, 2017 10:34 am

Dragline wrote:Harry Dent and some of the others have been fun, too) and there would be more 9/11s and the country would be overrun by a host of zombies and foreigners with strange ways. Instead, I've been living in a golden era and have prospered, a lot of my friends have been able to get married legally and have families, crime and terrorism in the US is down, our business has been hiring and expanding, and the internet has made life a whole lot easier generally.
It's interesting how people focus on all the things that they think can and will go wrong as opposed to all the things that go right. It just goes to show how much better we have it now. Negatives stand out so they get the spotlight. So then we are inundated with it and everyone just thinks the entire world is going to hell.

One thing that always makes me chuckle is when people start talking about how "Social Security won't be there in 20 years anyway" so I'll never retire so why save anything, completely missing the fact that it will just transition to a 'what goes in, goes back out' payment system.

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Chad
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Re: Risks Moving Forward

Post by Chad » Thu Jan 05, 2017 10:41 am

Riggerjack wrote: That may be accurate. :oops:

I admit I didn't get past reading the summary. The whole tone got under my skin. The idea that America is some shining light, beaconing the world to a shiny new future is just so creepily 1960's. Then to read their grave predictions of the doom and gloom the world faces, without American leadership, is to ignore the realities of the fallout from American leadership over the last 50 years.

I believe we, and the world at large, will do better with less leadership. We have gotten caught up in promoting democracy, rather than freedom. As though having the right to choose your oppressor makes lives better.

So, from this perspective, the premise of the linked article seemed misguided.
Those are valid points. I must admit that I probably fall into the "shining light" view a little. Though, I readily admit we have made a lot of mistakes and you might be right that less American leadership might be better. I just don't see the leaders/countries who will be stepping in to fill that vacuum improving or even maintaining the status quo.

In market parlance, it appears we are headed for greater volatility in the world. This is what I thought before I saw/read the video/article, so it just is a more detailed outline of what I was already thinking.

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Chad
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Re: Risks Moving Forward

Post by Chad » Thu Jan 05, 2017 11:00 am

Dragline wrote: As for expert predictions, I tend to agree with Tetlock's research, which is they are usually no better than that of informed amateurs, and often worse due to biases:

"We found two things. One, it's very hard for political analysts to do appreciably better than chance when you move beyond about one year. Second, political analysts think they know a lot more about the future than they actually do. When they say they're 80 or 90 percent confident they're often right only 60 or 70 percent of the time.
To a certain extent Tetlock is correct, but there is some value in having this analysis. For instance, it seems foolish to ignore the high probability of increased American isolationism, a resurgent Russia, and newly minted regional power of China in any calculations. The current political change with the Philippines demonstrates potential issues/changes this will cause.

I would also argue, that like stock picking, some just do it better than others. There is value in identifying these people and then evaluating their analysis on your own.

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Dragline
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Re: Risks Moving Forward

Post by Dragline » Thu Jan 05, 2017 11:05 am

Well, there is actually a pundit for everyone (that's why somebody gets to be right every year, but rarely the same person). Here is the now very typical "Look at me, I'm a brilliant contrarian" set-up that appeared in my mailbox today:

http://www.mauldineconomics.com/the-10th-man

What makes me laugh about these takes is that there is a whole "contrarian schtick" that actually forms its own consensus, but in fact is no more original than what it is critiquing.

Of course, the year before the same guy was saying that everything was going to hell in a handbasket, Trump and Sanders would do the same things if elected and gold was going to the moon in any event.

I think the real question for all of these types of things is "who is the intended audience". From that Tetlock article again:

"One of the reactions to my work on expert political judgment was that it was politically naïve; I was assuming that political analysts were in the business of making accurate predictions, whereas they're really in a different line of business altogether. They're in the business of flattering the prejudices of their base audience and they're in the business of entertaining their base audience and accuracy is a side constraint. They don't want to be caught in making an overt mistake so they generally are pretty skillful in avoiding being caught by using vague verbiage to disguise their predictions. They don't say there's a .7 likelihood of a terrorist attack within this span of time. They don't say there's a 1.0 likelihood of recession by the third quarter of 2013. They don't make predictions like that. What they say is if we go ahead with the administration's proposed tax increase there could be a devastating recession in the next six months. "There could be."

The word "could" is notoriously ambiguous. When you ask research subjects what "could" means it depends enormously on the context. "We could be struck by an asteroid in the next 25 seconds," which people might interpret as something like a .0000001 probability, or "this really could happen," which people might interpret as a .6 or .7 probability. It depends a lot on the context. Pundits have been able to insulate themselves from accountability for accuracy by relying on vague verbiage. They can often be wrong, but never in error."

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Riggerjack
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Re: Risks Moving Forward

Post by Riggerjack » Thu Jan 05, 2017 10:17 pm

I readily admit we have made a lot of mistakes and you might be right that less American leadership might be better. I just don't see the leaders/countries who will be stepping in to fill that vacuum improving or even maintaining the status quo.

In market parlance, it appears we are headed for greater volatility in the world.
I agree. And specifically in those terms. That a lack of American leadership will increase volatility. But I also think of it like Taleb, that volatility manament is not the same as risk management. By having America back off as The Superpower/world police/UN in a bottle, we lower the automatic resistance that role naturally raises. And the backlash. And the hostility. And...

And all that besides the fact that US foreign policy for the last 30 years has been a state department/ American corporation tag team match on nearly every issue. While I am sure that America represents more than Coke and Boeing, I'm not sure the world knows it. I like open markets and trade, but that hasn't been the priority in our messaging.

So, no, backing off doesn't worry me.

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Riggerjack
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Re: Risks Moving Forward

Post by Riggerjack » Fri Jan 06, 2017 5:22 pm

I don't think the last eight years have been significant in terms of actions taken that will affect the next eight (and why 8 and not say 5, 6, 9 or 15 or 30 -- 8 is cherry-picked)
Well, I used 8 in reference to QE, which has been going on for 8 years, not 5, 6, 9 or 15 or 30. So yeah, it was kinda picked, but because it was relevant, not because it was cherry.

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