Some experts will virtually say anything just to get to the limelight or promote ideology. Unfortunately, the public hardly understands the motives behind such actions.
For instance when mainstream experts obstinately hammer on a “remittance driven Peso”, even if they have hardly been directly correlated in terms of remittance growth trends relative to the Peso-US dollar value [see How The Surging Philippine Peso Reflects On Global Inflationism], would be analogous to religion, arguing against populism would appear like blasphemy.
This goes to show that it is never about evidences or direct proofs (ipse dixitism) or logical reasoning but about indoctrination- from what academic or institutional experts, as repeatedly quoted by media, thinks they should be.
It’s Isn’t About Adherents, It’s About Profitability
At the start of the year high profile local experts had been in near unison predicting that the Philippine Peso will fall in excess of the Php 50 to a US dollar level.
Yet, in spite of the repeated forays by the local central bank (Bangko Sentral ng Pilipinas) to keep the Peso from firming, the Philippine Peso has virtually been up (by about 1.8% as of Friday’s close on a year to date basis) blatantly defying the collective projections of these mainstream experts.
Media never elaborates on the motivations of the actuations of mainstream experts or their predisposition for more interventionist government via inflationism in an attempt to uphold the plight of OFWs.
Since OFWs have been glorified as economic heroes, populism dictates that socio-political policies have to be directed at alleviating the conditions of the 12% of the economy at the expense of the rest.
However, these experts, who pretend to know how resources ought to be allocated, have failed to see the unintended effects of the 40 years of devaluation, and importantly botched at predicting the Peso level for 2009.
Yet if they can’t predict the whereabouts of the financial markets how the heck should we expect them to know how to deal with an even more complex real economy?
Still, in order to devalue the Peso, the BSP will have to massively intervene by printing money and/or have government spend more in the economy.
Yet, hardly any of these experts dealt with the repercussions of such interventionists actions through flagrant distortions in the production structure of the domestic economy and the resultant higher consumer prices.
Nor have they expounded on the crowding out effect of private investments that would lead to higher unemployment and to greater incidences of corruption from an enlarged bureaucracy, aside from greater inefficiency in the system as a consequence of government’s politicization of the economy.
Also yet none appears to have ever discussed on how the Peso’s over 40 years of devaluation from Php 2 to a US dollar in 1960s to Php 55 in 2005 have NOT lead to a goods and service export economy but to an unintended consequence-labor or manpower exports.
So while we have been correct in predicting for a stronger Peso for 2009 and a meaningful recovery in the Phisix, it’s primarily because we focused on what we thought mattered most-the impact of global political inflationism to asset and consumer prices and its diversified impact to the idiosyncratic structures of national economies.
And maybe lady luck mattered too.
In other words, we didn’t mince words to go against the crowd and worked on the basis of facts operating on free market based economic theory.
So it really doesn’t matter if we don’t gain “adherents”, what we have purported to do is to offer an alternative “contrarian” point of view in spite of the risks of social ostracism. Most importantly, we aim to impart market profitability and not just entertainment value.
In adhering to Warren Buffett’s investment advice, ``Independent thinking, emotional stability, and a keen understanding of both human and institutional behavior is vital to long-term investment success.''
Populism And Forecasting Accuracy
Does populism imply forecasting accuracy?
Perhaps for some, especially for those with a longer term horizon such as Warren Buffett, Dr. Marc Faber or Jim Rogers, but certainly not for all.
Especially NOT for celebrity gurus.
If it is not saying something radical, populism is always about declaring something outlier that connects with the mainstream ideology or short term views.
Tyler Durden of Zerohedge recently unmasked RealMoney columnist James Cramer “Citigroup” recommendation that prompted for a 14% drop in 3 days. The mercurial TV personality James Cramer appears to have a poor track record in calling the market right (Wall Street Cheat Street).
Another celebrity guru, Nouriel Roubini followed up on his debate with Jim Rogers [see Jim Rogers Versus Nouriel Roubini On Gold, Commodities And Emerging Market Bubble] and has repeatedly but incoherently been thrashing gold (projectsyndicate.org).
Mr. Roubini introduced the US dollar carry trade as a major risk “mother of all carry bubbles” last November, even when we had brought out this possibility last August [see The US Dollar Index’s Seasonality As Barometer For Stocks]- this means we have already reckoned the US dollar carry trade even prior to Mr. Roubini’s admonition.
Mr. Roubini’s derring-do concept has reflexively been embraced by the mainstream institutions like the IMF (Bloomberg), the World Bank (World Bank Blog) and other financial institutions.
Nevertheless we have argued against this [see Jim Rogers Versus Nouriel Roubini On Gold, Commodities And Emerging Market Bubble and Central Bank Policies: Action Speaks Louder Than Words, The Fallacies of US Dollar Carry Bubble] noting of:
-the confusion between the incentives of private purchases against government purchases of commodities and select financial securities,
-the ultimate tasks of (developed economies) governments appear to be securing the stability of its banking system via the manipulation of several key markets including the mortgage, treasury and equity markets coupled with the tacit aim to devalue their currencies (US dollar, UK pound, Japanese Yen),
-the variability of the impact from the recent recession on industries and nations,
-the inability by the old financial system to regenerate systemic leverage,
-expectations of money’s neutrality,
-comparing today’s economic model with that of the Great Depression and
-the tendency of experts, like Mr. Roubini, to anchor on the recent past events or from the success of recent ‘carry’ models.
Mother Of All Carry Trade Bubble, Where?
Yet the proof of the pudding is in the eating.
Figure 3: Stockcharts.com: What US Dollar Carry?
With the US dollar has been up 4.8% from its recent bottom over the last 2 weeks, surprise (!), we are hardly seeing any generalized financial market tumult similar to that of 2008 see figure 3)
Except for the recent weakness in China’s Shanghai index (not shown above), Asian ($DJP1), European ($STOX 50) and Emerging markets (EEM) equities appears to be generally resilient amidst a rising US dollar.
In addition, the infirmity of the gold market, which has reflected on its inverse correlation with that of the US dollar, has yet to spillover to other commodities.
Instead of weakening, it would appear that other commodities have been firming up such as the Dow Agricultural Index ($DJAAG), the Copper markets ($COPPER) and most importantly, rallying oil prices ($WTIC) again, in the face of the recent strength by the US dollar.
So unless we see further deterioration across global financial markets (amidst the Dubai debt Crisis and the recent credit rating downgrade of Greece), there hardly seem any traces of the unwinding of “mother of all carry bubbles”.
So, where o’ where is the US dollar carry?
Seasonal Oil Strength And Celebrity Guru Track Records
Figure 4: US Global Investors: Oil’s Seasonal Price Patterns
Moreover if we should see oil’s seasonal strength play out, as it had during the previous 15 years, similar to gold and US dollar index (which has proven to be quite effective see Gold and the September Stock Market Seasonality Syndrome and The US Dollar Index’s Seasonality As Barometer For Stocks), then we can probably expect oil prices to further rise from current levels (see figure 4) and possibly break above its recent high at $82 per barrel in the face of a rising US dollar.
As a caveat, the rising US dollar appears to be a technical bounce and is likely a short term event more than fundamentally driven inflection or reversal.
Perhaps the US dollar bounce could also be interpreted by markets as anticipating the end of the US QE program, while major trading partners as the UK and Japan proceed with their own versions. In addition, the downgrade of Greece which risks of a contagion may spur more policy easing from the ECB to contain the ripples of the shockwaves.
Nevertheless with 7 banks closed by US regulators this week (marketwatch.com), and with next wave of ALT-A and Prime mortgages (aside from Commercial Real Estate) threatening the US banking system anew [see 5 Reasons Why The Recent Market Slump Is Not What Mainstream Expects], we shouldn’t expect any policy tightening or reversals of the QE program even if they expire in March. In fact, if things turns for the worst we should expect QE policies to intensify.
Yet celebrity guru Mr. Roubini has had a poor track record, according to Wall Street Cheat Street, with only 1 out of 7 predictions being accurate over the last few years.
Mr. Roubini had earlier failed to see this year’s rally and vehemently denied of its persistence, and also predicted that oil will trade at the $40 for the rest of 2009 [see Wall St. Cheat Sheet: Nouriel Roubini Unmasked; Lessons].
Realizing his obvious mistake, Mr. Roubini has switched sides during the midyear and declared oil to rise “closer to $100” (CNBC), which apparently hasn’t likewise been valid unless oil explodes during the coming sessions.
With wrong predictions after wrong predictions, it’s a wonder how mainstream institutions and experts have been hasty to freely embrace such flimsy and specious macro theories based on archaic models without addressing the impact from the policy directives by global governments on the economy and markets aside from oversimplistically interpreting economics like some school laboratory experiment.
Perhaps the common denominator for publicity seeking gurus is the ideological likemindedness, where according to Richard Ebeling, ``a whole host of economists who crave popular approval and political influence have been propounding a whole series of quack medicines to "heal" the economy, with the promise of curing the recession through interventionist and monetary "elixirs." (bold highlights mine)
If it were a choice between 15 minutes of fame from quackery and profitability from accurately predicting markets, the latter would be my choice hands down.
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