Earlier quoted context omitted.
How?
Buy low, sell high
Or more importantly in this case: sell high, buy low
How we will know when a recession is coming?
21–30 of 128 posts
Re: How we will know when a recession is coming?
#22It baffles me how financial analysts can try to answer such a question by only focusing on the domestic economy. Economies are so interconnected, the next recession is likely to be a global recession. Alarm bells are currently ringing all over the world, but the U.S. is isolated to some extent due to its currency status and relatively stable markets.
It's like standing in a room on the top floor of the Titanic and measuring whether the boat is sinking by measuring the water level on the floor in your room. Meanwhile, if water is getting into the rooms below you...
Re: How we will know when a recession is coming?
#23Out of curiosity, how reliable are all of the metrics we use for measuring economic health? For instance, how reliable is the unemployment rate when it is a highly political number with lots of incentives to misrepresent (ie the chronically unemployed are excluded from the count)? Beyond that, how much are these indicators just fudged or straight-up lied about?
Everybody is happy to agree with me when I say that China fudges their numbers, but when I say other countries are capable of the same thing they tell me I'm crazy. I am not an expert on China by any means, and I don't believe other countries report their economic health in the same way; but I also don't buy that everything the US and other western countries say is gospel.
Re: How we will know when a recession is coming?
#24Out of curiosity, how reliable are all of the metrics we use for measuring economic health? For instance, how reliable is the unemployment rate when it is a highly political number with lots of incentives to misrepresent (ie the chronically unemployed are excluded from the count)? Beyond that, how much are these indicators just fudged or straight-up lied about? Everybody is happy to agree with me when I say that Chin…
You can look at different measures of US unemployment, the top line number I think is normally "those looking for jobs but unable to find them" but there are a number of other metrics as well.
Re: How we will know when a recession is coming?
#25Out of curiosity, how reliable are all of the metrics we use for measuring economic health? For instance, how reliable is the unemployment rate when it is a highly political number with lots of incentives to misrepresent (ie the chronically unemployed are excluded from the count)? Beyond that, how much are these indicators just fudged or straight-up lied about? Everybody is happy to agree with me when I say that Chin…
The markets watch the BLS numbers like crazy and compare them to estimates from private sources that come from a wide range of methodologies. Frequently the big moves in the markets are not triggered by the bare numbers but from the difference between the expectation and the numbers.
If there was a systematic fudging of those numbers lots and lots of people would notice.
Re: How we will know when a recession is coming?
#26This is a really interesting metric but I'm going to argue that it doesn't say that much about our current situation given that our current unemployment numbers are highly skewed due to a strong shift towards low quality part time work and a large number of people opting out of the labor search (who are not considered unemployed in these statistics). I could see an argument made that given that this is statistic is r…
I do not have any real numbers, and this is just anecdotal, but in Slovenia (small EU country), a lot of our larger retailers have replaced some posters (basically ads) in their stores with "workers needed" posters, and some have literally advertised that they're looking for workers in their paper ads we get in the mail. Also a car repair shop literally had an radio ad that they're looking for repairmen.
It might be just a coincidence, but it's easy to get/change jobs at the moment, if you're actually willing to work.
Re: How we will know when a recession is coming?
#27Out of curiosity, how reliable are all of the metrics we use for measuring economic health? For instance, how reliable is the unemployment rate when it is a highly political number with lots of incentives to misrepresent (ie the chronically unemployed are excluded from the count)? Beyond that, how much are these indicators just fudged or straight-up lied about? Everybody is happy to agree with me when I say that Chin…
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Re: How we will know when a recession is coming?
#28Out of curiosity, how reliable are all of the metrics we use for measuring economic health? For instance, how reliable is the unemployment rate when it is a highly political number with lots of incentives to misrepresent (ie the chronically unemployed are excluded from the count)? Beyond that, how much are these indicators just fudged or straight-up lied about? Everybody is happy to agree with me when I say that Chin…
There's a name for the phenomenon, Goodhart's Law [1]. Generally, once a metric is used for decision making, it no longer reflects the phenomenon that it is attempting to measure.
Making it much more complicated is the fact that methodologies vary from year to year, and are often created by averaging data from a number of different sources. I've become fairly convinced that almost all macroeconomic measures are so flawed that using them in almost any dimension (across time, between countries) is useless. It may be that everyone involved in creating the overall measures is acting in good faith, rather than some politically motivated conspiracy, but still in aggregate create data that does not reflect reality in a useful way.
The exceptions tend to be metrics that require skin in the game to shift -- the yield curve inversion or S&P500 index, for example, are fairly real, since shifting them would cost a ton of money.
Re: How we will know when a recession is coming?
#29Out of curiosity, how reliable are all of the metrics we use for measuring economic health? For instance, how reliable is the unemployment rate when it is a highly political number with lots of incentives to misrepresent (ie the chronically unemployed are excluded from the count)? Beyond that, how much are these indicators just fudged or straight-up lied about? Everybody is happy to agree with me when I say that Chin…
The markets watch the BLS numbers like crazy and compare them to estimates from private sources that come from a wide range of methodologies. Frequently the big moves in the markets are not triggered by the bare numbers but from the difference between the expectation and the numbers. If there was a systematic fudging of those numbers lots and lots of people would notice.
You're right, but what if revealing the discrepancies wouldn't be beneficial to the company? Many people knew about the subprime mortgages before the 2008 recession and no-one came forward, although some shorted it.
Re: How we will know when a recession is coming?
#30No economic numbers are reliable due to reflexivity - "reliable numbers" become inputs for policy makers and market participants, which drive changes in the economy that affect the previously "reliable numbers".
George Soros wrote extensive literature on the topic. He called his fund (second best performing hedge fund in history) the Quantum Fund because, according to him, true nature of economic reality is unknowable to humans. As in it is genuinely impossible to know, regardless of the amount of efforts.
Example: mortgage credit decisions depend on people's earnings and collateral value. Problem? Both earnings (salaries) and the collateral value (home prices) depend on the amount of credit in the system.
The economy, being a subset of psychology/sociology, cannot be understood via normal science because the level of understanding is not independent from the actual rules at work. I.e. the more we understand the different-er we behave. Unlike atoms, which don't care what humans think and just go about their own business.