Bad News from Worse Models

Bad Market News From Junk Forecasting Models
The mistake is comparing a recovery from a financial crisis with the rebound from a normal recession.
Bloomberg, August 23, 2017




Today’s column is a necessary evil. It is one of those things where I point out stupid things said by smart people with track records of saying things that turn out to be wrong.

The latest: the idea that the business cycle has peaked and that markets are bound to follow.

No, this won’t be another harangue about the folly of forecasting 1 , although obviously it would be warranted. Regardless of whether I agree or disagree with this particular prediction, my beef is that the various methodologies used seem suspect. What’s more, the resulting track records are even worse.

Just to be clear, I’m not saying U.S. stocks are not pricey (they are). Nor am I saying that bonds are not overvalued (for all I know, they may be). I’m not even saying that the bull market isn’t long in the tooth (that’s simply not relevant). Nor am I arguing that the markets gained too much too fast (they didn’t), or that we’re not late in the cycle (perhaps). 2  These things have all been true for a long time now; they will continue until they stop, at which point the people who have been wrong for many years and missed an enormous run up in markets will gleefully say, “I told you so.”

This is how it has always been and how it always will be.

But let’s look at some of the specific claims made by analysts or economists about the business cycle and markets.

• Correlations . . . 



Continues at: Bad Market News From Junk Forecasting Models