Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is past the ocean is flat again.
- John Maynard Keynes, A Tract on Monetary Reform
There can be few fields of human endeavor in which history counts for so little as in the world of finance. Past experience, to the extent that it is part of memory at all, is dismissed as the primitive refuge of those who do not have insight to appreciate the incredible wonders of the present.
- John Kenneth Galbraith
Hitler must have been rather loosely educated, not having learned the lesson of Napoleon's autumn advance on Moscow.
- Sir Winston Churchill
US GDP has been slowly ramping up, only to fall back and then try once more to bring us back to the '90s. Stocks markets are volatile but seemingly moving higher in most of the developed world, except for Japan, where the current 20% drop comes hard on the heels of one of their frequent "end of the bear market forever" rallies of almost 90% – how many of those have we seen over the last 24 years? Europe is mostly in recession or Muddling Through with very slow growth. I continue to read from those who know China intimately that there is a real crisis brewing there. And over the last four weeks I have highlighted how desperate the situation is in Japan.
The main obsession in the US seems to be whether and when the Fed may stop its current round of massive QE. Every hint of "tapering" spurs volatility in the markets. If you are a forex (foreign exchange) trader, you are left breathless at the recent moves, sometimes a whole order of magnitude (10 times) larger than average. Get used to it: currency wars are likely to be a feature of the landscape for the rest of this decade. (My friend Mohamed El-Erian, CEO of PIMCO, corrected me on stage recently, telling me the polite term du jour is "currency tensions." And compared to what I think is coming, we really are just in the tension phase. Later we will get to skirmishes and then full-fledged currency combat.)
At the same time, there are some things to be sanguine about, at least in the US. Corporate profits are at all-time highs. The housing market is finally doing well in most parts of the country, adding jobs and boosting GDP. We continue to find more oil and gas seemingly everywhere we look. There are no political races this summer to spoil the mood, since it's too early to for anyone to seriously run for president in 2016.The economic forecasts of mainstream economists are quite positive, if not enirely optimistic, reflecting the current data. Should we not take heart from that? Alas, no. I have been working the last few months with my co-author of Endgame, Jonathan Tepper, on a longer paper in which we discuss the economic affairs of the world. One of our pet amusements is to research just how bad economists really are at forecasting. (Of course, we ourselves get branded with that economist label from time to time, although most serious economists would rather not be associated with us.)
This week we look at some of our recent musings on that topic, triggered by a letter from a very serious economist who took umbrage when I wrote disparagingly about economists and forecasting a couple months ago.
Continue reading: http://www.mauldineconomics.com/frontlinethoughts/economists-are-still-clueless