http://www.philosophicaleconomics.com/2018/01/future-u-s-equ...

The day after Trump's election win, NY Times published an article [0] by nobel-prize winning economist Paul Krugman saying:

"It really does now look like President Donald J. Trump, and markets are plunging. When might we expect them to recover?

Frankly, I find it hard to care much, even though this is my specialty. The disaster for America and the world has so many aspects that the economic ramifications are way down my list of things to fear.

Still, I guess people want an answer: If the question is when markets will recover, a first-pass answer is never."

That prediction didn't work out so well.

And maybe these new prognostications are built on more solid foundations, but still they are prognostications, and if the past decade has taught us anything, it seems most pundits and economists have no clue what they are talking about.

0: https://www.nytimes.com/interactive/projects/cp/opinion/elec...

Disclaimer: I'm not intimately familiar with his views, but since he's a pretty prolific political columnist (in addition to being an economist) I'm sure there's plenty of other stuff worthy of criticism.

If things implode tomorrow or six months or even a year from now everyone will look back at that Krugman quote and say, “The man’s a damn genius, he totally called it.” It’s easy to forget about the time period when a financial prediction was wrong before it was right, particularly when the magnitude of disruption is significant. Sometimes the time even emboldens the former position because “they knew all along.”

The one thing we do know is that markets are cyclical. There is always another crisis lurking around the corner. If you went to a cash position the day after Trump was elected you seem like a fool today. You can wake up a financial genius tomorrow. Maybe you didn’t sell at the top, but people who got out of real estate in 2005 probably don’t look back with too much regret saying, “should have hung in there another two years.”

Also known as a broken clock is right at least twice a day. Vanguard is doing the same thing here by saying sometime in the next 2 years the economy will start doing worse. They'll be right eventually.

> If you went to a cash position the day after Trump was elected you seem like a fool today. You can wake up a financial genius tomorrow.

Many people were expecting another market downturn at around the time Trump was elected - not because of Trump but because it was 8 years since the last one. The market rallied instead and now Trump has a buffer.

The market today could fall by as much as it did in 2008, and it would still be at about the same level as it was when Trump was elected.

A Princeton paper was written on the subject.

https://www.princeton.edu/~mwatson/papers/DemRep_BlinderWats...

For the past almost 100 years the economy has done better on every major indicator with a Liberal in office.

I suspect it's because the trickle down effect doesn't work.

Well, maybe.

Or maybe Republican policies are beneficial in the long term, which means they don't start working until after they've left office and don't stop working until the Democrat who replaces them has dismantled them.

Or maybe voters tend to vote Republican when they are uncertain about the future, i.e. in periods of instability.

Or maybe the President doesn't make a huge difference either way in most cases, and the business cycle got into a rhythm where corrections started happening in a quasi-regular rhythm that seems to coincide with elections with Republican incumbents. (The only point where it seemed to get out of this rhythm, after WWII, was the double-dip recession of the early 80's, which coincided with a Democrat -> Republican party switch that didn't switch back until there was another recession).

Or maybe there's been only 15 US Presidents to serve at least a full term in the past 100 years and it's not a meaningful sample size. I'm going to bet that's the one.

http://www.demonstrations.wolfram.com/StockMarketReturnsByPa...

Spoiler: it's highly, highly sensitive to parameters. You might choose to lag the time windows for several months to account for a delay in the effect of new policies, or lead to account for anticipation, or use as the underlying "invest or not" determination a time series reflecting laws, who holds the Executive, who holds the Legislative, some combination... but tweak any of these parameters and the outcome will flip wildly.

Of course this makes it very easy to reverse engineer a particular outcome if your audience is not familiar with the effect.

In 1980, at the end of the Carter administration, the US was suffering from a bad recession that double-dipped in 1981. From 1982 onwards, the economy grew without a hitch until 1990-91. You could blame that recession on Reagan and Bush, but it didn't happen during the Reagan years.

And yeah, it was a booming almost-three-decades of growth between 1982 and 2008, with blips in 1991 and 2001.

* The FED has more direct influence and control (although the FED chair is appointed by the President, so I guess you can blame him indirectly)

* Congress is responsible for most domestic policies, even the ones championed by the President.

* Tons of economic factors are outside of the US government's direct control, especially when it comes to science and technology. (Some of these factors are even outside the control of any American actors: many of the recessions between 1970 and 1990 were at least partly caused by disruptions in the oil market.)

* Even factors that you can attribute to government actions are more long-term in focus: ARPANET was established in the Johnson administration and didn't yield macroeconomic gains until the Clinton administration, while most of the economic benefit of the Interstate Highway System was realized long after the Eisenhower administration.

Personally instead of investing purely on weighed average, I tilt quite a bit towards international indexes. I'm American.

- Congo, Somalia are the extreme case but you can make really good gains in real estate, telecommunication in these places. (I know that people might balk at the idea of investing in Somalia but I consider it a no brainer to invest in renewable energy in a place like Somalia - I also get to enjoy the risk premium for it)

Given their structure, I'm not sure how they could trade on their own account. IANAL, but they're a registered investment advisor and that status requires them to act as a fiduciary for their clients.

Plus, with their structure as a mutual company the firm is owned by its customers. Even if they did trade for themselves, the account would effectively be owned by all their customers, wouldn't it?

> If the facts change — with, say, the Federal Reserve delaying anticipated interest-rate hikes in response to a weaker economy — the recession forecast will change, too, Mr. Davis said.

Having read nearly the entire literary output of one Nassim Taleb, I'd like to see the results of past predictions on this one. I'm pretty sure it will show that this "tracking" carries no actual predictive power.

"We don’t make any actual predictions about where things are going next month or, in the markets, next year. The stock market could rise a lot, short-term. We don’t know."

Vanguard's model says the probability of a recession by late 2020 is between 30% and 40%, which is higher than normal.

That also means that the probability of no recession by late 2020 is between 60% and 70%, which is lower than normal.

Economic recessions are none of these. They are common, expected, and well within the experience of most adults.

Booms and busts have been recurring semi-regularly since the beginning of market economies.

While it would be foolish to predict with any great certainty the date or duration of the next downturn, we can say with high confidence that a downturn will occur.

It doesn't seem unreasonable to observe that recessions are more likely when the yield curve is flat and valuations are historically high than when the yield curve is steep and valuations are more moderate.

Agreed, unlike every other random event that exists in the universe, recessions are the one thing whose likelyhood cannot possibly be expressed.

The parenthetical was the interesting part to me. I would love to see some long-term data on their forecasts.

https://www.globalresearch.ca/risk-experts-who-predicted-200...

Starting with the Great Recession and working backwards to and including the Great Depression, the gap from the previous US recession for each recession has been:

  6y, 1 m
  10y
  7y, 8m
  1y
  4y, 10m
  3y
  8y, 10m
  2y
  3y, 3m
  3y, 9m
  3y, 1m
  6y, 8m
  4y, 2m
  1y, 9m