Month: July 2018

Authored by Thorstein Polleit via The Mises Institute,

You get a lot of attention if you shout out things like “The stock market is about to collapse”, or “The US dollar crash is just around the corner”, or “The housing market slump is about to unfold”. But from the viewpoint of sound economics, making these kinds of predictions is quite impossible.

Putting probabilities to certain outcomes – such as “I assign a probability of 30 per cent that the stock market collapses in 2018” – might be fashionable among forecasters, but it certainly does not do the trick or make things any better.

Some Can

To be sure: One cannot, and should not, dismiss the idea that there might be people out there who have the ability to forecast events happening in the future correctly on a sustained basis. For instance, a successful entrepreneur belongs to this very group. He or she comes up with products people want to buy going forward, and they sell these products at prices which exceed production costs. They are also in a position to forecast changes in consumer demand and adjust their output accordingly.

Also, there are successful stock market investors, who stand out with many years of outperformance compared to their competitors. To be consistently better than the market, they must see and know something others do not see or know, and take action accordingly. For instance, they must detect undervalued stocks, and reap a decent profit when the market pushes stock prices towards their intrinsic value. They successfully invest at the right time in the “right” shares, which deliver outperformance over time.

Successful entrepreneurs and investors must have what it takes – the vision, courage, business acumen, or whatever it might be – to get the future right. That does not mean that they will not make forecast errors. But for some reason, their forecast errors turn out to be less devastating than those of the majority of the people. One thing is certain, though: Successful entrepreneurs and investors do not base their forecasts on the idea that economics would put you in a position to make correct predictions. Why is this so?

Most Cannot

Economics is not a science that provides you with the means for forecasting the future. As Ludwig von Mises puts it: “This is not to say that future human actions are utterly unpredictable. They can, in a certain way, be anticipated to some extent. But the methods applied in such anticipations, and their scope, are logically and epistemologically entirely different from those applied in anticipating natural events, and from their scope.” Mises’ statement might require some further explanation.

Rightly understood, economics is the science of human action, or, to be more precise, economics is about the logic of human action. Its “Archimedean Point” is the irrefutably true statement that “humans act”. The latter cannot be denied without causing a logical contradiction. If you argue “humans cannot act”, you act, and you would thus contradict your own statement. From the self-evidently true statement “humans act” we can deduce, or unfold, further true statements.

To give some examples: Human action, which is always the action of an individual, is purposeful; action requires means to attain goals; means are scarce; human action presupposes the category of means and ends, that is causality; time is an indispensable means for action; human action implies time preference and thus the originary interest rate (and both are positive, they cannot be zero, let alone be negative); the law of marginal utility is also logically implied in the statement “humans act”.

These (and other) statements are logically implied in the proposition that “humans act”. Any economic theory that contradicts the implications of the concept of human action must raise serious doubts as to its truth value. For instance, an economic theory in which human action does not take time, or in which human action is not constrained by definite time preference and a positive originary interest rate, can be dismissed as being logically false (as unrealistic, as unworldly madness).

The Role of Ideas

The irrefutably true knowledge that humans act implies that ideas (or theories) make humans act. And ideas are the ultimate given in the explanation of human action; they cannot be traced further back to other explanatory factors. This we cannot deny. Denying it would assume the existence of external (physiological, biological, chemical) factors which systematically explain human actions. However, science has so far failed to come up with a definite relation between external factors and human action.

In fact, there is a logical reason why such a relation cannot be discovered: Man undeniably has learning ability, meaning he can learn. Arguing “Man cannot learn” presupposes that man can learn; otherwise one wouldn’t say anything to someone else; assuming the contrary would amount to a performative contradiction. And arguing that “Man can learn not to learn” runs into an outright logical contradiction. As we cannot reject the notion that humans have learning ability, we can understand why we cannot know the future of our actions.

For if we assume that we know today how humans will act in the future, we would say that we have not only sufficient knowledge about natural phenomena but also know humans’ future choices, preferences and value scales in the future. The latter, however, would imply the denial of learning ability: Knowing today how humans act in the future would contradict the logically true statement that humans have learning ability – for we would know today all things happening in the future – but this is a logical contradiction and thus false.

Forecasting Impossible

It is now easy to also understand why there cannot be any constant relation between external factors and human action – in the sense that if the factor X occurs, humans will take certain action, and the result will always be Y. From experience, we know that different people, in response to given stimuli, often act differently at different points in time. But experience does not prove anything. Luckily, we do not have to take recourse to experience to know that there are no quantitative regularities in human action.

The reason why there are no such behavior constants is a logical one: If the external factor X causes certain action (in the sense of “if X, then Y”, or “if X goes up by 10 per cent, then Y will decline by 5 per cent”), we would be in a position to forecast today human action in the future (in quantitative terms) – and again, we would thereby contradict the logical conclusion that humans have learning ability: If we know today how we will act in the future, we have to assume that we cannot, and do not, learn along the way.

Now we have come full circle. Economics – if and when rightfully understood as the logic of human action – does not, and cannot, provide you with insights predicting future human action. Any attempt to use economics for making predictions runs counter to logic and is thus bound to fail. This by no means suggests that economics is a trivial undertaking. On the contrary! What economics can do is outline (with absolute certainty) the qualitative results of human action taking place under certain conditions and circumstances.

For instance, economics tells you with apodictic certainty that if people engage in voluntary exchange, all parties will benefit; or if the central bank increases the quantity of money, the purchasing power of the money unit declines (compared with a scenario in which the quantity of money had remained unchanged); or that a rise in the quantity of money in the economy will never be “neutral” as far as peoples’ income and wealth positions are concerned, it will always benefit some at the expense of others.

Entrepreneurial Competence

The vast majority of economists these days is, however, heavily engaged in the business of forecasting. They try to forecast where, say, interest rates, stock prices, exchange rates will stand in 3, 6, 12 months, or even farther out. And there is demand for such forecasts: A great number of investors is eager to listen what these forecasting economists have to say about the future, and quite a few investors take the economists’ forecasts seriously, namely as input for their investment decisions.

From what we have outlined earlier, however, we can know for sure that “mainstream” economists will fail in the effort to forecast the future and that a significant number of investors will get disappointed: Economics as a science cannot predict how humans will act, it cannot quantitatively forecast how economic magnitudes will develop. Such predictions are, and for logical reasons, beyond the reach of economics. One should not be misled about this fact by elaborated mathematical models and highly sophisticated econometric techniques.

The truth is that any economist who thinks that the science of economics is about forecasting is disoriented. His or her advice will not help you make wise investment decisions. So what should you do if you are concerned about a looming stock market crash? The answer is pretty straightforward. If you think you cannot be better than rest of the pack, invest in a broadly defined stock market index (or certificate) and stick to it. Because if you cannot outperform, there is simply no point in engaging in any crash forecasting.

Alternatively, you could turn to consistently successful entrepreneurs and investors for seeking advice. Perhaps they would tell you not to waste any time on forecasting a stock market crash – for no one knows how people will react in the future. Successful business-people and investors might come up with a rather different recommendation: namely, put your money in great businesses, purchased at a decent price, and stick to it, whatever may come. Over time, you will be doing better than those thinking they could forecast the crash.

Be that as it may, economics teaches us about the laws of human action, but it does not provide insights about how people will behave in the future, how human beings will quantitatively respond to certain factors. Economics is not a forecasting science, it is a reconstructing science: It allows us to understand, from the starting point of the irrefutably true statement that humans act, the qualitative consequences if humans act under certain conditions which, however, are often uncertain from the present point of view.

Murray N. Rothbard credits this solid, logically grounded and, as far as practical matters are concerned, most crucial insight to Ludwig von Mises: “It is above all Ludwig von Mises who recognizes the freedom, of mind and choice, at the irreducible heart of the human condition, and who realizes therefore that the scientific urge to determinism and complete predictability is a search for the impossible—and is therefore profoundly unscientific.”

via RSS https://ift.tt/2zkjQ3M Tyler Durden

Today at 2pm the Fed will publish the minutes from its 12-13 June meeting, in which the FOMC hiked the Fed Funds Rate by 25bps, and lifted IOER by 20bps. The statement and updated projections were interpreted as hawkish, while the conference call underscored the Fed’s upbeat view as well as Powell’s reaffirmation to “financial stability”, i.e. preventing further bubbles.

Traders will focus on comments around trade, the neutral rate, the yield curve and whether there has been a clarification in the Fed’s message on future rates hikes and the Fed’s “dots”, which currently anticipate 2 more rates hikes in 2018, another 3 in 2019 and a further 2 in 2020, even as the market currently expect only 3 more rates hike before the Fed is forced to tighten.

Here is a detailed preview of what to expect from RanSquawk

RATES: The Federal Funds Rate target was lifted by 25bps to 1.75-2.00%, as was expected. The IOER (interest on excess reserves) was lifted by 20bps, not the usual 25bps hike. The updated staff projections added a rate hike to the 2018 profile, now pencilling in a total of four hikes this year (previously three), after one participant lifted his/her forecast (it is unknown whether that participant was a voter on not). The hike trajectory now sees four rates rises in 2018, three in 2019, and one in 2020 – eight in total over the forecast horizon, which is still the same number of hikes it projected in March. Traders will parse the minutes for comments on the neutral rate, with analysts expecting the minutes to show a wide range of views; similarly, the FOMC’s view on the flattening yield curve will also garner attention.

STATEMENT: There were significant changes to the statement, with the Committee repeating its view that monetary policy remains accommodative, and also upgraded its language on the economy; economic activity is rising at a ‘solid’ rate, previously said growth was ‘moderate’. It also dropped its reference from previous statements that it expected rates to be below neutral for ‘some time’.

TRADE: Powell noted Fed contacts had reported concerns on trade policy, though he personally is not seeing any evidence of it in the economic data.

ECONOMIC PROJECTIONS: The FOMC revised its inflation forecasts higher, while trimming its unemployment rate forecasts. In his post-meeting press conference, Fed chair Powell was upbeat about the US economy, suggesting it was in ‘good shape’. said he’d be concerned if inflation was persistently above or below 2%, though his views haven’t changed much since the March meeting. Powell believes that inflation will be pushed above the 2% target after the oil price rise recently, but sees it as transitory. On the inflation target itself, Powell said the FOMC is strongly committed to the 2% price goal, and the barriers to changing that are very high. Powell said there was wide uncertainty around NAIRU and the neutral rate, and the Fed will keep an open mind, and is monitor incoming data.

via RSS https://ift.tt/2zdTiRY Tyler Durden

The recent whiplash in the market has wreaked havoc on both momentum and trend-following following strategies, and traders, among which none is more iconic, or vocal, than Dennis Gartman. That said, the “world-renowned commodity guru” is even better known for calling contrarian inflection points, having been stopped out at a loss on 80% of his recent “recos.”

As such we have some bad news for the bears: after a somewhat bullish transition phase in which Gartman advocated for higher prices despite making a “watershed call” in March, predicting a multi-year top to the market, he is once again pessimistic, and in his latest daily letter published around 4am this morning writes that a bear market has begun. Which may well explain why stock are surging today.  To wit:

Getting to the numbers, our Index has fallen 30 points or just a bit less than 0.3%, but that puts it down 372 points for the year-to-date or down 3.1%. Again, however, far more important… at least in our opinion… is that as of this morning our Index is down 1072 “points” from its high in late January, or -8.3% from that high. Again, as we have said rather often  recently, once a market is down more than 7% from its high we are of the opinion that a bear market has begun. Others  constantly iterate that it takes a 20% drop in a major index to prove that a bear market has begun in some earnest, but we are of the mind that if one only begins to take defensive action to protect one’s wealth after a market has fallen 20% much… and in our eyes, far too much… has been lost by that point!

At any rate, the markets are beginning to understand that the experiments with QE have either wholly ended in the case of the US or are being considered for ending in the case of Europe. Too, markets discount the future and begin to turn higher during the depths of recessions in anticipation of the inevitable and eventual turn for the better by the economy in question AND markets turn lower rather far ahead of the inevitable and eventually turn for worse for the same economy. Thus, when we make our case for bearishness when appearing on TV or have been interviewed by the printed press or on radio we  do not fail but to say that the US economy is doing quite well at this point; that help wanted signs are up everywhere; that the nation’s roads and ports are crowded and becoming more and more so; that  building activity is high and is rising; that the nation’s crops are in excellent shape… that economically all is really very well; but stocks are weakening nonetheless. As they say in the Book of Common Prayer, “It is meet and right so to do.”

And Gartman’s punchline:

[S]trength is to be sold into; weakness is only to be bought after the market has been sold. If one sells a thousand shares on strength, on weakness one might wish to buy back only half of that, with the intention of selling another thousand on any subsequent strength. This is now a bear market; trade then accordingly

Finally his actual trading reco:

Friday, June 22nd, we thought it reasonable and wise to use the strength then into which to sell and so we sold a unit of  the S&P future short at or near to 2763 with a stop on a closing basis at 2785. We sold a 2nd unit as 2745 was taken out to the downside, and we suspect that most were able to sell the S&P future at or near to 2735. We shall sit tight with the two units in question, looking for a time and a place to sell a third unit. Our average price is now $2749 as the market is $2719 as we finish this morning and we shall move our stop down from $2747 to $2741… using our usual “hour or so” methodology to protect this profit from becoming a loss.

All else equal, this means that a spike to 2741, or less than 10 points away from the current price, is effectively guaranteed.

via RSS https://ift.tt/2tVdgeW Tyler Durden

Authored by Mac Slavo via SHTFplan.com,

Over the last couple of years major social media, news and video platforms have been actively engaged in the censorship of what they believe to be fake news and information. Often spearheaded by third-party review organizations known to have biased views, there have been countless examples of unpopular speech and commentary that has seen its distribution suppressed or outright banned.

While there is most certainly a human element involved in the review and flagging of information, mega Silicon Valley conglomerates have also implemented automated systems to identify potentially hateful and repulsive content.

To give you an idea of the kind of automation in play and what words and ideas are being identified as running contrary to the principles of media aggregators and distributors, consider that Facebook recently banned America’s founding document from being posted.

Since June 24, the Liberty County Vindicator of Liberty County, Texas, has been sharing daily excerpts from the declaration in the run up to July Fourth. The idea was to encourage historical literacy among the Vindicator‘s readers.

The first nine such posts of the project went up without incident.

“But part 10,” writesVindicator managing editor Casey Stinnett, “did not appear. Instead, The Vindicator received a notice from Facebook saying that the post ‘goes against our standards on hate speech.’”

The post in question contained paragraphs 27 through 31 of the Declaration of Independence, the grievance section of the document wherein the put-upon colonists detail all the irreconcilable differences they have with King George III.

Stinnett says that he cannot be sure which exact grievance ran afoul of Facebook’s policy, but he assumes that it’s paragraph 31, which excoriates the King for inciting “domestic insurrections amongst us, and has endeavored to bring on the inhabitants of our frontiers, the merciless Indian Savages.”

The removal of the post was an automated action, and Stinnett sent a “feedback message” to Facebook with the hopes of reaching a human being who could then exempt the Declaration of Independence from its hate speech restrictions.

 Source: Reason.com

The Vindicator took a screenshot of the post’s removal:

According to the Vindicator, the post was eventually restored after it was manually reviewed.

via RSS https://ift.tt/2tVaiHu Tyler Durden

The UK government has now confirmed that the Novichok nerve agent used in its latest poisoning case is the same kind that was used to poison Yulia and Sergei Skripal, according to the Telegraph. Charles Rowley, 45, and Dawn Sturgess, 44, became critically ill after being exposed to the nerve agent in Amesbury, just a few miles away from the Salisbury strip mall where the Skripals fell ill. UK Police confirmed on Wednesday that Novichok was used in the poisoning.

And seemingly right on cue, as suspicion has immediately been directed at the Russians, UK Security Minister Ben Wallace, the minister who confirmed that the Novichok used on Sturgess and Rowley was the same used on the Skripals, has asked Russia to “fill in all the clues to keep people safe” – or basically admit its involvement in a crime that has barely begun to be investigated.

So, to review:

• An Amesbury couple in their 40’s, Dawn Sturgess, 44, and Charlie Rowley, 45 were poisoned with Novichok nerve agent

• Police were initially called after Sturgess fell ill, only to return later that evening after Rowley also fell ill

• None of the other people who were with the couple at Queen Elizabeth Gardens in Salisbury the day before fell ill

• One of the last places the couple was seen together in public was a family fund ay at Amesbury Baptist Centre on Saturday afternoon. The church has been cordoned off by police

• Wiltshire police originally thought the couple had taken contaminated heroin or crack cocaine

• Authorities don’t believe there is “a significant health risk to the wider public” at this time

• Rowley and Sturgess remain in critical condition in Salisbury District Hospital

• The address where the couple were found is on a new housing development on the southern edge of the town, which lies close to Stonehenge per ITV

• UK authorities believe the Novichok nerve agent that caused the poisoning was the same used in the Skripal attack and that the couple somehow encountered it by accident.

But it’s Russia’s fault.

This, despite also contending that the victims in the latest crime encountered the substance “accidentally”. because if people thought Russia was randomly poisoning UK citizens, we imagine pandemonium would break out.

Amid fears the public could still be at risk, Ben Wallace, the security minister, confirmed the “working asaccusesumption” is the couple taken ill in Amesbury – around eight miles from Salisbury – were not targeted victims, but encountered the substance accidentally. Novichok can be inhaled as a fine powder, absorbed through the skin or ingested.

He called on Moscow to provide information, saying: “The Russian state could put this wrong right. They could tell us what happened. What they did. And fill in some of the significant gaps that we are trying to pursue.

“We have said they can come and tell us what happened. I’m waiting for the phone call from the Russian state. The offer is there. They are the ones who could fill in all the clues to keep people safe.”

UK police were initially summoned Saturday morning after Sturgess collapsed, but returned to the same address later that evening after Rowley also fell ill. Wiltshire police have declared the sickening a “major incident,” which will allow more than one emergency agency to respond. Police from 40 departments around England and Wales only just returned home last month from working the Skripal case, while specially trained workers have been decontaminating areas around Salisbury for months.

With Rowley and Sturgess both in comas in the hospital, the Kremlin has “categorically denied” any involvement in the Salisbury attack and said the UK “showed no interest” in a joint investigation. The Kremlin described the Rowley-Sturgess poisoning as “disturbing” but said it had not received anything from the UK about the incident. Police have have already ruled out the possibility that the couple had been deliberately targeted, and John Glen, the Conservative MP for Salisbury, has said he believes the couple somehow come into contact with discarded Novichok that was outside of the Salisbury cleanup area.

And of course, all of this is happening just two weeks before the Trump-Putin summit in Helsinki, which also begs the question: Why would Russia risk another diplomatic incident breaking out just weeks before such an important meeting? Though another poisoning case will certainly be red meat for members of NATO – who love their “Russian aggression” – ahead of their summit.

via RSS https://ift.tt/2Nrvmxq Tyler Durden