
That guy who called the big one? Don’t listen to him. - aaronbrethorst
http://www.boston.com/bostonglobe/ideas/articles/2011/01/09/that_guy_who_called_the_big_one_dont_listen_to_him/?page=full
======
d2viant
I had a professor that told me it's actually a good strategy to make wild
predictions far in the future. If you're right, you look like an oracle. If
you're wrong, nobody remembers to go back and dig up "he predicted this on
this date", primarily because they're already focused on the next predictions.
Most of the time it's a win-win; the farther out in the future the better.

~~~
car387
Seth Godin makes a similar point to be unafraid of "claim chowder" - what
happens when you make a prediction about the future and you end up being
totally and tragically wrong. No one remembers!

[http://sethgodin.typepad.com/seths_blog/2010/11/unwarranted-...](http://sethgodin.typepad.com/seths_blog/2010/11/unwarranted-
fear-of-claim-chowder.html)

~~~
comex
Unless John Gruber doesn't like you.

~~~
car387
Yes, there's that of course :)

------
aothman
A lot of this has to do with the way we "score" forecasts. Applying some kind
of uniform weighting over forecasts is the natural, and wrong, way to think
about things.

Nassim Nicholas Taleb (black swan, fooled by randomness) has written about his
trading strategy. At his fund, he consistently takes positions that predict
extreme events, and he's wrong almost all the time, consistently producing
grinding, negative returns. He's only been right a couple times, but when he's
right he's _really_ right, making enough money that he doesn't need to make
money anymore.

~~~
borism
_he's wrong almost all the time, consistently producing grinding, negative
returns. He's only been right a couple times, but when he's right he's really
right, making enough money that he doesn't need to make money anymore_

AFAIK his hedge fund haven't been right "big" even once so far and clients are
only withdrawing money with a loss after few years...

~~~
patrickgzill
20 seconds of search engine gets me:

<http://en.wikipedia.org/wiki/Nassim_Taleb#Finance_career>

Perhaps you should invest the extra 19 seconds between typing "AFAIK" and
actually, you know, Knowing.

==== "founder of Empirica Capital, after which Taleb retired from trading and
became a full-time author and scholar in 2004.[33] Taleb is currently
Principal/Senior Scientific Adviser at Universa Investments in Santa Monica,
California, a tail protection firm owned and managed by former Empirica
partner Mark Spitznagel.

Taleb reportedly made a multi-million dollar fortune during the financial
crisis that began in 2007, a development which he attributed to the failure of
statistical methods in finance.[34]

Universa is a fund which is based on the "black swan" idea and to which Taleb
is a principal adviser. Separate funds belonging to Universa made returns of
65% to 115% in October 2008.[20][35] In the wake of the economic crisis that
started in 2008, Taleb has become an activist for a "black swan robust
society"" ===

~~~
_debug_
> Taleb reportedly made a multi-million dollar fortune during the financial
> crisis that began in 2007

"Reportedly". Also, "multi-million dollar fortune" is really vague.

Sorry to spoil a good story, but the entire Taleb thesis is just a very
entertaining way to say : "Shit happens". There is absolutely nothing new that
he has to add, other than the entertainment and sheer drama. If there was, he
would be able to publish it as a paper in a journal, not merely as a popular
paperback. As an analogy, Taleb's position is akin to a religious zealot
shouting, "Science dosen't know everything". Science's response is : "Sure, we
know that. Why don't you help push the border by proposing and publishing a
better model?". No, he is content to just shout from the rooftops and make a
living out of it. Even his recent attempt to publish an academic paper in 2010
is full of negativity: it's just a way to say, "You're wrong, you're wrong,
you're wrong. Here are citations to show you're wrong."

Also, note that Taleb is merely an adviser to Universa. Any credit for
profitability at Universa goes to their founder, traders and portfolio
managers. When he was the trader (at Empirica), they had to fold the fund.
That's when he wrote the books.

What fans of Taleb probably don't realize is that the enemy is not the models
or the quants who published the models, who clearly stated their simplifying
assumptions in order to make approximate models, (because Newton's laws are a
good-enough intermediate model compared to _nothing_ even though they may be
wrong at extreme points, and that's where relativity comes in,) but
overleveraging (trading with money that you don't have), and good old greed
(using a model that states clearly on the label that it is only an
approximation, 90% correct, as if it were 100% correct).

Taleb's recent arguments with Scholes (who was awarded a Nobel Prize for the
Black-Scholes model) is like a dolt shouting a Newton, saying, "But you didn't
consider relativity! You must be jailed for that!". So what, at least he DID
something concrete!

~~~
naradaellis
Are you not allowed to call bullshit on something unless you can do better? I
believe the contrary; I think that reading around and saying "You're wrong,
you're wrong, you're wrong. Here are citations to show you're wrong" is
actually a very valuable contribution to science and society -- what are the
point of such models if they don't work?

The difference between Newton and the securities traders that Taleb dislikes
is that Newton actually managed to predict things with certainty. A large part
of the Black Swan is Taleb pointing out that barely any retrospective review
is done on predictive models.

~~~
_debug_
> is actually a very valuable contribution to science and society -- what are
> the point of such models if they don't work

Agreed. Some papers just say, "We tried this and it doesn't work", and that's
a contribution, too.

I would just like to point out that there is a good amount of unwarranted
drama that overemphasizes his contribution and unnecessarily attacks
fundamental contributions like the Black-Scholes model. It's especially
appealing to the larger public who are looking for a black & white "us vs.
them" simplified explanation for the financial crisis.

------
mixmax
_"when people study success stories exclusively — as many avid devourers of
business self-help books do — they come away with a vastly oversimplified idea
of what it takes to succeed. This is because success is what economists refer
to as a “noisy signal.” It’s chancy, fickle, and composed of so many moving
parts that any one is basically meaningless in the context of the real world.
By studying what successful ventures have in common (persistence, for
instance), people miss the invaluable lessons contained in the far more common
experience of failure. They ignore the high likelihood that a company will
flop the base rate and wind up wildly overestimating the chances of success."_

As an entrepreneur this is worth taking note of.

~~~
iamwil
So then I wonder if that makes a case for Jessica Livingston writing a book
called "Founders that Failed", rather than "Founders at Work 2"?

~~~
michael_dorfman
I would love a book like that, if there was sufficient analysis of the
failures, and the interview subjects were as interesting as the crowd in
"Founders at Work".

------
noelchurchill
To me it seems that hardest part about predictions is the timing. It's not too
hard to understand the macro economic trends and to see which way the wind is
blowing, but it's very hard to know when it will happen and how quickly it
will happen.

That's why day trading is gambling. The long term buy and hold, and the
averaging down strategies will make you money, as long as you understand mid
to long term direction of the economy and invest accordingly.

~~~
tygorius
Actually if there's any one lesson to be learned from the last dozen years of
the stock market's swings, it is that "buy and hold" is dead as a useful
investment strategy.

As to gambling vs. trading, there's a whole industry of people who train
traders in eliminating the gambling psychology that can destroy equity so
quickly. A short time frame only exacerbates the psychological weakness.

Oddly enough successful day traders, that is, those who hold their positions
for mere minutes and close out all positions by the close of the trading day,
are about as far from gamblers (in a psychological sense) as you can get.

~~~
noelchurchill
_Actually if there's any one lesson to be learned from the last dozen years of
the stock market's swings, it is that "buy and hold" is dead as a useful
investment strategy._

I might have misused the term buy and hold. I meant to ignore the intraday
swings and keep your eyes on the overlying trends. I certainly don't think you
can blindly hold an index fund these days and plan on retiring on it.

~~~
me_again
My 401K's in a 'LifePath' fund- more-or-less an index tracker which shifts
more weight from a stock index funds into bonds as your nominal retirement day
approaches. It's quite possible I'll come to regret it, but I can't think of a
safer approach.

------
pwnguin
Personally, I like Schiller (<http://www.econ.yale.edu/~shiller/>) more than
Roubini. His record: he wrote a book called Irrational Exuberance, and the
.com market promptly crashed. He wrote papers from 2003 to 2007 suggesting the
housing bubble was real, what it's effects were and how it might be mitigated
/ avoided.

Where Roubini simply says we're all walking in the dark, Schiller is the rare
critical eye who offers, in public, insight about where and how things are
going wrong.

~~~
igravious
Personally, I like Mike Whitney (most recent article
<http://counterpunch.org/whitney01062011.html>) more than Roubini. He's not so
famous as Schiller but he's not afraid to connect the dots politically as well
and call a wealth-based transfer from poor to rich class warfare when that is
what it is.

He called the Great Recession many times from 2006 onwards, just dig through
that site for his articles, like this way for instance
([https://encrypted.google.com/search?hl=en&q=%22by+mike+w...](https://encrypted.google.com/search?hl=en&q=%22by+mike+whitney%22+site:counterpunch.org))
- really, the guy is super cynical but nothing macroeconomic-wise escapes his
beady eye.

~~~
borism
ugh, this guy seems to be nuts!

does he have any economic education at all?

also, his blog host seems to be unreachable.

~~~
igravious
Please don't be crude :) Yes, like a fine malt whiskey Mr. Whitney can go
straight to your head. I never said that he was an economist mind you, just
that his economic analysis is spot on and he was yelling "housing bubble!",
"credit bubble!" as the regular economists were ignoring Roubini et al.
Whitney is pessimistic but if you hadn't noticed there has been a lot to be
pessimistic about for the last 5 years of irrational exuberance and
recessionary times. Besides, he's an accessible and engaging writer. Take the
time to go back to a few of his articles from years gone by to get a feeling
about his track record and insight.

------
iwwr
_In October 2008, he predicted that hundreds of hedge funds were on the verge
of failure and that the government would have to close the markets for a week
or two in the coming days to cope with the shock._

Most hedge funds would have been bankrupt if not for the bailouts, so he was
technically correct.

~~~
gwern
So you're saying Nouriel's prophetic vision includes the entire economic world
_except_ the government?

Wow, what a flaw. Almost as bad as kryptonite.

~~~
Misha_B
It actually makes sense. To predict the economy without government you need to
predict trends and the behavior of many people. To predict the government
moves you need to predict the whims and arbitrary actions of individuals, and
do that according to their perceived political gains.

------
dschobel
_We want to believe success is more probable than it is, that it’s the result
of a process we can wrap our heads around. That’s why we’re drawn to prophets,
especially the ones who get one big thing right. We want to believe that
someone, somewhere can foresee surprising and disruptive change. It means that
there is a method to the madness of not just business, but human existence,
and that it’s perceptible if you look at it from the right angle. It’s why we
take lucky rabbits’ feet into casinos instead of putting our money in a CD,
why we quit steady jobs to start risky small businesses. On paper, these too
may indeed resemble sucker bets placed by people with bad judgment. But cast
in a certain light, they begin to look a lot like hope._

That sound you hear is the sound of a thousand VCs crying out en masse.

~~~
Dn_Ab
_> It’s why we take lucky rabbits’ feet into casinos instead of putting our
money in a CD, why we quit steady jobs to start risky small businesses. _

Again, I am probably biased but I think this indirect comparison is nonsense.
While one action is unequivocally irrational the other could be rational if
you take into account situation, tolerance to risk and expected value -
expected utility of the action.

------
humj
A much simpler explanation. Even though the prophet is usually wrong, we
believe him when he's right because that's the only time we notice he has even
made a prediction.

------
mshron
I would buy this argument if it wasn't for the fact that he managed to not
only correctly call the timing but also the cause of the recession.

It sounds to me like he's a good person to listen to for potential trouble
spots. The economy is very path-dependent; just because someone is good at
pointing out potential issues doesn't mean they're going to know how it turns
out.

------
bcl
Read "The Drunkard's Walk: How Randomness Rules Our Lives"

[http://www.amazon.com/Drunkards-Walk-Randomness-Rules-
ebook/...](http://www.amazon.com/Drunkards-Walk-Randomness-Rules-
ebook/dp/B001NXK1XO/)

and everything will become clear.

------
localhost3000
Hasn't Taleb been making this argument for the last 15 years? He and Dr. Doom
are both NYU faculty...that must be awkward.

------
patrickgzill
To write about Roubini's misses and not mention:

1\. quantitative easing [which had the effect of propping up the stock
market], and

2\. the creation of a backdoor funding initiative to subsidize the investment
banks on the backs of all USD savers, by pretending they are regular banks,
allowing them to borrow at the nonsensical rate of 0% (or nearly that)
[allowing banks to make billions per year nearly risk-free, thus keeping them
from going under]

betrays either the article writer's dishonesty, or lack of knowledge on the
subject.

~~~
narrator
Mainstream Economics assumes the monetary system and government policy are
some abstract and perfect continuous function. As perfect example the IS/LM
curve. They aren't though, they can radically change the rules anytime they
want to throwing years of equations out the window. Imagine the utter
theoretical chaos that would be caused if the U.S defaulted on its bonds
because Treasuries represent the "Risk free rate of interests" variable
present in perhaps thousands of economic models.

------
mike_esspe
Idea for a small startup: service, which collects predictions from experts and
politicians, and have a number showing percent of predictions, which came
true.

Anyone knows a service like this?

~~~
mds
<http://politifact.com/truth-o-meter/statements> is pretty close.

------
talbina
Does anyone know how well the averaged forecasts turned out? I didn't see that
in the article.

------
forensic
This article is propaganda written by a shill.

Based on the author's logic you might as well throw up your hands and stop
trying to predict anything.

Roubini didn't get his message from God, he made it based on a public,
replicable analysis using standard economic theory from his economic school.
Other people from his economic school also made the same predictions that
followed logically from their premises and the indicators.

This is like saying when a doctor tells a patient that if he keeps smoking he
will get cancer, and the patient gets cancer, he just did it by luck.

It's not by luck. He is not making wild speculations. He's doing it
systematically based on logic and facts and a respected system that has a
level of credibility behind it.

All the austrians predicted the housing bubble.

This article is a hit piece, pure and simple. It is teaching the reader to be
stupid.

~~~
tsiki
The austrians also predicted 20 of the last 3 recessions.

~~~
borism
the Austrian school is not scientific, but religious branch of Economics
though:

[http://en.wikipedia.org/wiki/Austrian_School#Criticism_of_th...](http://en.wikipedia.org/wiki/Austrian_School#Criticism_of_the_Austrian_School)

~~~
iwwr
Forecasting the economy is trickier than the weather, even with the advanced
quantitative tools available to Economists today. Standard economic models
were totally blind to the collapse. In fact, following standard models was
worse than having no model at all, it created false security and hid risk from
the markets.

Austrians don't concern themselves too much with quantitative models because
they are inherently unreliable. The main idea is that interfering in prices
produces negative consequences in the same manner that any control of prices
does. The Austrians are simply extending the theory of price controls to
interest rates.

