The Economic Crisis No One Saw Coming: A Convenient Untruth
by ilene - August 11th, 2010 1:32 pm
The Economic Crisis No One Saw Coming: A Convenient Untruth
By Elliott Wave International
The single most convenient untruth about the 2008 (and counting) financial crisis is that it was unforeseen. For two years policymakers have insisted "There was no way to know ahead of time" that the liquidity boom would come to a screeching halt. Back in November 2008, in fact, the usually tight-lipped Queen of England herself publicly described the turmoil of international markets as "awful" and openly asked a panel of experts from the London School of Economics "Why did nobody notice?"
Her Majesty is right: Most financial authorities did NOT notice the crisis before it was too late. Comedy Central’s "The Daily Show with Jon Stewart" of all places provided the most poignant evidence: A March 2009 video montage shows executives and economists from the world’s leading financial firms repeatedly forecasting continued upside strength in stocks, plus renewed bull market growth in financials — right as debt markets came unhinged and the US stock market headed into a 50%-plus selloff.
Dubbed the "8-Minute Rap" (after the "18-Minute Gap" of Nixon’s Watergate tapes), the Daily Show video feature sent an equally powerful message, as the clip below makes plain.
Yet even as the mainstream authorities failed to detect the economic earthquake moving below their own feet, somebody did "notice" well in advance. That person was EWI’s president Bob Prechter.
The clip below is from a 2007 Bloomberg interview. Clear as PLAY, the foreseeable nature of the crisis emerges from Bob’s October 19, 2007 interview.
As the historic trend change began to unfold, Bob issued this timely insight:
"We’ve seen the first crack in the credit structure with a huge drop in commercial paper… These are the harbingers of a change toward the downside for the stock market, commodities including oil, and the debt market itself."
Don’t believe the convenient untruths. Get objective market analysis today. Download this free report that contains valuable market forecasts directly from the desk of Bob Prechter. This article, The Economic Crisis No One Saw Coming: A Convenient Untruth, was syndicated by Elliott Wave International. EWI is the world’s largest market forecasting firm.
EWI also just sent me an offer for a free eBook on trading lessons (click on banner below). – Ilene
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Laplace’s Hammer: The End of Economics
by ilene - May 31st, 2010 5:24 am
Laplace’s Hammer: The End of Economics
Courtesy of Tim at The Psy-Fi Blog
Clever Man, Stupid Idea
Simon-Pierre Laplace was a Very Clever Man who did many Very Clever Things. Unfortunately, like many clever men, having got hold of a Brilliant Idea he was rather inclined to go off and use it on everything in sight, which led to a number of Very Odd Conclusions. In fact as far as science goes, he may well have been the original man with a hammer; taking aim at every problem as though it was a nail.
As is the way of these things economists got hold of Laplace’s ideas, converted them to their own and started developing delicate and intricate webs of theories and practices. Unfortunately, over the succeeding three hundred years they’ve failed to keep up with advances in physics and biology, rather leaving economists as the only believers in an approach that suggests we have no free will, a position from which they’re having to be dug out and defused, one unexploded theorist at a time.
Newton’s Error
When Isaac Newton published his theory of gravity he knew it contained a serious flaw; his equations didn’t exactly match what was observed. He reckoned, correctly, that the differences between his theory and the observations were down to the gravitational effect on the planets of other planets – so called perturbations, which he didn’t know how to mathematically model. He said:
“But to consider simultaneously all these causes of motion and to define these motions by exact laws admitting of easy calculation exceeds, if I am not mistaken, the force of any human mind.”
And, of course, he was mistaken. The force of Laplace’s mind successfully solved the problem. Having achieved this, though, Laplace went a stage further. Because he could exactly calculate the position of any planet he could compare this with the results of observations from astronomers. What he discovered changed human history.
Observer Bias
It turned out that observers made errors, but they made them in a particular way – their observations fell about the actual position of the planet in a very distinctive pattern. This pattern, of course, was the ultra-familiar Bell curve or normal distribution. Laplace realised that human error was statistically quantifiable and, therefore, could be effectively eliminated from the data. This…
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the site