Revisiting Correct Predictions

How is it possible a small blog has a more accurate and longer running track record than professional pundits, with their adulation, media appearances, and books? Looking back through the post archives, with few exceptions, all of our predictions came true. This is because we only care about the hard economic data and, secondly, the tendency for optimism or the status quo to prevail, also known as social inertia. With these criteria, making accurate predictions is easy.

Many succumb to the Marxist fallacy that with increasing inequality and falling real wages, no one will be able to buy the stuff and capitalism will eat itself. Looking at the data there is no evidence the consumer’s propensity to spend has been hurt by inequality. Secondly, we can offer an argument based on empirical evidence that capitalism won’t cannibalize itself the future, too. The Marxist critique implies wealth is a finite resource like gold and once the 1% obtain it all there‚Äôs nothing left. This is wrong because wealth is constantly being created; for example, in the span of 15 years Facebook, Twitter, and Google sprung into existence creating half a trillion in wealth. It assumes that there is a fixed number of consumers with static purchasing power. This is contradicted by rising nominal wages the booming middle class overseas and the Pareto Principle that top 20% of income earners engage in 80% of the consumption. Because the highest of income earners have seen the most rapid and greatest increases in wealth, it means consumer spending can keep rising even if everyone else’s income is flat, in agreement with the economic data. That’s why we need policy that creates wealth and encourages consumption, instead of wealth spreading and class warfare.

The left, including Peter Schiff and Nicolas Nassim Taleb, predicted since 2008 that there would be QE induced hyperinflation and treasuries would crash; we predicted the opposite and were right. They overlook America’s excpetionalism. The rest of the world is encumbered with high inflation, corruption, uprisings, and crisis – resulting in a flight to the safest of asset classes, US treasuries. Subsequently, yields fall. The smallest provocation can trigger a knee-jerk flight to safety, such as a hiccup in Europe or a bad job number. Not for forget, since 2002 foreign governments have been buying our debt like crazy. This doesn’t mean we’re enslaved to them; instead, it’s a symbiotic relationship where both sides benefit. This is in keeping with Steven Pinker’s argument that globalization and modernity increases prosperity and reduces conflict. The left wants to hurt economic relations by imposing sanctions on sovereign, successful countries like Russia and ignoring real threats like Syria, North Korea and Iran.

We predicted in 2011 that the 2009-present bull market would continue; indeed, the major indexes have been making new highs ever since. Furthermore, we conceptualized an economic system where increasing concentration of wealth was not only inevitable, but optimal for economic growth. Social inertia – tendency for the status quo to stay the same is now being taken seriously. Just a we predicted years ago, increasing inequality looks like it’s going be permanent and not transitory. We go even further, predicting that the second gilded age will not end a Great Depression, but in most likelihood continue indefinitely because the economy is larger and more stable than in the 20’s, and policy makers are adept at fixing crisis with quick, effective bailouts and monetary policy, as we saw in 2008.

Economic showman, Robert Shiller, says we’re in a housing bubble again. Anyone that says we’re in a bubble without addressing the evidence that we’re not, should be ignored. Unlike in the early 2000’s, we have a web 2.0 boom, permanently low interest rates, and massive influx of private equity and foreign buyers. The last housing bubble mainly affected areas the with most rapid buildup, such as like Las Vegas, Northern and Southern California, Florida and Arizona. Prices in those areas will remain depressed for a long time. Areas with no buildup like Palo Alto, Manhattan, Aspen, and Carmel By The Sea had much smaller declines and are at historic highs. While it’s possible that prices could fall, the prediction of least resistance tends to be the correct one.

In 2011, 2012 and 2013 we predicted the S&P debt downgrade, sequester and the second debt ceiling standoff were great buying opportunities for stocks. In addition, we correctly predicted the US wouldn’t default on its debt , that the small drop in GDP from the sequester would not hurt the economy or stock market, and that congress would hammer out a budget compromise in the last minute.

We were right about things that aren’t economics related, such as politics and stock picking. In 2012 we wrote that Facebook’s stock would outperform Apple. Facebook stock has tripled from it’s 2012 lows while Apple has fallen 30%. We also correctly predicted that the agitators in the Chris Christie bridgegate scandal had no smoking gun to implicate him, and without it, the story would blow over in a few weeks. Sure enough you don’t even hear about that anymore.

The left and the right like to weave these myopic narratives about how things should happen because they cannot conceive any other possibility, or they ignore the data that disagrees with their preconceived notions. Others on the left yearn for a simpler time, presumably when everyone had good paying jobs and people were happier. They want to believe that inequality and debt will lead to crisis, not because economic data supports it, but because they subconsciously want it. They see crisis as a way to upend the elite power structure to be replaced with a more egalitarian one. It may feel comforting to hold these views, but using them as the basis for making predictions will only result in being wrong all the time.