Posted on 08/02/2003 11:04:34 PM PDT by ThePythonicCow
Yes, but these guys are using a very weak and naive predictive model. It is the kind of "analysis" that you expect someone with no experience in market prediction to come up with. Nobody in the business uses these kinds of models because they are known to give really lousy results in the general case. The kinds of mathematics actually used for state-of-the-art financial prediction are much more technologically sophisticated than what these guys are doing, and have MUCH better track records for accurate forecasting and prediction.
BTW, the best models to date are suggesting a slow-but-steady several year growth period. Nothing explosive, but good for business and the economy.
And, yes, if I were using a model to help manage large sums of money, or to help forecasting for a large corporation, I would not use this model. This model is too academic, too single-flavored, too monochrome. It does a cute job of pointing out one thing.
BTW - did the best models predict the crashes of 1929, 1987 or 2000, or at least, do they, when backtested?
Yes, they did. And not with backtesting, but projecting a decade or more out. Note that the first fully predicted boom-crash was the late 1990s one, because it takes some significant computing horsepower to build really good models, crunch that wasn't really available and cost-effective prior to the 1980s.
I saw models in the late 1980s that predicted not only the timing and magnitude of the 1990s stock boom, but the crash as well. Actually, they put the crash in the late 2001 timeframe IIRC, but I give'em an "A" for effort; in the intervening years they may have done a model update that revised the actual downside date. The further out the projection, the bigger the error margin on magnitude and timing. The models are occasionally checkpointed with reality to reduce the error margin; models that have drifted more than a certain amount at the checkpoint need to be rebuilt, which is expensive. Among the many reasons that cash flow into the stock market from institutions liberalized a few months ago is that several big models checkpointed okay, which basically confirmed that we were past the bottom as the models predicted and that the models (which almost universally stated we should be on a long upside) were still reasonably valid predictors.
I was skeptical when I saw some of the reports generated by these models in the mid- to late-1980s, but over the years I've become a believer because those models delivered despite my skepticism. I've since involved myself in the actual science and theory of large-scale predictive models of complex dynamic systems. Most big financial institutions and hedge funds have close guarded predictive models of the markets and economy. Some are better than others, but I can state for a fact that most are vastly better than most people generally believe. Also, the factors that go into even simple models are unbelievably diverse. All the most important factors are largely unrelated to finance and the stock market, yet they are remarkably good at predicting finance and markets.
I design predictor technologies for hedge funds among other clients. Good predictors are heavy duty trade secrets and are worth quite a bit of bank to those that can produce something just a few percent better than the institution down the street.
So I suspect that you'd say that Sornette's analysis is a one trick pony, suitable mostly for "predicting" the couple years of charts prior to when it was published. Which is, as someone noted above, useless BS.
hmmm ...
I do not have access to the models of which you speak. But if they are as you say, then this is most impressive.
We shall soon enough see. I've been quite happy with the very dark, pro-Gold, anti-stock, advisors I've been following for the last three years, such as James Dines, Elliott Wave and bits and pieces such as Sornette's analysis above.
But I pulled out of Gold earlier this week, and currently am only invested in my health, my profession and my children. I think I will stay on the sidelines for a bit until I see which way this is playing out.
As I've explained repeatedly (in other threads), gold is a very bad investment unless you subscribe to the dotcom theory of economics. The total cost of production for the average ounce of gold is $190 give or take $10. And that number is expected to fall, possibly as low as $150 for reasons that are beyond scope here relating to some excellent new resource models. Due to improvements in gold extraction and discovery, the production of gold has been very flexible for at least a couple decades now. At $300/oz, the mining companies could easily increase production ten-fold and still be profitable. In other words, it has become a purely commodity market that doesn't act like a commodity because people still act like gold has inherently inflexible production, which was true for most of its history but isn't true now due to the state of gold mining technology.
Some day sooner than later, the price of gold will collapse from its currently absurd price to a level reflecting a genuine commodity market. When that happens, a lot of people banking on gold will be very unhappy and the gold mining companies won't be remotely as profitable.
For those really interested in metals, I suggest avoiding metals that have flexible commodity production capability, which includes both gold and silver. In this sense, gold and silver should be treated the same as copper or iron production. All metals of this resource type are subject to a slow but steady decrease in value with the current state of mining and extraction technology, even ones that were formerly "rare" and "precious".
If I was going to stock up on physical storage implements of dense value, I usually suggest platinum. It has much more value industrially than gold or silver, has high value density (dollars/oz), the production is still relatively inflexible, and the market price reflects the actual commodity cost of production. Platinum will likely retain its value very well for economically sound reasons.
Or should I make it a habit of scanning FR for your posts every few weeks <grin>?
And, post Black Friday of '29, the markets rallied ; that's right, they went up. It was Joe Kennedy and his little band of shorters, who, against the masses and masses of money being poured in, by the likes of Morgan, etc. created the backwash and did it ILLEGALLY ! This can no longer happen, BTW, since so many rules /laws have been changed since then.
One CAN make pots of money, if one knows that the market is going down and can guesstimate for how long.
A little factual history re THE SOUTH SEA BUBBLE. Yes, it was a BUBBLE, yes, the mania of the crowds ( as with ALL "BUBBLES" )fed it, what makes this one atypical, is that the Bank of England AND the government was involved in it, corruption was on a massive scale and it almost brought down the government, dethroned the monarchy, AND made a nation totally insolvent.
The nascent English Stock Exchange was so far removed from what was around in America, on Wall Street, in the 1920s, as to be almost totally unrecognizable.The swindles, that went down back then, make ENRON, Arthur Anderson, et al , look like kindergarten stuff, penny ante child's play. It even makes the dot.com stuff look honest .
What anyone, who finds the article "useful " should do, is to adjust their tinfoil.
Historically, excepting THE GREAT DEPRESSION ( more on that later ), our crashes/depressions ( we haven't had one since the that one )/resessions don't last all that long. The above chart, is therefore misleading to utterly bogus. The ONLY reasons that the one sort of begun in '29 lasted as long as it did, was because there was a worldwide depression, which was the direct aftermath of WW I and the Treaty of Versailles, Wilson's inepttitude, the Taft-Hartley garbage, and the rise of Hitler; not to mention FDR's Socialistic stupidities.
Oh yes, and the authors of the charts, based at least some of it, on charts from the CBOE ( Chicago Board Otions Exchange ), whose charts do NOT relate to ALL markets; not even in general. Since I am probably the ONLY person on FR ( well, the only one who types to it ... LOL ) who happens to be part of a company that is a FOUNDING member of the CBOE, I am also the ONLY one on this thread, who is talking about something they actually know about.
I can't complain. But one must stay on one's toes; the market enjoys making fools of us all, sooner or later.
Yes, of course there are others here, who actually know about markets; that isn't the point. LOL
I'm still convinced that bad times are a comin'. I just don't know when or how to play it. If we still have big bubbles, we can still have big crashes. The laws of human nature have not been repealed, last I looked.
Maybe the feds managed to pour enough gas er eh debt on the fire to keep it from going out for now ... but the systemic problems in the worlds banking, investment and financial arenas keep growing.
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