Update [1/21/2008]... correspondent "Irrational Exuberance" reminds us,

Yale economist Owen Lamont wrote about Gary Shilling in a 2002 paper evaluating economic forecast accuracy: "...One practice is the "broken clock" strategy, which consists of always forecasting the same event. An example in the sample is A. Gary Shilling, a well-known recession-caller. Throughout the 1980s, Shilling continually predicted recession. In 15 out of 18 Wall Street Journal surveys in which he participated 1981–1992 (data which are not used elsewhere in this paper), his year-ahead long-bond yield projection was the lowest among all forecasters. Fig. 1 shows GNP growth forecasts published in Business Week (various issues). As can be seen in the figure, 8 out of 10 times his forecast is below consensus, and he is often the extreme pessimistic outlier (when he is optimistic in his forecast for 1972, he is also the extreme optimistic outlier). Keane and Runkle cite Zarnowitz's (1969) finding that in a survey including non-professional forecasters, "a number of the occasional forecasters submitted extreme and rather unreasonable predictions" as an example of "inaccuracies due to lack of proper economic incentives" of the forecaster. Yet it is hard to describe Shilling's forecasts as anything, but "extreme and rather unreasonable"..." Shilling, who still makes quite frequent appearances as a pundit on CNBC, had forecasts that were so inaccurate that Lamont had to remove them as outliers from the study.

2. The stock market tanks during recessions.

Not so. With the economy heading south during recessions, the conventional wisdom is that stock prices drop as well. Stocks usually drop before a recession, something that may be happening now. However, the market tends to look ahead and starts to respond favorably to the expected end of a recession long before it occurs. Influential economist Donald Luskin of Trend Macrolytics recently ran the numbers and found that stocks have produced an average return of 12.1 percent in post-World War II recessions. This is only slightly below the average return outside recessions.

Taxes are a pain and not just to John’s McCain’s claim to be Reaganesque on domestic economic policy.

As for "stimulus," every politician in Washington and/or running for President feels the need to have the best plan. They are responding more to polls than to economic analysis. Give credit where it’s due; this is a wildfire first lit by Larry Summers and Chuck Schumer.

McCain’s stimulus borrows heavily from Rudy’s. I suspect it was rushed into production by his staff.

But, when McCain speaks for himself, he wants something very different; namely, he says he’ll appoint Greenspan, dead or alive, to create a new tax structure and to restrict Congress to only an up or down vote on whatever.

So... that’s leadership?

President Bush was smart to speak in general terms about what he wants on "stimulus" today, and to mention a few things he won’t support. Behind the scenes, there are serious talks underway about the various ingredients of a stimulus package. This is mostly good because it’ll stop the mostly bad ideas.

Stay tuned. All roads in Washington are rocky. I don’t predict a happy* ending. Nevertheless, it’s possible.<> *Happy means “not bad” or “better than expected.”

Yesterday’s final, late-day court decision upheld the FCC’s equal-time rule, which mandates (reasonably) equal air time for major political candidates. But that rule doesn’t apply as readily to cable TV networks…so the MSNBC debate—which, in excluding Kucinich, effectively broke the equal-time rule—could air on NBC’s cable channel, but not on its local affiliates.

So the very people who were its supposed audience—the people who will actually be voting in Saturday’s primary in Nevada—got to see the debate only if they had cable. (Cox Cable, the sole provider in the Vegas area, charges $45 per month for its expanded-basic cable package, which includes MSNBC. Not cheap.) In other words: the largely middle-class workers whose “issues” the debate was supposed to address—the very people who might not want or be able to spend over $500 a year on cable—got screwed.

Which seems, you know, worth at least a mention in the coverage of yesterday’s legal squabble. But several reports—from the AP, in particular—either missed or ignored that element of the story. And one of the few outlets that didn’t, The New York Times (its mention buried in its A19 piece), framed the debate’s lack of local airing as a loss for …the candidates:

An unintended consequence of the ruling was to restrict the debate from being broadcast on the local NBC affiliate here, KVBC-TV. Anchors on the local station said the ruling limited the broadcast to cable. The campaigns of Senator Hillary Rodham Clinton of New York, Senator Barack Obama of Illinois and former Senator John Edwards of North Carolina were hoping for local exposure in advance of Saturday’s Nevada caucuses.

Fair enough. But what about the voters?

He's a guy who manages a non-US fund and has written an end-of-the-world book, and -- what do you know!? -- he's on teevee saying it's the end the world, and that the best way to invest is outside the United States. In fact, according to this shameless self-promoter, "America is a burden on the rest of the world." When he had the gall to tell me on-air I should read his book, I called a spade a spade (which you are not supposed to do on television).

It's still not over. Yesterday I got a voice mail from some guy who sounds like a character on "The Sopranos," who identified himself only as "Michael over here in Jersey." He went on for quite a while about how I owe Schiff "an apology," and ended up threatening to send an email to "1600 to 1700 clients" linking to the YouTube replay if I didn't "step up and publicly apologize to Mr. Peter Schiff." I'm not sure why that's supposed to be such a threat -- after all, I proudly post that replay right here on this blog. If he wants to send it around, feel free. But apparently he regarded it as a threat, perhaps because of what he intended to say in his own words in the same email. I have no idea if he ever sent it. But shortly after I got two emails of the hate-mail variety from two people I've never heard of before. From one of them:

I find your comment to be the height of American arrogance. In some way, it exemplifies why our country is going downhill so fast.

By the way, you owe Peter Schiff an apology.

Why won't Schiff let this go? Maybe because his investment thesis, which he backs up with so much bluster, hasn't really been working? As markets have been turbulent and difficult in the US, they haven't been any better in the rest of the world on average. For 2007, the MSCI World Index without the United States returned 1.7% in local currency terms (that is, accounting for each country's gains or losses in its own currency, as opposed to translating everything back to the dollar or any other single currency). The MSCI US Index did better -- returning 4.1%.

The only way for Schiff to claim he was right would be to look at all non-US returns in US dollar terms. If you do that, then the MSCI World Index minus the US returned 9.9%. That means that the one and only thing that rescues Schiff's thesis at all is the fact that the US dollar declined last year -- actual stock performance was the opposite of his forecast.

From the perspective of the US investor who thinks in dollar terms, here's a way to think about last year's results. If you invested in the whole World Index including the US, you made 7.1%. If you left out the US, you made 9.9%. So the very most that all Schiff's angry fulminating was really worth was the difference -- 2.8%. Is that really worth all the hate?

Update... He really won't let it go. Shortly after this post went up I got an email from Schiff, saying:

Sorry for the threatening emails and phone calls. I certainly did not intend that to happen. I will do my best to discourage this type of behavior in the future.

Update 2... The intimidation and the self-aggrandizement continue. Another email from Schiff:

You have absolutely no class what so ever. Again I sent you a personal email and you posted it one [sic] your web site. Of course you conveniently left out the part where I corrected your mistakes with respect to my investment strategy and the success my clients have enjoyed over the years. I will forward my emails to you and your posts to my attorney in the morning to see if your conduct is in any way actionable [sic]

It is fashionable in some media quarters to proclaim that this GOP tax message is tired. And it is true that cutting income tax rates has lost some of its political punch now that nearly half of all Americans pay no income taxes at all. This is due in part to the victory of cultural conservatives who've pushed the child tax credit and want to use the tax code as social policy. We've been willing to accept such credits as the price of passing something in Washington. But they are no substitute for the pro-growth rate cuts most of these candidates are proposing.

With Democrats insisting on a giant tax increase, taxes will be a major issue this fall no matter who wins the GOP nod. And if a Republican does win the White House, a tax reform showdown is inevitable in 2009. The AMT continues to swallow more taxpayers, the death tax is due to expire for a single year in 2010 and then rise back to 55%, and the Bush tax cuts expire after 2010. This is a perfect storm that means the next President will have no choice but to make taxes a political priority.

It also presents the best opportunity for major tax reform since the 1980s. Even if Democrats retain Congress, Charlie Rangel will run House Ways and Means and he seems open to lower tax rates in return for a broader tax base. Republicans are right to make tax reduction and reform a major campaign theme, and voters who really do want to shake up Washington should consider who'd be best for that job.

By any chance, did you catch Hillary CNBC just a few minutes ago? A performance worthy of a Whirling Dervish.

She’s doing her Clintonian act on her proposed stimulus package and SWFs; on stimulus, she’s got a plan. She blah-blah-blahs on that.

On SWFs, she’s got enough talking points to fill up an entire day, but nothing that sounds like a plan -- or even ones in support of a plan. She just wants to be seen as being concerned about the lack of “transparency” of SWFs, their comingling of political power and investment and that she’d like to see an “international solution” (to what? with what authority? to stop SWFs from buying US assets?).

She’s downright dastardly because as soon as she gets all those rehearsed lines out of her mouth, she lets her voice trail off as she says, “the World Bank and the IMF” (!) but without any spelling out a specific role for them but leaving an impression that they’d have a role (otherwise, why mention them? does she think they might be potential facilitators or regulators? or are they just big words to say?)

Golly, I want a professional narcissist President who sees every potential issue primarily as it affects her but also opinions of her.

Oh, she finishes up by bashing the Countrywide CEO and mentioning a little person by name who is a victim of greed.

If she’s president, the volatility of the markets will set new records.

Thanks to "Irrational Exuberance" for the link.

Posted by Donald L. Luskin at 12:24 PM | link  

Posted by Donald L. Luskin at 9:22 AM | link  

Monday, January 14, 2008

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Sunday, January 13, 2008

Posted by Donald L. Luskin at 11:24 PM | link