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Why discussions about complex subjects (like Macroeconomics) are useful for everybody

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January 30, 2011 – Comments (19)

Just a quick thought inspired by a comment.

I am not picking on portefeuille, I really am not. But he made this comment in my last post QE is not Inflationary, Thoughts on Risk Asset Instability:

[I] think I should write about macroeconomics even less than I do about biotech (almost everybody else should do that as well).

I have seen others express very similar sentiments, that talking about macroeconomics is basically a waste of time by the lay person because it is such a complex subject and really takes an expert to fully understand and appreciate the nuances.

And you know what, I don't fully disagree with the viewpoint.

But I would like to offer why I think it is a still useful exercise, at least from my point of view.

I am not an expert on macroeconomics. Not even a little bit. I have a very avid interest in it. I have studied it from the viewpoint of an amateur for years. And I have an analytical mind. I like to follow data. I like to use logic to try to come to conclusions.

My posts are almost always thought experiments. I study a subject that I believe I understand at least at some basic level, and write it down to get it out of my head, to take a step back and examine it. I go one step further and actually post it in my blog because I want to discuss it as well. But I am never trying to pass off my posts as authoritative. Because they are not.

There are true experts here at Caps (Floridabuilder springs to mind immediately) who can really speak from authority. In that case it pays to simply pay attention and not to debate.

I personally learn quite a lot by the discussion and debate of concepts. And I think most are the same way.

Investing (doing Fundamental Analysis on a stock) is kind of in the same category. How many of us can claim the investing knowledge of Peter Lynch? Probably none on Caps at any rate. But should that prevent us from talking about Book Value, Enterprise Value, Discounted Cash Flow, competitive moats, etc.? Absolutely not. Caps thrives on people coming together and discussing concepts above our heads to challenge ourselves to become smarter.

So when I bring up macroeconomic subjects, I am thinking in the same vein. Will I ever become a macroeconomic genius? Will I ever fully understand the US economy? Will I be able to explain complex global economic interactions? Not a chance.

But that doesn't mean I shouldn't talk about it. Because discussing the topic will make me smarter. Even if I start from a place of error, maybe somebody will point me in the right direction. And others will read it and also come to a better understanding.

And I can't see how that's not ultimately useful to the community.

19 Comments – Post Your Own

#1) On January 30, 2011 at 4:48 PM, Momentum21 (96.83) wrote:

I agree that the debate will make one smarter at debating a point of view...or learning truly how much he/she does not know. 

The discussion has proven to be pretty useless from an investing standpoint IMO. All of us will pick and choose what suits our individual bias and move on our way.  

Typically whenever we "choose a side" or get forced into defending our position it is not conducive to being a successful investor. I think we get lost in possibilities vs probabilities and can make some very bad decisions based on feeling that we know how and when something is going to unfold. 

There are people 15x as smart as I, who dedicate their lives to study, who clearly don't have the answers. So simply admitting that we can't add value to the macroeconomic debate has a profound quality that is worth inserting.

I still like the discussion though...especially when I disagree. I think it is healthy to explore all views. So don't stop binve!  

 

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#2) On January 30, 2011 at 5:19 PM, Valyooo (99.64) wrote:

Binve,

I agree with you, however my understanding of what port meant was that this whole website tends to be flooded with blogs saying "bernanke is the worst person in history, america suxx, buy silver or you're an idiot" and then if anybody else disagrees, about 100 people come in and say "NO YOU'RE JUST A MAIN STREET IDIOT WHO FALLS FOR GOVERNMENT PROPAGANDA!!!!!!!!!"  There is no intention to debate in that, just to loudly repeat one's own viewpoint a million times a day, which is, IMO, a waste of time (and also what Peter Schiff dedicates his life to).

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#3) On January 30, 2011 at 11:50 PM, binve (< 20) wrote:

Momentum21,

Thanks! I hear you. I have bias. I know that. But I am honestly trying to set that aside / become less biased going forward. I think this post of mine in particular was trying to be unbiased as possible, and recogizing bullish and bearish developments: here.

I guess I could see it as frustrating that this may never make me a better investor, but I think the exploration will be useful nonetheless. :)

Valyooo,

I hear you. There are macroeconomic rants (and I fully admit that I am guilty of those from time to time) and then there are honest stabs at analysis and the desire to engage in discussion. David (whereaminow) is always ready to engage in a discussion, which is a quality I definitely appreciate.

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#4) On January 31, 2011 at 12:47 AM, Momentum21 (96.83) wrote:

binve - hopefully you understand that I was referring to macro discussion in general and not "your discussion" on anyone else's point of view.

Exploration will make us better investors...I believe that...   

I missed your last blog somehow but gave it a belated rec. Nice...  

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#5) On January 31, 2011 at 5:52 AM, whereaminow (46.24) wrote:

David (whereaminow) is always ready to engage in a discussion, which is a quality I definitely appreciate.

Thanks binve. I try, but there is only so much that can be done sometimes. I also love our chats. I don't think we agree on everything. I think it's great.

I also love this post topic. 

The reason macro is so hard is because the underlying concepts are contradictory. When intelligent people follow a contradictory philosophy they are forced into vagaries. It's left to us to try to figure it out what it is they really mean. But if you understand where the core principles go wrong, you'll never be fooled by them. Confused, sure. Fooled, no.

David in Qatar 

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#6) On January 31, 2011 at 9:01 AM, binve (< 20) wrote:

Momentum21,

I gotcha, no worries man :) We are all on this crazy ride together, we might as well talk about the scenery :) Thanks!

whereaminow,

Thanks David. I think we agree much more than we disagree, but I am glad for that because I think when we discuss where we see things differently, it gives me a chance to either explain myself more clearly or to re-evaluate an unstated assumption and for me to see if it still makes sense. And sometimes I find that it doesn't :)

>>The reason macro is so hard is because the underlying concepts are contradictory. When intelligent people follow a contradictory philosophy they are forced into vagaries. It's left to us to try to figure it out what it is they really mean. But if you understand where the core principles go wrong, you'll never be fooled by them. Confused, sure. Fooled, no.

Amen to that!.

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#7) On January 31, 2011 at 10:03 AM, rofgile (99.33) wrote:

binve:

 I love Macro discussions also and its great that you post on this topic regularly!  I don't think Porte completely avoids thinking about macroeconomics - he regularly posts the German business cycle for manufacturers graph.  

 However, predicting anything on the macro scale is akin to predicting the weather.  You'll be as accurate predicting macro 1 year out as you would be predicting the weather about 1 month out.  Maybe you can get the general temperature right (perhaps 30+-10 degrees F), but you'd be hard pressed to get the details right (rain).  

 Something like the EU debt or Egypt affairs can drastically change things, in just a month.  

 -Rof 

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#8) On January 31, 2011 at 10:09 AM, outoffocus (23.66) wrote:

These discussions would be useless if there werent anything to learn from them.  But I've learned more about monetary policy and history in these discussions than I ever gotten from a college level economics or history course.  I think they are one of the most useful discussion on here.  But maybe thats just me.

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#9) On January 31, 2011 at 10:18 AM, mhy729 (34.09) wrote:

Definitely not just you.  I've learned much from the great bloggers here on CAPS.  It's one of the reasons I always come back to the site.  I don't play the CAPS game much, but there is a lot of quality stuff to read here.

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#10) On January 31, 2011 at 10:40 AM, binve (< 20) wrote:

rofgile ,

Thanks man. You have definitely made some very valid bullish macro observations in the past. I wish I wasn't so bearish that I was ignoring them :) But my New Year's resolution was to become less biased and I am definitely working on that :)

>>I don't think Porte completely avoids thinking about macroeconomics - he regularly posts the German business cycle for manufacturers graph. 

Agreed. IFO does a great job with their business climate index. I have read into it since Porte has been posting them.

>> However, predicting anything on the macro scale is akin to predicting the weather.  You'll be as accurate predicting macro 1 year out as you would be predicting the weather about 1 month out.  Maybe you can get the general temperature right (perhaps 30+-10 degrees F), but you'd be hard pressed to get the details right (rain). 

Agreed :)

outoffocus ,

Great comment! Yes, that is very true. My original thoughts when I started blogging with binv271828 were based on understanding the monetary system. And when I would get to a point where I thought I had a basic grasp on things, somebody would ask a question that i didn't know the answer too. That was what recently let me to explore the Fed/Treasury interaction and how it actually works now (as opposed to pre-fiat days), which has been a theme of my recent posts. In the past I had unknowingly been mixing pre-and-post fiat only concepts together, and I still think a lot of people do that.

mhy729,

Thanks mhy, I agree. There are a lot of smart minds here offering worthwhile observations..

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#11) On January 31, 2011 at 11:51 AM, russiangambit (29.45) wrote:

Well, the starting point of most political debates in the US is : capitalism is good, socialism is bad. Given how these are major macroeconomics structures in existence today one would hope that every american understood the basic macroeconomic principles before jumping to far reaching political conclusions. From that standpoint macroeconmic discussion is  a service to every american.

Now how is this relevant to the investment decisions  - it is not relevant directly but rather in a rather round about way through economic policies of the US economic and societal policies made on the assumption that "capitalism is good" . Then, you have  to , of course, take into accounts actions of the FED which don't really fall into capitalism category but rather into that of communism (but we can't talk about that, can we?). So, we'll just treat FED as a divine entity that acts in ways so mysterious that they cannot be understood or questioned. They are like acts of God brought to you monthly.

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#12) On January 31, 2011 at 12:34 PM, binve (< 20) wrote:

russiangambit ,

>>Given how these are major macroeconomics structures in existence today one would hope that every american understood the basic macroeconomic principles before jumping to far reaching political conclusions.

100% agreed!

I also agree that while discussing macro isn't necessarily relevant to investments in the short tem, I think it is akin to 'eating your brussel sprouts', something that every parent forces their kid to eat because they know it is good for them :) [I actually happen to like brussel sprouts. Roasted though, not boiled]

>> Then, you have  to , of course, take into accounts actions of the FED which don't really fall into capitalism category but rather into that of communism (but we can't talk about that, can we?). So, we'll just treat FED as a divine entity that acts in ways so mysterious that they cannot be understood or questioned. They are like acts of God brought to you monthly.

Lol! That is awesome :)

, ..

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#13) On January 31, 2011 at 1:18 PM, leohaas (36.25) wrote:

"I actually happen to like brussel sprouts."

Now I know why I so often disagree with you!

But not on this issue. Some of your posts here have inspired me to get myself better educated on a topic. As an amateur, of course. The internet has made that easy. Almost too easy, since there is also a lot of misinformation and opinion out there. Some of that ends up here on CAPS as well. And that begs the question: how do you separate the wheat from the chaff?

I don't have the answer to that question!

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#14) On January 31, 2011 at 1:34 PM, binve (< 20) wrote:

leohaas,

Lol! :)

>>But not on this issue. Some of your posts here have inspired me to get myself better educated on a topic.

Right on! Thanks for the acknowledgment. I think Caps is a great forum for lots of economic discussions, and investing is only one them.

>>And that begs the question: how do you separate the wheat from the chaff? I don't have the answer to that question!

Neither do I :(.

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#15) On January 31, 2011 at 1:39 PM, Momentum21 (96.83) wrote:

leohaas - many of the "experts" that you hear on CNBC are knee deep in positions that they are trying to unload or desperately seeking attention to obtain that next consulting gig. The chaff appear on TV for 90 seconds telling you they just went all short as the market is plummeting. : ) 

You are more likely to hear from the wheat posting on CAPS I think...most of them aren't talking to anyone!  

 

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#16) On January 31, 2011 at 1:59 PM, rofgile (99.33) wrote:

Hi Binve,

  Have you read this blog much:  http://macroblog.typepad.com/

  ?

 

  I guess, if you are really into macroeconomics and want to hear the views that come from the "expert" economists, this would be a good one to follow.  It's an interesting one sometimes, though many of their thoughts end up as a question, rather than as a conclusion.  Like - "we found this really wierd non-correlation where it normally has.  We don't know why this is now different...?" 

 -Rof 

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#17) On January 31, 2011 at 2:21 PM, binve (< 20) wrote:

rofgile,

I have in the past, but I can't say that I have regularly. I have put it in my subscription list now :)

I like MacroMan a lot (http://macro-man.blogspot.com/), but it hasn't been the same since MM changed jobs. It's still a good read though.

>>It's an interesting one sometimes, though many of their thoughts end up as a question, rather than as a conclusion.  Like - "we found this really wierd non-correlation where it normally has.  We don't know why this is now different...?"

Lol! I know. I was listening to a really good interview with Robert Schiller about an hour ago and had the same observation :).

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#18) On January 31, 2011 at 2:56 PM, truthisntstupid (94.07) wrote:

So when I bring up macroeconomic subjects, I am thinking in the same vein.  Will I ever become a macroeconomic genius?  Will I ever fully understand the US economy?  Will I be able to explain complex global economic interactions?  Not a chance.

 

This contrasts nicely with the attitude permeating all the blogs by right-wing know-it-alls who think they know more than professional economists.

The ranting, anti-government crowd that's always telling everybody why the whole thing is about to blow up.  Oh, and we should listen to them because sure, the last thirty or forty years' worth of them were overreacting to totally different conditions...but don't we all know this time is different because....?

 NO. We don't.  Harry Browne's book How You Can Profit From The Coming Monetary Crisis first began showing up on bookshelves in the seventies, or at least the early eighties.  

We're still here, and we'll still be here tomorrow.

I agree with valyooo. 

 

Momentum21:

There are people 15X as smart as I, who dedicate their lives to study, who clearly don't have the answers.

 Thank you.

 

 And then there are the ones who seem to think they are smarter than those people, who clearly do think they have the answers, and shout down any who disagree, call them names, and insult them.  

As Valyooo said, anyone who disagrees is told, "You're just a main street idiot who falls for government propaganda."

 ....while they themselves are just part of another crowd falling for different propaganda, or worse, falling for propaganda of their own creation in their grandiose belief that they know more about the complex matters they post about than people who have spent their whole lives studying them.

 I believe that in a complex subject with so many hard-to-reconcile underlying concepts and principles, maybe the people who claim to have the answers are precisely the ones that should be ignored.

What if some of the public figures that the know-it-alls are always busting on once held views similar to theirs, and years more of hard work and study have caused their beliefs to evolve into what they are now based on more knowledge?

Yet their detractors think we should listen to them.  They may be at a stage of development those they want to tear down have already passed through, but we should listen to them.

Bull___.

 Unfortunately, some of the people attracted to posts on macroeconomics drive others away.  I don't usually even click on them anymore, because I have no respect for some of these people.  Some of them I once did, but that was before I knew them better.

 

And as everybody knows, the ridiculousness of many of their views isn't confined to macroeconomics, either.

This is why I personally don't like posts on macreconomics.  I have not seen any reason to personally dislike you in any of your posts, Binve.  You seem to be very likable.

But posts on macroeconomics bring the nuts out.

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#19) On January 31, 2011 at 3:34 PM, binve (< 20) wrote:

truthisntstupid,

>> I believe that in a complex subject with so many hard-to-reconcile underlying concepts and principles, maybe the people who claim to have the answers are precisely the ones that should be ignored.

I agree.

I think the real issue at work is the 'unexactness' of economics. Valuation is an inherently subjective activity, as I was exploring in this post last year: http://caps.fool.com/Blogs/regarding-economic-debates-and/305849. I think it is very refreshing when I hear an economic authority acknowledge that. 

>>This is why I personally don't like posts on macreconomics.  I have not seen any reason to personally dislike you in any of your posts, Binve.  You seem to be very likable.

Thanks :)

>>But posts on macroeconomics bring the nuts out.

:).

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