An interesting article today about bubbles and ‘data’. An excerpt:
“The advertisement warns of speculative financial bubbles. It mocks a group of gullible Frenchmen seduced into a silly, 18th-century investment scheme, noting that the modern shareholder, armed with superior information, can avoid the pitfalls of the past. “How different the position of the investor today!” the ad enthuses. It ran in The Saturday Evening Post on Sept. 14, 1929. A month later, the stock market crashed.”
The lines that caught my eye:
“‘The mainstream of academic research in macroeconomics puts theoretical coherence and elegance first, and investigating the data second,’ says Mr. Rogoff. For that reason, he says, much of the profession’s celebrated work ‘was not terribly useful in either predicting the financial crisis, or in assessing how it would it play out once it happened. People almost pride themselves on not paying attention to current events,’ he says. In the past, other economists often took the same empirical approach as the Reinhart-Rogoff team. But this approach fell into disfavor over the last few decades as economists glorified financial papers that were theory-rich and data-poor.”
That is why I put my books out there against all comers: the data. Theories are great, and I like trend following theories, but if there was no performance data backing it all up — it’s academic junk science.