Given the serve regularly dished out to the broader business media at MacroBusiness, I thought it only fair that I cast my eye over the performance of MB commentary for the past eighteen months, with a view to finding the pros and cons. It is a rule in media that you never draw attention to your own mistakes, which is one reason why it is so often wrong. So we don’t want to go down that path.
I’ll begin with the Unconventional Economist (UE) who has covered housing for the blog from the outset. It is not easy to find fault with UE’s coverage. His basic thesis, that Australian housing is stuck in a long, slow melt has so far proven to be the most accurate assessment of the property market in the professional community. His call to sell Melbourne property, made in April last year, has been especially accurate, as has his assessment of the resilience of the Sydney market.
While other housing prognosticators have flopped around from bullish to bearish and back again, UE has had a steady hand, clear frame of reference and forecasts. If I have a criticism of UE it is that he, like me, sometimes let’s some of the comments get under his skin.
Next up is Delusional Economics (DE). For the early part of last year, DE was more in the dramatic fall for Australian house price school. He has to date been proven wrong on this, although he has always acknowledged and followed the data flow. Along the same lines, DE was also too bearish on bank balance sheets. He thought we would see more bad debts by now because he underestimated the China inflows.
In other areas of analysis, DE has rocketed to fame, literally, in the global media. It is quite fun to watch the multilingual email openings of the MB newsletter late every afternoon as Europe wakes up. And who could blame Europe for turning to DE for advice? His sectoral balances approach to the outcomes of European policy has been world beating. Which is why he has been referenced by Martin Wolf and is syndicated every night in New York.
In his European coverage, DE could be criticised for failing to acknowledge the possibility of an equity market recovery following the LTRO late last year. But it must be recalled that DE is a macro observer, not an equities strategist and his assessment of the failures of the LTRO has been proven very much correct within a very short timeframe.
Another of DE’s successes has been his analysis of public balance sheets in Australia. The same sectoral balance approach that has illuminated Europe has enabled him to foresee the nation’s struggle to find a surplus.
Third, there is The Prince (TP). TP’s overarching thesis for the equity market, that we are caught in an historical secular bear market, which will contain smaller cyclical bull markets, has also proven to be the most accurate description of the past eighteen months of equities action that I know of. His “Trading week” post on Saturday’s is the best technical assessment available of the Australian share market in context.
On the red side of the ledger, TP has made a couple of loss-making calls on specific equities. JB HiFi springs to mind. But anyone reading his broader portfolio strategy pieces will know that these losses are accounted for by hedging and barbell structures. Notwithstanding the fact that making equities calls always comes with downside.
Fourth is Deus Forex Machina (DFM). DFM sports the best blogger name in the group but for some reason he hates it. DFM’s core skill set is currencies and macro and that has shown in his successful call last year, ahead of all others in the market, that the Australian dollar had topped at $1.10. He has also this year led the market in calls to the downside and still reckons we’re going to the low 80s on the dollar in the cycle ahead. Before you doubt him, it was DFM who successfully called the Australian dollar would fall below 50 cents in the late nineties when others considered it lunacy.
His assessment early last year of the RBA’s bias to raise rates was also market leading. As were several of his calls for rates to not move when the rest of the world was swept into the bullhawkian inflation panic mid last year.
On the potential downside, DFM recently made a call that Australia is at risk of recession in the foreseeable future. This call was made before the big first quarter national accounts number was out so at this stage appears shaky. But do not forget, the call was made on the basis of the April/May data flow, after the first quarter, so it remains to be seen whether the scenario plays out.
Fifth is Deep T. (DT) For those seeking to unravel the mystery of how Australia can support such a glaring housing bubble with banks that appear to be conservative on traditional measures, Deep T. has unlocked the secret in his work on Basel II capital rules and internal risk models. It is no exaggeration to say that this is the most important material so far published at MB.
Deep T. has also been the most bearish property commentator on the blog. So far, his worst fear have not been realised, but it must remembered that DT is a systems analyst, not a property forecaster. He would argue that he will ultimately be right based upon the systemic vulnerability that he sees. But, not so far.
Lastly, of course, there is me, your not so humble editor, Houses and Holes. I have shared UE’s outlook on housing, for a slow melt that will go on, based upon my theory of managed disleveraging. My other obvious Australian successes have been to provide understanding of two imbalances, one old and one new. The old is the importance of offshore borrowing by the banks, including describing the role of ratings agencies and restrictions imposed upon the Budget by bank guarantees. The new is our rabid dose of Dutch disease, which will get us in the end, even if we’re the last know about it owing to the re-education of our press.
My other success has been the US economy where the thesis of a long, grinding recovery, is so far playing out. At times I have gotten overly bearish on the chances of double dips based upon fiscal consolidation but at other times have called perfectly the role of inventory cycles within manufacturing.
I’ve also had fair success with my forecast that Australia faces a long period of sub-trend growth. I was right for all of last year but obviously missed the strong first quarter result this year. Honestly, however, given much of that growth was the result of an unsustainable -1 deflator, I’m still comfortable with the longer term call.
On the red side of the ledger I have, at times, paid too much attention to second tier data. This led me to believe in September late last year that by now unemployment would be above 5.5%, headed for a peak around 6%. It may also have led me, like DFM, to get overly bearish in April and May. There is a clear slowdown underway in the economy, reflected in yesterday’s RBA Minutes, but how bad it is is an open question.
I’ve had other shortcomings. Sometimes reading the national business press had led me to anger. As a result I’ve been harsh on some folks and rewritten posts when I’ve calmed down (including this one!). Though these have always been issues of tone not substance. On comments I can get too heated as well. I have no defense for this except to say I’m passionate about good media and can’t find enough of it.
Still, at times the indignation in my writing borders on insufferable.
So, there you have it. A mixed record to be sure, but with more black than red.
