Making Predictions

Can anyone predict the future? Weatherpeople are routinely called on to tell us more than just what happened today- they are supposed to say if it’s going to rain and what temperature we can expect. Sportscasters have moved beyond a blank reporting of the Vegas line, say the Dolphins +4, and are expected to put themselves on the line with a solid call every week.

Not economic reporters. When there’s a lot of money on the line no one is willing to stick their neck out and tell you just what will happen tomorrow. That’s especially strange when you realize that a free market economy is all about balancing risk and reward, which is to say at some point boiling it all down to a solid prediction as to how likely an investment is to come in versus the possible gain from it. Business and economic reporters usually get a pass that the weather and sports people must only dream about. But that’s ridiculous.

Barataria is all about making a prediction and standing by it. Let’s refine that model a bit.

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Too Many Dollars, Too Few Dollars

What is the real rate of inflation? The official Consumer Price Index (CPI) is calculated with a basket of goods that are supposed to reflect the economy as a whole. There are over 200 categories of consumer goods that make their way into the CPI, including health care, airline travel, clothes, education, and so on. The price of this basket of goods is checked from one month to the next and it’s all added up to produce the CPI.

There is one big problem with this, however – not everyone buys the same goods. On average, over the whole economy, it’s about right. But people who have very little money don’t fly, go to the doctor as often, pay for school, and so on. Charles Gave of GaveKal Dragonomics came up with his own measure of inflation, modeled for the poor, and found some surprising results – and a correlation that spells trouble for the nation’s poor for a long time to come.

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Yellen’s Dashboard

How will we know when the economy is turning the corner towards real growth? Everyone has their own answer, but Fed Chair Janet Yellen told us last March what she has on  her “dashboard”. As the most powerful person in the financial world, and probably the whole world, her opinion counts more than most. With the arrival of another piece of data on where we stand right now in the second quarter of 2014 (2Q14), it’s time to check in on how we’re all doin’.

What we see is that we’re making some substantial progress, but we still have an awfully long way to go before we can say we’re close to the last time everyone felt remotely flush, which is before the arrival of what Barataria calls a “Managed Depression”  at the end of year 2000.

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Revisions

This was supposed to be the year that the economy turned the corner, building on the foundation laid in 2013. It isn’t happening. The final revision to first quarter Gross Domestic Product (GDP) growth came in at a stunning -2.9%. Is it time to panic?

Nearly everyone agrees that it’s a statistical aberration, so the answer appears to be no. But we’re certainly not enjoying the economic growth that was expected this year. The economy is giving mixed signals at best, leading everyone to wonder if maybe we’re really just treading water after all.

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Wealth is How You Feel

With Brazil hosting the World Cup and clearly looking for more from their economy and society, this is a good piece to re-run from last year.

Around the world, two stories have been consistent since 2008 – the developed world is struggling with a depression while the developing world largely charges ahead.  The two worlds have never been so far apart as the careen towards similarity.  But in this hemisphere, three stories have come to show where it all comes together – how “wealthy” is what a nation feels more than how it is.

Forget how Japan and Europe are wallowing in desperation for a while – on this side of the big ponds things are happening.  It may be slower than anyone wants, but change is happening.  The reactions to that change show that my favorite saying is still true – that while people are people, cultures are cultures.  Wealth, or at least the feeling of wealth, is a state of mind.

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