-- Posted Friday, 10 August 2007 | Digg This Article
Jim Puplava at FinancialSense.com says "the real big boost to GDP this quarter came from a major drop in the GDP deflator - that's the inflation rate they use to deflate nominal GDP to get at real GDP; and what happened is in the second quarter the GDP deflator went from 4.23% inflation rate in the first quarter, it dropped to a 2.68% inflation rate in the second quarter. And I don't know about you but everywhere I look everything is going up."
I raised my hand to get Mr. Puplava's attention so that I could say, "You're right! And they are using a rate of inflation that is a LOT lower than real inflation, which is raging like a freaking forest fire!"
My intention was to extrapolate from this, and show how this means that we are all freaking doomed, and if anybody wanted the juicy details, then they could subscribe to my newsletter, which I don't have, but if anybody had some cash with which to buy a subscription, then I would take the cash and start a stupid newsletter!
And then in the very first issue I would tell them that not only are we freaking doomed as an economy, thanks to the contemptible Federal Reserve letting the banks abuse a fiat currency, but the subscriber is doubly-doomed, as the new Mogambo newsletter is going out of business after only one issue and I'm taking the money from their stupid pre-paid subscription with me, sucker!
Mr. Puplava, being well-acquainted with The Mogambo, his various get-rich-quick scams and bizarre one-track-mind fixation on inflation, anticipates my intentions and quickly says, "So the real boost to GDP in the second quarter came by the government lowering the inflation rate which they deflated the GDP numbers. So once again, sleight of hand here with some of the statistics they're playing around with the numbers."
He also reminds us of the use of the term "rogue waves", which are deadly forces that "come out of nowhere", which is almost the same as the term "Black Swan", except (as I seem to gather) that one is literally water, and the other is a bird that swims on the water, eats stuff plucked from the water, and poops in the water, proving that swans don't know squat about not drinking polluted water, and I figure that is probably why some of them are born black, if they don't die first.
This interesting "pollution theory" of mine as to why black swans are black is never brought up in the book The Black Swan by Nassim Nicholas Taleb, who touts, instead, just his own theories, and I am sorry to say that my alternate explanation doesn't even get a mention.
The book is all the rage right now, and rightfully so, since the Black Swan occurrence of the mortgage meltdown fiasco, coupled with the timeless message of "The Mogambo was right! The Federal Reserve doesn't know what in the hell it is doing with its whiz-bang General Dynamic Equilibrium economic model, and we are freaking doomed as a result!"
Well, he actually doesn't say it with those exact words, but if you carefully read between the lines, you can tell that that is EXACTLY what he was saying!
Anyway, a Black Swan is defined as an event that has the three required attributes of, "First, it is an outlier, as it lies outside the realm of regular expectations, because nothing in the past can convincingly point to its possibility." For example, The Mogambo (for reasons that were never made clear) moves in next door to you. Who could have suspected?
"Second," he says, "it carries an extreme impact", and finally "Third, in spite of its outlier status, human nature makes us concoct explanations for its occurrence after the fact."
Continuing with our example, I have surprisingly moved in next door, but I am so smarmy and nice to your stupid little face that it is only later, much later when it is too late, that you appreciate the horrible significance of that first day when I pulled up in a rusted-out pickup truck, loaded to the gunwales with my stinking trash-like possessions, and yelled out to the neighborhood "Hey! Which one of you morons thinks he's in charge around here?"
Perhaps inspired by my deftly humorous example, he himself humorously sums up that "the triplet" is, at the core, "rarity, extreme impact, and retrospective (though not prospective) predictability."
"Retrospective predictability!" Hahaha! What a card! How's that old saying go? "A stock market professional can tell you tomorrow why his/her market forecast/stock pick of today was wrong." Hahaha!!
Trying to fit myself into the conversation, I add that I know exactly what he means, and I even know the exact, precise "retrospectively predictable" moment when my whole life went horribly awry, and how everything has been a living hell ever since: It was when a little stick turned blue when it should have stayed pink, and now retrospectively I realize that it actually meant Maximum Freaking Impact (MFI) because now EVERYBODY is screwed! Hahaha!
I notice that nobody is laughing at my joke, so I decided to forego helping him out by making a comment about how he says that Black Swans unfortunately don't have any prospective predictability, either, which even he admits makes them really crappy at predicting things, which is the whole point of predicting things so you can make money by being right in your prediction.
So I sit back down in a sulk, just in time to learn that lest you think that Black Swans arise because some "event" happens, usually something bad, the opposite is also true, and that "The highly expected not happening is also a Black Swan," which shows that "by symmetry, the occurrence of a highly probable event is the equivalent of the nonoccurrence of a highly probable one". And likewise, a Black Swan can be a good thing OR a bad thing for you, too!
By now, I can tell that some of you are thinking "What in the hell is the Big Stupid Mogambo (BSM) yammering about now? I thought he was going to harangue us about the corrupt Federal Reserve, the corrupt Congress, all the corrupt state and local governments, the corrupt Supreme Court, the folly of a fiat currency and the criminality of banks, and then we'd all go out to buy some gold, cruise for a pizza and finally invade a dim, dingy, seedy bar to get loaded on cheap but powerful alcoholic drinks that have 'suicide' in their names!"
If you are one of those people, then hold your horses for a few minutes while I explain that what I am yammering about is that he is eerily prescient when he warns "Beware of precise plans by governments", and specifically "For instance, regulators in the banking business are prone to a severe expert problem, and then tend to condone reckless but (hidden) risk taking."
If you look up "expert problem" in the index, it tells you to "see empty suit problem", which tells you everything you need to know without looking anything up, which is real handy! So thanks, Mr. Taleb!
P.S. To get The Daily Reckoning sent directly to your inbox, sign up for our free email newsletter, or if you prefer to use RSS, subscribe to the Daily Reckoning RSS feed.
Editor's Note: Richard Daughty is general partner and COO for Smith Consultant Group, serving the financial and medical communities, and the editor of The Mogambo Guru economic newsletter - an avocational exercise to heap disrespect on those who desperately deserve it.
The Mogambo Guru is quoted frequently in Barron's, The Daily Reckoning and other fine publications.
-- Posted Friday, 10 August 2007 | Digg This Article
