The Political Economist

This article was first published on Seeking Alpha on July 15th 2021 . This article contains updated graphs for the subsequent month and a half (a new version will look at the situation again in October).  A lot of investors and analysts like to look at various stock market indicators for signs of widespread market hubris, overconfidence, greed (&  fear ), or an upcoming contraction. Many like to point out that stock valuations are at their extremes, particularly in the tech sector, or that, for example, the Shiller PE ratio is running at a 39 multiple (the only time it was higher was prior to the 2000 dot-com bust). Many such indicators certainly have merit for uncovering sentiment, and while they can be good indicators of whether a bubble is reaching its climax (e.g. the Shiller PE ratio), whether a market is overheating, or that a correction is due, a much better indicator of an upcoming contraction is the bond market.  This is not only true historically (e.g....

The US National Bureau of Economic Research (NBER), the official tracker of the US business cycle, declared that the recession in the country started in February 2020 . According to NBER February was the peak of the business cycle as jobs already started disappearing (even though the huge COVID-driven unemployment claim spikes didn’t happen until mid-March ). Over the next month and a half over 42 million Americans found themselves out of work. The official unemployment rate shot up to 14.7% in April (it was 3.5% in February), and has declined back to 10.2% in July, as a more encouraging sign of a recovery driven by business re-openings. Due to the effects of COVID-19 the uncertainty in the economy is still huge, and is still the biggest it has ever been according to the Economic Policy Uncertainty Index . Almost every graph we see during the pandemic has a label “unprecedented” attached to it; we are usually looking at a very steep exponential curve facing up (for unemployment, unce...

Talk about Black Swans , 2016 was full of them! From elections to markets, from hacking to terrorist attacks, it was one unexpected event after another. Each a complete shocker in its own way. Especially in sports and politics.  Portugal winning the Euro  football tournament, Leicester winning the Premier League , Britain coming in second at the Olympic game medal count , or the Chicago Cubs winning the World Series  were as big as Black Swans as Brexit or Trump.  It goes without saying that a year of Black Swans was a terrible year for forecasters. Even the biggest names of the 'industry' have stumbled and failed to predict the biggest disruptive events of the year: Brexit and Trump. Not my company . We got Trump spot on . Just to remind my readers, we called 47 states including the most important swing states like PA, FL, NC, and OH for Trump. Our unique prediction method , that was further perfected since Brexit, has hit bull's-eye! Our almost perfec...

First of all apologies to my regular readers for not presenting our results here sooner. It's been overwhelming in the past two days - first with the prediction, then with the results, and then with the post-election frenzy.  Anyway, we gave an almost perfect prediction ! Not just a Trump victory, but also all the key swing states (PA, FL, NC, OH), and even that Hillary could get more votes but lose the electoral college vote. Here are our results as I presented them in a Facebook post on the eve of the election: For a more detailed explanation read our blog . The method is described there in greater detail, plus we call all the states. The story got covered first by the academic sources. My own University of Oxford published it as part of their main election coverage , as did my alma mater, LSE on their EUROPP blog . More news coverage soon to come! Details of our prediction  The results nevertheless came as an absolute shock to many, but it was...

My article got published today at the New Scientist ! One of the biggest science magazines in the world. See the text here ( there is no paywall, you just register and read it for free ). It was even on the front page: New Scientist website front page 03 Nov 2106 The text is about the scientific experiment behind our prediction survey . It starts by examining why the pollsters are getting it wrong lately and whether or not there is any science at all behind polling. Then it introduces our prediction survey idea and how we're doing an experiment on US elections to see whether or not science can actually improve polling.  For those who don't bother to register in order to read it on the New Scientist webpage, I have copied the text here (enjoy!): As US election looms, time is ripe for a new science of polling "Growing scepticism about traditional methods for predicting election outcomes is fuelling a search for a more scientific approach to polling, says Vuk ...

Is it possible to have a more accurate prediction by asking people how confident they are that their preferred choice will win? One consequence of this hectic election season has been that people have stopped trusting the polls as much as they did before. Which is surprising given that in the US, unlike the rest of Europe, pollsters and particularly polling aggregation sites (like FiveThirtyEight ) have on aggregate been quite accurate in their predictions thus far. Still, one cannot escape the overall feeling that pollsters are losing their reputation, as they are often being accused of complacency, sampling errors, and even deliberate manipulations. There are legitimate reasons for this however. With the rise of online polls , proper sampling can be extremely difficult. Online polls are based on self-selection of the respondents, making them non-random and hence biased towards a particular voter group (young, better educated, urban population, etc.), despite the efforts of ...

This week my colleagues and I from Oraclum were focused on predicting the outcome of the forthcoming Croatian general election. We did the same thing last year and were not expecting to do Croatian elections again, at least until the local elections in 2017. However, the new government - formed after almost 2 months of post-election negotiations - survived in office for only 6 months. Last year there was no relative winner as the two main coalitions, led by the conservative HDZ and the social-democrat SDP both came tied with 56 seats (76 needed to form government). The biggest surprise was a centrist party MOST which grabbed 19 seats making it the kingmaker party, with a number of smaller parties entering Parliament as well. The new election is to be held this Sunday, and so we ran our unique BASON Survey ( Bayesian Adjusted Social Network Survey ) over the past week to feel the vibe of the voters and make our election prediction. A little bit about the survey before we share ...

On yesterday’s historic referendum , Britain has voted Leave. It was decided by a small margin, 51.9% to 48.1% in favour of Leave, with turnout at a high 72.2% ( highest since the 1990s ). The outcome dealt a decisive blow against PM David Cameron who announced his resignation in the morning. The markets have had a strong negative reaction, with the markets plummeting , and the pound sharply declining to its 30-year low against the dollar. It was an outcome the markets failed to anticipate (or were hoping to avoid), which explains the investors’ abrupt reaction s. Read the initial reactions:  The Economist is in state of disbelief, trying to find a solution, and describing what happens next (invoking Article 50 of the Lisbon Treaty). They also have this interesting piece on the fallen legacy of David Cameron . The FT dreads about "Britain's leap into the dark" , and keeps warning on the negative economic consequences . Martin Wolf also had a good comment. The BBC...