Taxidermist Time

Clem Sunter outlines some scenarios and gives them probabilities. I’d stay as far away from this assessment as possible. In his explanation he demonstrates several times a pretty flimsy, superficial understanding of economics.

I don’t think he knows the first thing about why unemployment rates have dropped in the US.  He points to the dip as if it’s a bad thing, not recognising that the labour force participation rate is still stubbornly abysmal. The unemployment rate is going down in part because of increased discouraged workers removing themselves from the labour force through not actively looking for work.

His comments on low US interest rates completely miss that low long-term interest rates are a sign of a deeply depressed economy with a poor multi-year outlook on not a sign that the US is managing it’s deficits responsibly.  Many countries, including the UK, Germany, Japan, Switzerland and the US are basically at all-time low interest rates – a function of the poor economic prospects and low-inflation / deflationary expectations this amounts to.

The comparison against Japan is interesting in that it omits that the US is performing worse over the start of its “lost decade” than the Japanese did. We’re already in the scenario he gives a 40% probability

He talks about the remote possibility of Spanish and Italian bond default, without recognising that right now, today, Spanish bond yields are as high as they were during the height of the Global Financial Crisis and Spain has several banks in real trouble. The ongoing “jog on the bank” or near Greek exit from the Euro don’t even get a mention, even though they are some of the greatest Clear and Present Dangers to his global economic scenarios.

No mention of the fatal flaws in the design of the Euro and how this needs to be resolved, no mention of banking liquidity, a completely missed estimate of the message in ultra-low interest rates around the world?

This fox is ready for the taxidermist.

Published by David Kirk

The opinions expressed on this site are those of the author and other commenters and are not necessarily those of his employer or any other organisation. David Kirk runs Milliman’s actuarial consulting practice in Africa. He is an actuary and is the creator of New Business Margin on Revenue. He specialises in risk and capital management, regulatory change and insurance strategy . He also has extensive experience in embedded value reporting, insurance-related IFRS and share option valuation.

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