Babes in Trade-Land

October 14, 2008

No one can say for sure just how long, or how deep, the current financial crisis is going to be.  While we’re all hoping that Fed Chairman Ben Bernanke doesn’t have to put his expertise on the Great Depression to much use, it’s unclear whether the massive bailouts being announced by European governments and the US will have a lasting impact on the free fall in the stock markets, or put a stop to the domino effect in the banking business which is pulling down one big name after another.  Having spent most of the past 12 years studying financial crises in emerging market countries, my suspicion is that bailouts are temporary salves which allow markets to rally for several days, before the gloom and doom takes over market sentiment again, and stock and currency values continue to decline.

But counteracting my gloomy forecast is an alternative metric of how long the crisis will last.   A new contention in political science is that markets do a better job of predicting who will win elections than polls.  These days, you can bet on who you think will win an election.  The argument is that bets on winners and losers are more accurate than polls because people only put money down when they feel strongly about something, whereas polls are notoriously susceptible to wishy-washy sentiment.

Similarly, I think that I might have found a new way to figure out how long people expect the financial crisis to last.  You can ask people how they feel about the economy (consumer confidence indexes do just this), but if you really want to know how they feel about the medium term prospect of the economy, you should look at their behaviour.  Specifically, are they buying houses?  Investing money?  Having babies?  Indeed, having babies might be a particularly good indicator as to whether people are generally optimistic or pessimistic about the future because who would want to bring a life into a world of financial ruin and economic depression?

And so, I think that I can precisely pin-point when we will find the end of the financial crisis.  The last week of March / first week of April, 2009.  During those two weeks, 4 of my good friends are expecting to have babies.  A remarkable coincidence of fertility planning, or an indicator that good times are coming? Well, I know that my forecast is based on a small sample by social science standards, but 4 couples out of my total population of close friends is a relatively large percentage of total friends.  And so I’m relatively confident in predicting that however bad this thing gets in the next 6 months, it won’t last much longer than that.   If I can only convince a bunch of traders that this is a statically significant trend, I’m sure I can solve the crisis single-handedly (or, more precisely, with the help of 8 new parents and their little ones).

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4 Responses to “Babes in Trade-Land”

  1. […] minutes or so without cease.  I don’t know what the heck they are ringing about (maybe the financial crisis is over?) but they’re definitely bad for the serious kind of thinking that’s supposed to be […]

  2. […] still in virtual meltdown and economies everywhere are slowing down (despite my previous optimistic predictions), two fashion oriented indicators have been offered by The Economist and The Independent.   The […]

  3. […] the autumn, I made a little forecast about the potential duration of the financial crisis, the severity of which I have always been a […]

  4. […] the autumn, I made a little forecast about the potential duration of the financial crisis, the severity of which I have always been a […]

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