All that glitters

With current volatility and market confusion, one can find data points supporting arguments for both deflation and inflation up ahead. My current view: Given helicopter Ben being a student of the Great Depression and not being hampered by a gold standard, coupled with quantitative easing (printing), the probability of deflation is close to zero, with inflation being the big risk.

Ok, so perhaps that is obvious, but less obvious is whether gold is an appropriate inflation hedge today. Regardless of what turns out to be correct, this is a topical context with which to test argumentation, reasoning and decision making, and what better way than to have two heavyweights in the ring.

First up a Wall Street Journal article: (read it here)

Then the iTulip rebuttal: (read it here)

We live in interesting times!

Expertitis

Just about every human decision about the future is tainted by a gap — the difference between what we think we know and what we actually know. The more expert we are, the wider the gap is likely to be. — Nassim Nicholas Taleb

In an earlier post in 2007 I stated: "To keep perspective I try remember that professionals built the "unsinkable" Titanic, while amateurs supposedly built the arc." OK, so there was no arc, but it's a useful analogy to keep in mind to be weary of experts.

The "quants" have taken an intellectual hammering during this financial crisis, and rightly so. Many were running models with data set of less than 10 years coupled with flawed assumptions that distributions are always Gaussian!

Here is a classic summary of a series of experiments proving the dangers of expertitis: http://www.strategy-business.com/enews/enewsarticle/ac00001