Is Economics rubbish? (serious discussion)

Negative economics posts appear focused on trading 'a' stock.
Never having studied economics I find the subject to be a large void in my understanding of how 'finance' works; as a chartist, relating everything not originating on a chart as 'fundamentals' — the uneducated man's term for economics.

For me this article is an example of 'economics', examples of 'trading' not limited to 'a' stock, examples of 'economic strategy 'trading'':
http://www.trade2win.com/knowledge/articles/general_articles/canary-correction-one/

So, who uses economics for profitable trading ? and, please provide examples.
 
Quote from Remiraz:

Yes.



Well, economists and rich traders aren't a very common association. Futhermore, I read of the trading failure of people like John Nash, one of the greatest economists of our time.
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Jhon Nash is a mathematician not an economist. He got the nobel on economics because of the applications of his equilibriums to economic theory, but that wasn´t his intention when he wrote the theory.
 
Rich economists who do make money trading introduce themselves, especially to women, as "traders" or "fund managers".

Well, what would you do?

Robert Rubin was an economist, and wasn't he on the board of Citibank?


How about this economist who recently snaked out the options backdating of all sorts of executives?

He got a big promotion and new job at a fancy school, and now he will be a very highly paid expert witness.
 
Quote from Remiraz:

For mathematical/quantitative Economics to be a viable field worth developing, it has to possess some analytical merits.

On the other hand, if Economics is a viable mean of analyzing the economy, it would be a viable mean of making money in the markets. (Analyze economic changes/policies, bet on the outcome. Interest rates, debt, currency valuation etc)

Are economists rich traders? Probably not. Which imply that economic analysis might be no better than random. This means it is not a viable academic field of study.

A paradox of sorts? If Economics is rubbish, why does the field exist in academia? If Economics isn't rubbish, it would defeat the Efficient Market Hypothesis and make Economics are must have education for traders.

Since rich traders aren't economists, economics is thus rubbish?
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Like trading, economics is a social science. There are theoretical, abstract, frameworks within which markets operate. There are no hard and fast rules that say when so and so number comes out high, this or that tradeable security will do this or that.....

I've always been quite skeptical of models that attempt to define risk precisely in markets. Trading risk, in my opinion, is not something that can be quantified. There are numerous examples of hedge funds whose models produced very "low risk" trading opportunities but whose funds ultimately failed (LTCM is a very popular example.....in fact, LTCM calculated that what happened to them in 1998 was a 1 in 100,000,000 probability since they hedged many positions against many others and nearly all such spreads widened at the same time (i.e. the probability of one widening is low but the probability of all of them widening at the same time is "statistically impossible"......and we all know what happened to LTCM).

I'm just saying that RISK is RISK......there is always risk of nearly complete loss no matter what statistical models tell you....

I do concede that my viewpoint flies in the face of what the rest of the hedge fund industry tends toward believing. I think of it this way: In 1996, LTCM would have told you that their trading operations are extremely low risk despite the leverage they were using to hedge their positions...there's no way in the world, they would tell you, that all of their hedges could produce losses at the same time......two years later, they would have to beg to differ...i.e. their models were wrong
 
Quote from DrChaos:

Rich economists who do make money trading introduce themselves, especially to women, as "traders" or "fund managers".

Well, what would you do?

Robert Rubin was an economist, and wasn't he on the board of Citibank?


How about this economist who recently snaked out the options backdating of all sorts of executives?

He got a big promotion and new job at a fancy school, and now he will be a very highly paid expert witness.
More...

I always introduce my self as speculator....."trader" has a very bad connotation to it these days...
 
O.P., I reply to you without having read the entire thread to date, but as more of a personalized answer to your discussion point.

You use some interesting logic in your beginning post (not the most sound, but interesting). It all depends upon what you classify as "rubbish" I suppose. It sounds more like you are trying to put economics in more of a "hard science" category. If you are, you are erring in doing so.

Example, medicine is a well established discipline in both academia and the practical world as we know it. The practice of medicine is based upon many hard sciences such as chemistry, biology, etc... With all that being said, many (if not most) doctors consider the practice of medicine an art. Ever hear of the "Healing Arts"? I should think (at least I hope) you think that medicine is worthy and definitely not "rubbish".

Economics is much the same. Many of the tools economists use are definitively mathematical and statistical indeed, but to pigeon hole economics into a "hard science" category is pretty difficult and probably most (if not all) economists like to approach its practice from a more philosophical angle as well.

I for one (definitely not an economist), don't consider economics rubbish. I also think you err in your logic when you seemingly place value only if profits can be derived from economic theory, its interpretation and pursuits. You see markets aren't economies either. So to say that an economist can predict the markets is kind of a reach. I do believe they can predict the markets such as that a weather man can predict the weather (hope you have a good local weather guy). They can put you in the ballpark, definitely not on spot (definitely not all the time).

Your initial question kinda goes along the lines of asking people "Why are you going to college?" Some may state to make more money in life while others may state to pursue an area in which I'm interested and foster sense of self-development. Now is one more of a valid reason than the other? Maybe, maybe not, but I would find it hard to call a higher education "rubbish" or a person that has one a loser unless they achieved a certain level of earnings power (put that right along valuing a person due to the amount of 0's in thier paycheck). Some things in and of themselves are sufficient justification for their pursuit and validity.

Any student of philosophy will be very familiar with that concept.

Just my .02, thanks for the discussion.
 
I have to agree.
Economics, both micro and macro, are larger than any market. They are the forces behind the market, what moves the markets, at least in part. Because the markets´supply and demand patterns depend not only on tangible results, and measurable outputs.
People aren´t always rational, they make decisions that are not in their best interest, they panic, they get emotional; and it is people that make up both supply and demand for a market.
It´s imposible to simulate the complexity of human emotions into a mathematical model, specially one that simulates the behaviour of millions of people.

Perhaps someday. But not yet.
 
Quote from Bond-Speculator:

There are numerous examples of hedge funds whose models produced very "low risk" trading opportunities but whose funds ultimately failed (LTCM is a very popular example.....in fact, LTCM calculated that what happened to them in 1998 was a 1 in 100,000,000 probability since they hedged many positions against many others and nearly all such spreads widened at the same time (i.e. the probability of one widening is low but the probability of all of them widening at the same time is "statistically impossible"......and we all know what happened to LTCM).
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This is exactly why some people say that economics is rubbish. What happened to LTCM was NOT a 1-in-100,000,000 fluke. These types of events happen all the time. Any cursory analysis of historical price action will prove that big moves happen more often that expected under simplistic statistical risk models, that imbalances in markets persist longer than expected, that structural relationships shift unexpectedly, that "animal spirits" make a mockery of many current "rational" models of the market.

As a Swedish Army Training Manual said: "When the terrain and the map disagree, trust the terrain." This motto is also the basis for any true science -- if a theory creates flawed predictions (e.g., that what happened to LTCM was a fluke), you reject the theory, not the data. Yet rather than admit that their models are deeply flawed, many economists keep insisting that they are correct.

One of the reasons that economists cherish their flawed theories, make bad traders, and are said to have predicted seven of the last 4 recessions is that many in the field have an ideological bias -- believing fervently that the world operates according to their left-wing or right-wing visions. Like any dogma, they would rather ignore the data than reject a deeply held belief about the world.

Maybe, some day, economics will be better at prediction. As one economist said, "The field of economics advances one funeral at a time."
 
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