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"Hello and good evening... Except it's not a good evening is it?
Let me explain why for the next 30 minutes, and then hand over to my colleagues, who will continue explaining 24 hours a day, 7 days a week.
Our first story tonight...
The world is actually ending and we're watching it happen BEFORE OUR VERY EYES"
👆 Accurate, and definitely not exaggerated media representation 👆
If you're reading this, it's fair to assume that you've got a curious mind, and want to know more about how things work
You probably watch/read the news in one form or another and try to stay informed...
But you might have noticed that yesterday's fears & concerns no longer apply today, and it's increasingly hard to keep up with 'the news', and maintain your status as a responsible, informed citizen of modern society.
Even within our limited circles of competence there will be knowledge gaps and no-one's responsible 100% of the time, that's just the way it is.
Is there anything we can do to change that?
Let's test it.
First we'll look at how 'the news' works and then we can figure out how to navigate these choppy oceans of information.
Now more than ever, speed beats detail.
Every journo wants to be the first to break a story.
The final stages of the Brexit talks were a great example. Every day a journalist would pre-announce a story on Twitter:
BREAKING: Barnier says NO DEAL, full story shortly!!
By the time the full story came out barely anyone cared about the details.
The tweet/headline had gone viral and been shared thousands of times across multiple platforms.
BREAKING NEWS tickers went into overdrive 🔥
And then, a little later, context would be added by other users & commenters...
After this, the cycle would move on to analysis (TV, wider media, talk shows)...
Figures of authority would be asked for their opinion or comments (which feed back in to the BREAKING NEWS part of the cycle)
FARAGE RESPONDS TO BARNIER'S NO DEAL THREAT, SAYS IT WOULD BE THE BEST OUTCOME FOR BRITAIN
Journos jump on Barnier for his response, we see images of Farage waving his little Union Jack flag while others weigh in with their opinions and the whole media circus keeps on cycling.
We now know there was a deal.
So all of those stories lost relevance and the zeitgeist moved on.
Being around the markets is a great way to build a deeper understanding of how the world actually works. (Usually if things truly matter, money moves...)
Personally, there are still plenty of holes in my knowledge, but I have been able to develop a framework to interpret the news as I receive it.
Let's take this EU recovery fund example 👇
Sounds like it could be quite a big deal, right?
But it was not the first time the German court had come into conflict with the EU or ECB, nor will it be the last...
Part of my model for any news involving the EU.
- National laws and European laws frequently conflict with one another, yet a compromise is usually reached.
This is how things usually work in the EU.
Rules are made to be broken, unhappy compromises are reached, rinse & repeat...
A future battleground will be the EU fiscal rules, so keep an eye out for that one
Many EU nations didn't stick to the rules before, and nothing happened.
Why would it be different next time?
One of the biggest rules for understanding the news is that almost none of it matters.
Society will keep on stumbling gradually and messily forwards, the worst outcomes are usually avoided and change happens slowly...
We've established that building up a framework of how things usually work is important, how about some guidelines for the framework itself?
The Macrodesiac Veteran has us covered.
He recently shared these rules for forecasting from the CFA Institute blog.
Even if you're not personally in the business of forecasting, these are useful guidelines to understand the forecasts of others:
1. Data matters
We humans are drawn to anecdotes and illustrations, but looks can be deceiving. Always base your forecasts on data, not qualitative arguments.
Euclid’s Elements was one of the earliest texts on geometry, yet none of its oldest extant fragments include a single drawing.
Torture the data until it confesses, but don’t frame the data to the story. The data-mining trap is easy to fall into.
Start with base rates. The assumption that nothing changes and that an event is as likely in the future as it was in the past is a good starting point, but not the end point. Adjust this base rate with the information you have at the moment.
2. Don’t make extreme forecasts
Predicting the next financial crisis will make you famous if you do it at the right time. It will cost you money and reputation at all others. Remember that there are only two kinds of forecasts: Lucky and wrong.
3. Reversion to the mean is a powerful force
In economics as well as politics, extremes cannot survive for long. People trend toward average, and competitive forces in business lead to mean reversion.
4. We are creatures of habit
If something has worked in the past, people will keep doing it almost forever. This introduces long-lasting trends. Don’t expect them to change quickly even with mean reversion. It is incredible how long a broken system can survive. Just think of Japan.
5. We rarely fall off a cliff
People often change their habits in the face of a looming catastrophe. But for that behavioral change to occur, the catastrophe must be salient, the outcome certain, and the solution simple.
6. A full stomach does not riot
Revolutions and uprisings rarely occur among people who are well fed and feel relatively safe. A lack of personal freedom is not enough to spark insurrections, but a lack of food or water or widespread injustice all are. The Tiananmen Square protests in China were triggered by higher food prices. So too was the Arab Spring.
7. The first goal of political and business leaders is to stay in power
Viewed through that lens, many actions can easily be predicted.
8. The second goal of political and business leaders is to get rich
Combined with the previous rule, this explains about 90% of all behavior.
9. Remember Occam’s razor
The simplest explanation is the most likely to be correct. Ignore conspiracy theories.
10. Don’t follow rules blindly
This applies to these rules as well as all others.
I'll add one more to finish
11. Hanlon's Razor
"Never attribute to malice that which is adequately explained by stupidity"
(Especially applies to political outcomes and ties in with rules 7 & 8)
“To be completely cured of newspapers, spend a year reading the previous week’s newspapers.”
— Nassim Nicholas Taleb