OT: Mean reversion and model fit

[carlsbadworker]

This is a site that successfully forecasted the burst of US housing bubble. But what we really did is just a forecast of mean reversion in the housing price. Jeremy Grantham at GMO has studied 330 complete bubbles that have mean reversion, so it is quite disturbing to me that he is now forecasting a permanent shift in commodity price.

But when I look at his logic and commodity index chart, I am not convinced. I mean, how can one be certain that the commodity price would not also have a mean reversion. Of course, in history, we do observe permanent shifts, sometimes in more dramatical way known as the network-effect. (e.g. look at how PC and cellphones get popular)

But how do you forecast a good model fit? Is that any good thinker or books out there on this? For example, Nassim Taleb has a theory that nature’s randomness is more bounded comparing to the social randomness, thus it can have less bubbles. I am wondering if there’re books that explore similar dimensions of fitting reality with models?

Thank you.

[Arraya]

Economic models are hopeless as far as a scientific models go.

Now, I don’t know what Gratham’s logic is, but I do know of the report that he recently put out.

If you look at just oil. Exploration costs are >$60 dollars(this will only go up). So, if market value dipped under that, the industry pretty much shuts exploration down. Which would be disastrous in the age of peak oil because of declining old fields. When oil fell to $34 the whole industry started screaming.

Anyway, energy has a unique flow through effect on most commodities due to the fact that they are all energy intensive to produce.

So, I would say, that right there will keep commodities up. No model needed.

[Arraya]

Economic models are hopeless as far as a scientific models go.

Now, I don’t know what Gratham’s logic is, but I do know of the report that he recently put out.

If you look at just oil. Exploration costs are >$60 dollars(this will only go up). So, if market value dipped under that, the industry pretty much shuts exploration down. Which would be disastrous in the age of peak oil because of declining old fields. When oil fell to $34 the whole industry started screaming.

Anyway, energy has a unique flow through effect on most commodities due to the fact that they are all energy intensive to produce.

So, I would say, that right there will keep commodities up. No model needed.

[Arraya]

Economic models are hopeless as far as a scientific models go.

Now, I don’t know what Gratham’s logic is, but I do know of the report that he recently put out.

If you look at just oil. Exploration costs are >$60 dollars(this will only go up). So, if market value dipped under that, the industry pretty much shuts exploration down. Which would be disastrous in the age of peak oil because of declining old fields. When oil fell to $34 the whole industry started screaming.

Anyway, energy has a unique flow through effect on most commodities due to the fact that they are all energy intensive to produce.

So, I would say, that right there will keep commodities up. No model needed.

[Arraya]

Economic models are hopeless as far as a scientific models go.

Now, I don’t know what Gratham’s logic is, but I do know of the report that he recently put out.

If you look at just oil. Exploration costs are >$60 dollars(this will only go up). So, if market value dipped under that, the industry pretty much shuts exploration down. Which would be disastrous in the age of peak oil because of declining old fields. When oil fell to $34 the whole industry started screaming.

Anyway, energy has a unique flow through effect on most commodities due to the fact that they are all energy intensive to produce.

So, I would say, that right there will keep commodities up. No model needed.

[Arraya]

Economic models are hopeless as far as a scientific models go.

Now, I don’t know what Gratham’s logic is, but I do know of the report that he recently put out.

If you look at just oil. Exploration costs are >$60 dollars(this will only go up). So, if market value dipped under that, the industry pretty much shuts exploration down. Which would be disastrous in the age of peak oil because of declining old fields. When oil fell to $34 the whole industry started screaming.

Anyway, energy has a unique flow through effect on most commodities due to the fact that they are all energy intensive to produce.

So, I would say, that right there will keep commodities up. No model needed.

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