The Folly of Certainty

Summary

• Ron Klain, former Biden chief of staff, stated that campaign chair Jen O'Malley Dillon has no doubt President Biden will win reelection.
• O'Malley Dillon previously declared that Biden would win "period" shortly before the June 27 debate against Donald Trump.
• The author cites a 2015 or 2016 foreign affairs expert who claimed with 100% certainty that Israel would destroy Iran's nuclear capability before year-end, an event that never occurred.
• In the 2016 election, nearly everyone was certain Hillary Clinton would win and that a Trump victory would cause the stock market to collapse, yet Trump won and the market rose over 30% in the following 14 months.
• The Federal Reserve initially viewed 2021 inflation as transitory, but subsequent economic conditions forced a rapid series of interest rate increases.
• Near certainty in mid-2022 predicted that Fed rate hikes would cause a recession, yet no recession materialized.
• Market observers shifted to optimism in late 2022 believing rate cuts would occur, igniting a stock rally that continued despite anticipated cuts failing to happen in 2023 or early 2024.
• The author notes that while the economy and corporate profits have low annual percentage change variability, the S&P 500 price exhibits significantly higher variability due to investor psychology.
• Financial models often assume rational decision-making, but investor sentiment and emotions frequently override economic fundamentals.
• John Kenneth Galbraith stated that there are two kinds of forecasters: those who do not know and those who do not know they do not know.
• Galbraith identified the specious association of money and intelligence as a factor where successful investors are wrongly assumed to possess superior intellect in unrelated fields.
• Mark Twain is quoted as saying that trouble arises from what people know for sure that just ain't so.
• Intellectual humility involves recognizing fallibility and admitting uncertainty, which helps prevent catastrophic errors.
• Barbora Krejcikova won the women's Wimbledon title despite being a 125-to-1 underdog according to pre-tournament bettors.
• An attempt on Donald Trump's life occurred recently, though no one can state with certainty how this event will impact the election or markets.
• The author concludes that making predictions in politics, economics, and investing is largely a loser's game due to randomness and psychological fluctuations.