STUMP » Articles » Around the blogs: Mish and 538, Bury and Central States, Glennon and Chicago » 20 May 2016, 12:28

Where Stu & MP spout off about everything.

Around the blogs: Mish and 538, Bury and Central States, Glennon and Chicago  


20 May 2016, 12:28

Let’s do a bloggy round-up! (Trying quick stuff… but not with storify now)


Mish likes to predict, but this is about Nate Silver’s failed predictions, not Mish’s:\

Please stop the self-congratulations. Nate, please tell us how the hell you put Indiana in the “win” column.

Silver was wrong on Indiana every step up the way with poll after poll after poll after poll projecting Cruz would win.

On April 30, “Silver’s Secret Sauce” projected Cruz had a 65% chance of winning Indiana. On May 1, I reported Silver Flushes Secret Sauce Down Toilet, Now Projects Trump has 69% Chance.

Silver puts that monstrous last-minute flip-flop in the win column. I call that pathetic.
Reflections on Being Wrong

I am not purposely attempting to brag. I may have been wrong.

I have been wrong on many things, most notably the prolonged effect QE had on the market.

I was totally wrong.

I now think Trump will win the election. I may be wrong about that. And I may change my mind thirty days from now.

But I won’t change my mind one day before the election with a proclamation that I got it right.

So now I have a diversion, and also some comments on why I try not to do this type of forecasting/prediction.

A few years back, I entered the Good Judgment Project, a research project that is centered on forecasting – is it a real ability? Can it be taught?

Answers: yes and yes.

I wrote an article about my experience for an actuarial newsletter, and here is a quick excerpt:

Too often we may settle on an answer or forecast too quickly, based on our biases. The following:

• Actively seeking out information disconfirming our “gut instinct”;

• Taking notes on our reasoning, to be referred to later;

• Regularly revisiting our predictions; and

• Conducting a post-mortem of the reasoning and process once an outcome is known;

are all great techniques I’ve learned (or re-learned, the hard way) by participating in the Good Judgment Project. I hope it continues for a fifth season, so I can continue to improve… and perhaps some of y’all will join me!

They didn’t have a 5th season (or, if they did, they didn’t tell me. pout.) What they have done is open a website: Good Judgment Open. Try it out! I’ve not been active there (partly because there’s no Amazon gift cards to be had… my payment for being a research subject.)

Try it out, but make sure after a question resolves you look at what went right or wrong.

And, by the way, the forecasts are scored using something called the Brier Score, the whole reason I’m writing this aside: a forecast that settles on the “correct” answer earliest gets a much higher score than one that moves around a lot and gets to the right forecast only at the very end.

So perhaps, if Nate Silver wants to be totally honest about his forecasts, he should apply the Brier score to himself.

Just a thought.


I hadn’t been linking to John Bury recently, but he’s put up a lot of stuff lately. I want to link & comment.

On the Central States situation, which I last wrote about here, Bury has, in chronological order:

I want to respond to these last two posts.

Bury says those running the pension fund, who submitted proposed pensions cuts, have a conflict of interest — that if they’re really only interested in protecting cash flow to themselves, and not protecting plan members.

Let me quote from the last post linked:

If the idea is to protect the benefits of participants in multemployer plans then the obvious solution is to raise the limit on the amount of benefits that PBGC covers and have the Central States Pension Fund (CSPF) taken over by the PBGC. This would “preserve the promise of retirement security that these workers have bargained for and earned” but leave nothing for others, specifically:

-PBGC (and other pension sponsors paying premiums and eventually taxpayers that would have to prop it up),
-those currently running (and being paid out of) the CSPF, and
-Congress which will need to start paying for past promises rather than future favors.

Here’s the deal. Congress will never end up with nothing. They make the rules, thus they always make sure they get their cut. I have no issue saying Congress’s interests aren’t particularly aligned with the CSPF.

But those running the CSPF had pretty much one other option: let the money run out, the plan gets taken over by PBGC, and then the plan participants get cut even more than the CSPF proposed. That may very well be what happens. As I’ve noted several times, the amounts guaranteed are very low.

Bury says if those running CSPF were really aligned with the plan participants, they would be lobbying to increase those guarantees.

Well, they certainly could do that. But that’s not exactly their jobs. And they really don’t have a huge amount of leverage to try to extract higher guarantees out of Congress.

Now, pushing it on Congress is just fine. But they’re unlikely to do much about it.

Which means the CSPF managers really have only a few choices:

- let the plan go bankrupt in the old way, yadda yadda
- or cut some now, with some people getting cut way less than if it were a bankrupt plan, and have the fund last a bit longer.

I have a feeling they’re just going to go down the tubes. It was bad enough with the proposed cuts, and the Special Master said they didn’t cut enough.

The plan will continue to bleed cash, and there won’t be anything to bail them out.

As I was writing this, Bury published a new post.


A new Chicago pension valuation came out, and it’s bad.:

Bloomberg today reported that Chicago’s unfunded pension liability jumped by a staggering $11.5 billion. For a little perspective, keep in mind that the total unfunded liability for Chicago’s four pensions as commonly reported has been only about $20 billion.

Shocked? You shouldn’t be. We wrote two years ago that this is one of the “insane implications of keeping two sets of books.” Get used to it. That $11.5 billion increase was for just one of Chicago’s four pensions. Similar bad news will be coming out in Chicago and across the state for many other pensions.

As Bloomberg pointed the $11.5 billion increase for MEABF (Chicago’s Municipal pension) resulted from court invalidation of Chicago’s pension reform attempt and changes in accounting rules. However, a look at the new actuarial report for that pension indicates that $8.7 billion of it resulted, apparently, from those new accounting rules. (I say, “apparently,” because the change seems to be reflected in a line item called “change of assumptions” in page 93 of the report — a report that’s obfuscated, as usual.) That’s the part that will be repeated often. Chicago’s three other pensions have not yet posted new actuary reports for the year ended 12/31/15. Many other pensions in Illinois have not yet reported their new numbers.

The big question now, which we flagged two years ago, is whether the bond market will start focusing on numbers based on the new accounting rules. The new rules are much tougher, chiefly because they require much lower discount rates on unfunded liabilities. Numbers will also continue to be reported in the old way, using assumptions set by politically appointed trustees, which pols will attempt to hide behind.

Mish also wrote about it.


And again, expect it to get uglier.

Separately, using pre-boost numbers, Glennon writes about a market-based valuation of Illinois pensions:

For Illinois, the commonly reported actuarial debt (the unfunded liability) for state and local pensions totals $140 billion, or about $29,000 per household.

But the market based pension debt (the unfunded portions) for those pensions is a stupefying $371 billion, or $77,822 per household, according to Pension Tracker.

Instead of the commonly reported funded ratio of 45% using actuarial numbers, the market based funded ratio is just 23%.

Sounds about right to me.

It won’t be paid.

Not in full, at any rate.

Illinois is not going to get bailed out. Neither will Chicago.

But that’s for another time.

Compilation of Chicago posts.

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