The Art Of Analysis

‌‌Every so often, something hits your inbox that really makes you sit up and pay attention.

In this case it was a mail from John Kemp, a Senior Market Analyst at Reuters.‌‌‌‌

It seems he regularly receives critical e-mails, and decided to go on record to clarify his approach.

His comments really capture the essence of comprehensive, balanced analysis, so I decided to explore them in more detail here.

All of the principles he covers are fundamental elements of sound macroeconomic analysis.

I can hear you already...

This is highly relevant to trading.

But how do we define proper analysis?

Well, this is where J0hn's comments come to the fore.

I have extracted the key principles and will list them below;  

(I make no apology for this ruthless reductionism).

You may have spotted a problem with this one.

As traders, we become advocates as soon as we enter a trade (perhaps even sooner).  Indeed, the trading community (and finance media) is littered with advocates.

So, how do we balance this out and ensure our analysis is sound?

Well, there are two broad categories of advocates;

1) Reasoned Advocates

2) Attention-Seekers/CampaignersThese include (but are not limited to); 

• Perma Bears

• Perma Bulls

• Most Media Companies

• 'Signal' Sellers

• Gurus, Furus etc.

Often, it is hard to distinguish between the two categories.

Reasoned advocates may engage in attention-seeking, whilst attention seekers can sometimes make good points backed by reasoned analysis.

Not helpful at all.

We are hard-wired to label (and categorise).

We do this with people, and with their opinions.

The efficiency of the human brain can be problematic sometimes.  An example;

Are they though?

They've certainly been wrong about equity markets over the past decade, but if you followed their advice to 'buy gold' in 2008 (at $700/oz), you've done pretty well out of it.  

What if we take a different perspective? When the analysis is thorough, and we are aware of any inherent bias, then perhaps there is something of value to extract from it...

I realise we are now into the realm of analysing the analysis.

(or the conspiracy theorist realm of 'Question Everything').

It might sound ridiculous, but it works.

If we adjust these Principles of Analysis, we can question any assessments and conclusions drawn (by ourselves and others).

Let's take this principle;

and convert it into a question;

Another:

becomes

One more for fun;

Well, some are guiltier of this than others...

The Economist nailed the bottom in oil.

Twice.

They're making another bold claim now.

This is often the problem in the mainstream media.

They HAVE to appear certain.

Certainty sells.

There's a reason I mainly read and share Reuters articles.  

These excerpts are from the Reuters Handbook of Journalism.

Thinking about language can only improve our analysis.

Language reveals biases and blindspots.  

On that note, take a look at The Economist article.

Examine the language used and ask the question...

Advocate Or Analyst?

Here's a screenshot in case it gets pay-walled later.

Now read this Reuters article (also by John Kemp) and ask the same question...

Advocate Or Analyst?

At Macrodesiac, we try to walk that tightrope between advocate and analyst.

Zero BS.

Zero hand holding.

Just the tools to keep you more informed and to let you make far, far better trading and investment decisions.

It's probably why we have strong testimonials.

Not everyone is comfortable with having tricky topics broken down for them...

And then with trade ideas provided to put that information into actionable context.

And that's OK.

But if you want to perhaps aim to get ahead of those that don't, then this is for you.

Click the below link to sign up and join the community via Discord...

Receive the premium content...

And to be better.

You can opt-in to John's free newsletter here.

As you can probably guess, I would highly advocate that you do so.  

In the interests of being thorough, I'll wrap this up by reproducing John's original e-mail below. --------------------

I regularly receive questions and criticism about whether I am pro-fossil fuels or pro-renewables as well as variations on that theme.

I normally give a response something along the lines below.

But I thought it would be worthwhile to write something a bit more formal to outline how I approach the task of thinking about and analysing energy systems.

While the observations below are all about energy, the same principles apply to analysis in other fields, including history, economics, diplomacy and conflict.  

‌‌‌‌Energy analysis: some thoughts and my own approach

‌‌‌‌I am pro-energy because energy enables people to live fulfilling lives.

And I am pro-efficiency because people get more services for the same amount of energy input which is surely an improvement.

But I am not pro-coal, pro-oil, pro-gas, pro-electricity or pro-renewables.

Those are policy choices above my paygrade, to be made by voters and elected policymakers.

I simply try to present a range of viewpoints about possible energy futures, some of which have a bigger or smaller role for coal, oil, gas, electricity and renewables, and analyse the implications.‌‌‌‌

As an analyst, it doesn’t matter what I think should happen (there is no should in analysis).

My task is to analyse what I think is likely to happen, and the range of probabilities and scenarios around it, spelling out the implications and policy choices and trade-offs.

More importantly, my job is to present enough information and a range of viewpoints so readers can make up their own minds.‌‌‌‌

I don’t know what will happen to the energy system over the next 20-30 years – except that it will evolve and change, and be different to today, just as today’s energy system is different to that in 1990 or 1960 or 1930.

And I am sceptical of anyone who claims they know what will happen to the system with a high degree of certainty since history is littered with forecasts gone awry.‌‌‌‌

I am pro-energy but source and system agnostic.

I am an analyst not an advocate or a decision-maker.

I long ago came to the conclusion you can’t be an effective analyst while advocating for one outcome rather than another.

The roles of analyst and advocate are incompatible.

The task of an analyst is to present all the information dispassionately while the task of an advocate is to select the most compelling information to build a case and urge a particular course of action.

That is not my role.

I focus on the analysis and let others make decisions about the distributional issues and value trade-offs.‌‌‌‌

As a private individual, I have lots of opinions and values, and I attempt to put them into practice.

I can vote my views and express them among friends and try to convince them.

But as a professional analyst, I have to try to put them all to one side.

I have to focus on the impersonal forces that shape outcomes, especially in the longer term, while allowing for the role of leadership and chance.

Whether I approve of them or not is irrelevant.‌‌‌‌

As an analyst, I can’t be pro- or anti-climate change, pro- or anti-fossil fuels, pro-or anti-renewables.

I can’t be pro-Britain (my country of citizenship), pro-United States or pro-China. I can’t be liberal or conservative.

I have to analyse the way the world is, the impersonal forces that make it that way, and how it is likely to evolve, given everything we know, and allowing for the enormous remaining uncertainty, without passing an emotional, political or moral judgement.‌‌‌‌

I have lots of political and moral views in private, but to be an effective analyst, I have to try to put them aside in a professional capacity, no matter how uncomfortable and unpopular that may be.‌‌‌‌

Policymakers, politicians, lobbyists and advocates want to change the world and influence the course of events.

My job is to understand and explain it, which is much lowlier and simpler.

If there is a benefit to analysis, and I believe there is, it is the hope that better understanding will inform improved decision-making and a greater awareness of the likely consequences, costs and benefits of alternative courses of action.

But the decision-making itself is far above my paygrade.

John is also on Twitter;