Edward Quince's Wisdom Bites: The Marks Series - The Futility of Macro Forecasting and the Value of "I Don't Know"

Edward Quince (EQ): Howard, one of the prevailing themes on this blog is the inherent uncertainty in financial markets, often summarized by the difficult answer, "I don't know". You've written extensively about the value—or lack thereof—in forecasting the future. Why is macro forecasting an area you advise investors to largely ignore?

Howard Marks (HM): Macro predictions are unlikely to give you an edge. There are two main problems. First, we don’t know what’s going to happen. The world is too complex, too erratic, and too full of surprises to make spot forecasts of anything of significance. Second, even if a forecast turns out to be correct, we don't know how the markets will react to what actually does happen. Forecasting is uncertain, so it's safer not to try to time markets based on predictions.

EQ: You mention that in efficient markets, correct forecasts are potentially very profitable, but also hard to make consistently. Is the consensus view of economists any better?

HM: The consensus view is usually an extrapolation of the current condition and is already embedded in the price of an asset. Most forecasts tend to cluster around historic norms and call for only small changes, underestimating the potential for radical change. If you are merely forecasting the most likely outcome, you are highly unlikely to hang your spreadsheet on predicting a discontinuity. Furthermore, most forecasters have average ability, and we rarely see their track records.

EQ: You advocate for the "I don't know" school of investing. What does this intellectual humility require of an investor in terms of action?

HM: The "I don't know" investor must face up to the uncertainty that surrounds the macro future. Instead of trying to divine the next economic move, we should devote ourselves to specialized research in market niches that others find uninteresting or overly complicated. We will continue to try to "know the knowable". This means focusing on micro factors relating to companies, assets, and securities where it is possible to obtain a knowledge advantage through the expenditure of time and effort. By concentrating on avoiding pitfalls and investing based on in-depth analysis, conservatively estimated tangible values, and modest purchase prices, we can proceed without relying on macro-forecasts.

EQ: So, the valuable forecasts are those that call for radical change, but those are rarely right. In lieu of perfect foresight, how do we protect ourselves?

HM: We must acknowledge the limits of our knowledge. This humility should drive us to employ the Margin of Safety. The margin of safety is, in essence, rendering unnecessary an accurate forecast of the future.

The Edward Quince Takeaway

Embrace intellectual humility: recognize that "Nobody knows" the macro future, and those who claim certainty should be met with skepticism. Focus your efforts on knowing the knowable—deep, bottom-up research in niche areas where superior insight is achievable—and rely on a robust Margin of Safety rather than unreliable predictions.

Edward Quince's Wisdom Bites: Nomads and Motorcycles: The Hard Work of Attitude and the Value of Struggle

If the Nomad letters teach us anything, it’s that success is never a smooth or guaranteed ascent. The adventure continues, the trials never end, and unhappiness and misfortune are bound to occur as long as we live.

The Nomad founders were open and honest about their mistakes. They understood that knowing how to think (philosophy, psychology) was just as vital as any technical method. When reflecting on their approach, they concluded that the greatest challenge wasn’t identifying opportunities or calculating valuations—it was “having the right attitudes.”

Attitude is the ultimate margin of safety—because no model or forecast can protect you from yourself.

But this attitude isn't about naive blind optimism. It’s the quiet strength that endures uncertainty and learns from it. As Robert Pirsig reminds us, problems aren’t solved by abandoning rationality, but by expanding it. Growth occurs through contact with reality, by working, adjusting and learning "on the job" in the arena of life. The Nomad partners, like the protagonist on the motorcycle, learned to absorb the jolts and imperfections of the road rather than curse them.

We often view setbacks as external failures—a bad boss, a rogue market, unfair circumstances. But both Nomad and Pirsag suggest a harder truth: progress demands internal confrontation. The greatest damage often comes not from volatility itself,  but from our "inability to perform probability-based thinking", to hold composure when uncertainty reigns.

The Financial Takeaway:

The deepest form of growth is forged through struggle. True excellence emerges when talent is tempered by humility and discipline—when effort becomes craft.

Nomad’s story reminds us that enduring success is not about the absence of pain, but the persistence of purpose. The “game of life,” as Pirsig wrote, “is the game of everlasting learning.”

Stop viewing work as a mere transaction for money; see it instead as the pursuit of meaning. Maintain the right attitude. Accept that “everybody struggles.” And when the road jolts you—because it will—remember that mistakes don’t define you. They refine you. Choose growth, and keep going.

Edward Quince's Wisdom Bites: Friedman Conversations Pt. 5

Conversation 5: Prudence, Certainty, and Long-Term Value

Topic: The role of wisdom and intellectual humility in achieving enduring success.

Calculus of Value (CV):
Prudence is the rarest form of intelligence—the art of deciding well amid uncertainty. Long-term success begins by accepting the limits of our knowledge. Forecasting is elusive, models are fallible, and confidence is not the same as truth. The investor’s task is to estimate value from future cash flows and acquire it at a reasonable price. Because the future is unknowable, the discipline of a margin of safety becomes both mathematical and moral—a recognition of our own fallibility.

Friedman Doctrine (Milton Friedman):
Exactly. Intellectual humility in markets means acknowledging complexity while staying disciplined in purpose. The clear, achievable goal remains profit maximization. To wander into social or moral engineering risks substituting sentiment for rigor. Prudence, therefore, lies in adhering to economic clarity—allocating resources efficiently, minimizing irreversible mistakes, and avoiding the seductive noise of doing “good” at the expense of doing well.

Rerum Novarum (Pope Leo XIII):
You both mistake cleverness for wisdom. The cunning investor may preserve capital, but the wise man preserves conscience. The worth of a human being lies not in accumulation but in moral quality. Virtue—honesty, temperance, justice—is the only foundation on which durable prosperity can rest. “To focus on fundamental topics” means to build character as deliberately as one builds capital. Dignity and meaning are constructed in the soul long before they appear in the balance sheet.

Centesimus Annus (Pope John Paul II):
True prudence integrates reason with conscience. Wisdom is not the avoidance of error alone—it is the active pursuit of the good. The "game of everlasting learning" demands that we draw from timeless truths to interpret an ever-changing world. Courage is the testing point of all other virtues because it allows prudence to act. In the long run, what sustains markets, nations, and civilizations is not cleverness or calculation, but the moral order upon which trust depends.

Conclusion: From Profit to Purpose

Across these five conversations—Enterprise and Value, Labor and Justice, Virtue and Responsibility, State and Policy, and now Prudence and Wisdom—a single thread emerges: freedom without virtue decays, and virtue without reason stagnates.

The Friedman Doctrine insists on clarity and accountability—the discipline of efficiency and market order.
The Catholic social tradition insists on meaning—the moral architecture that gives those markets a soul.
And between them lies the Calculus of Value—the intellectual bridge that seeks to measure what cannot be fully measured: the worth of human judgment under uncertainty.

The paradox endures: markets run on confidence, but civilization runs on conscience. The challenge is not to choose between them, but to reconcile them—so that profit remains productive, power remains principled, and progress remains human.

Edward Quince’s Wisdom Bites: The Coachman of Virtue in a Chaotic Market

In finance, we often confuse mere caution with genuine wisdom. However, prudence, often called “the coachman of the virtues,” is much deeper. It is the creative, thoughtful process required for sound decision-making, enabling us to act with intelligence and freedom.

The virtues necessary for navigating life and the markets—such as honesty, generosity, and resilience—cannot be consistently practiced without courage. Prudence requires cultivating humility, recognizing uncertainty, and seeking counsel. It means detaching from the emotional biases of fear and greed.

The Takeaway: Acknowledge the limits of your knowledge. “Walk humbly before markets you cannot control”. Prudence in the face of uncertainty demands maintaining a “Margin of Safety”. This flexibility is the buffer needed to survive the inevitable low points. Remember, sometimes the wisest response to market chaos is simply to “Don’t just do something, sit there!”

Edward Quince’s Wisdom Bites: When the Rules Don't Work—The Fed's Search for a New Playbook

Central bankers love rules. A predictable rule, like the Taylor Rule, offers a way to commit to future actions, manage expectations, and build credibility. But what happens when the economic game changes so much that the old rules no longer apply? We're seeing that dilemma play out at the Federal Reserve right now.

In his August 2025 Jackson Hole speech, Fed Chair Jerome Powell acknowledged that the Fed’s framework, including Flexible Average Inflation Targeting (FAIT), might not be working effectively in a world of frequent supply shocks. He announced the framework would be revised. This is a significant admission. The 2020 framework was built for a "new normal" of low inflation and low rates, where the primary risk was hitting the zero lower bound (ELB). The post-pandemic world delivered the opposite: the highest inflation in 40 years. The Fed has since abandoned its "makeup" strategy and returned to flexible inflation targeting.

This search for a new playbook highlights a deeper challenge: the core models that guide policy are under strain. Economist John Cochrane argues that in standard New Keynesian models, higher interest rates alone don’t lower inflation without a corresponding fiscal tightening. Other economists point to the difficulty in estimating key variables like the neutral rate of interest, or "r-star," which some argue is a "blurry guidepost" for policy. With so much uncertainty, even Fed Governor Christopher Waller has acknowledged that different policy rules can suggest wildly different paths for interest rates.

The Takeaway: We are in an era where central bank playbooks are being rewritten in real-time. The old certainties about how inflation, employment, and interest rates interact are being tested by new structural realities like shifting supply chains, fiscal policy, and geopolitical shocks. This means investors should be wary of anyone claiming to have a simple, definitive answer to where policy is headed. The most honest answer is often "I don't know". The key isn't to predict the Fed's next move, but to build a portfolio resilient enough to withstand a world where even the rule-makers are figuring things out as they go.

Edward Quince's Wisdom Bites: The Mind's Tricks – Navigating Probabilities and the Illusion of Certainty

 Today's wisdom takes us into the fascinating, and sometimes frustrating, realm of how our minds process probabilities, a field far removed from daily market reports yet profoundly impactful on our financial lives. Our intuition, often a powerful guide, can spectacularly fail us when confronted with randomness, leading to costly mistakes.

Consider the Monty Hall problem, a classic probability puzzle that stumped even PhDs: given three doors, one with a car, and you pick one. The host (who knows where the car is) opens a different door revealing a goat, then offers you the chance to switch. Intuition often says it doesn't matter, but statistically, you double your chances of winning by switching doors, a conclusion many, including prolific mathematician Paul Erdös, only accepted after Monte Carlo simulations. Similarly, interpreting medical test results, like a mammogram for a rare disease, often leads to wildly overestimated probabilities of actually having the disease after a positive test, due to our difficulty with conditional probability.

These examples highlight how our brains are "not well suited to dealing with randomness" and how we often "overestimate certainty". This "illusion of certainty" makes us prone to assuming "correlations that don't exist" and placing undue "weight on very likely or unlikely events" while ignoring the middle ground. The inherent "complexity and uncertainty" of the future means we can be "confused for a hundred straight years" if we rely on "data and logic alone".

Financial Takeaway: Cultivate a rigorous approach to probabilistic thinking, rather than relying solely on intuition. Acknowledge that "giving up the illusion of certainty enables us to enjoy and explore the complexity of the world in which we live". When faced with decisions, especially those involving uncertainty, "thinking creatively can help you challenge the data before making a decision". Be aware of your own cognitive biases and actively seek qualitative "what ifs" to brainstorm scenarios beyond past data, particularly in "regime changes" where historical information may be less useful. Don't be afraid to apply systematic processes to understand risk, for even if you can't predict the future, you can improve your decision-making by understanding the inherent limitations of your own mind.

Edward Quince's Wisdom Bites: The Fed's Crystal Ball — Cracks in the Casing

 Welcome back to Edward Quince's Wisdom Bites, where we challenge the illusion of perfect foresight in the world of finance, especially when it comes to central banks. If the past few years have taught us anything, it's that the Fed's crystal ball often has more cracks than clarity.

Jamie Dimon himself observed that central banks got financial forecasting "100% dead wrong" recently, underscoring a broader truth: even official "blue chip forecasters" for key economic indicators like GDP, employment, inflation, and Treasury yields are "essentially a coin flip" over time. This isn't a modern phenomenon; economists are still arguing about the current state of the economy and whether interest rates are restrictive. Indeed, one economist lamented the "absurdity of 'reasoning from a price change'" when discussing interest rates and macro variables, noting that "interest rates can change for multiple reasons".

The challenge isn't just about imperfect data; it's about the inherent complexity of the economy itself. As one XTOD pondered, the FOMC, despite its access to vast data, often has "no clue about the scope, timing, and potential economic impacts of possible changes to trade, immigration, and fiscal policies". The Fed's policy actions depend on the economic outlook and the "balance of risks," but even their own models acknowledge "elevated uncertainty". There's a persistent debate about "r-star" (the neutral rate of interest), with estimates varying wildly and some questioning its practical utility, finding it "quite useless" as a guide to monetary policy.

Ultimately, the most profound wisdom here is an embrace of intellectual humility. As Robert Greene noted, "The need for certainty is the greatest disease the mind faces". When even the most sophisticated institutions grapple with so many unknowables, investors are wise to recognize the limitations of prediction and approach central bank pronouncements with a healthy dose of skepticism.

Edward Quince's Wisdom Bites: The Fed's Reputation — A Precious and Precarious Asset

Welcome back to Edward Quince's Wisdom Bites, where we examine the often-overlooked, yet profoundly crucial, aspect of central banking: its credibility and institutional independence. The Federal Reserve, like any powerful entity, is only as strong as its reputation.

As Peter Stella succinctly put it, central bank independence is defined as "the ability to raise interest rates when the Treasury doesn't want you to. And the Treasury almost never wants you to, because of the cost of the debt". Paul Volcker's memoir further emphasizes that credibility is "crucial in restoring price stability and guarding against the ‘real danger [that] comes from encouraging or inadvertently tolerating rising inflation and its close cousin of extreme speculation and risk taking…’". This mirrors Robert Greene's Law 5: "Guard [your] Reputation With your Life".

However, maintaining this ideal is a constant tightrope walk. There's an ongoing debate about "fiscal dominance," the idea that large government borrowings could force central banks to keep rates low, potentially undermining their independence and generating inflation. Some sources question if the Fed sometimes prioritizes political considerations. The Fed itself has acknowledged "elevated uncertainty" around the economic outlook and the "balance of risks" to both unemployment and inflation. Even the concept of a "soft landing" is deemed "wildly pre-mature," with constant risks that "inflation might stay stubbornly above target, requiring further rate increases".

The minutes of FOMC meetings often reflect this internal struggle, with "participants comment[ing] on their uncertainty about the degree of restrictiveness" and acknowledging that the "long-run equilibrium interest rates may be higher than previously thought". There's also the challenge of communicating nuanced decisions, with an overemphasis on "data dependent" sometimes leaving the public wondering if decisions weren't always data-driven. For investors, understanding these inherent pressures and the fragility of central bank credibility offers a more realistic lens through which to view policy decisions, rather than blindly trusting every pronouncement.

Edward Quince's Wisdom Bites: Jackson Hole 2025: Powell's Echoes, Our Enduring Noise, and the Wisdom of "I Don't Know"

Welcome back to Edward Quince's Wisdom Bites, where the annual pilgrimage to Jackson Hole is less about revelations and more about the collective ritual of attempting to decipher the tea leaves of central bank pronouncements. This year, Fed Chair Jerome Powell, perhaps channeling the spirit of the Grateful Dead he so admires, once again graced the podium, offering insights that, much like a complex guitar solo, leave many wondering if they understood the melody or just felt the vibe.

Powell's speech on August 22, 2025, titled "Monetary Policy and the Fed’s Framework Review," highlighted the U.S. economy's resilience amidst sweeping policy changes. He noted that the labor market remains near maximum employment, and while inflation is "somewhat elevated," it has come down significantly from its post-pandemic peaks. Crucially, Powell acknowledged that the balance of risks appears to be shifting.

The most profound takeaway, delivered with the characteristic humility of a central banker admitting a hard truth, was Powell's indication that the Fed's existing framework, including average inflation targeting, might not be working effectively. He stated that the framework would be revised to be more robust in a world of "frequent supply shocks". This is an admission that the old playbook struggled with the recent bout of high inflation.

Powell reiterated that bringing inflation sustainably back to the Fed's 2% goal will likely "require a period of below-trend economic growth as well as some softening in labor market conditions". He stressed that evidence of continued labor market tightness could prompt a monetary policy response. Underlying these discussions is the persistent "uncertainty about the degree of restrictiveness" of policy and whether the "longer-run equilibrium interest rates [r-star] may be higher than previously thought".

The Deeper Wisdom (or Lack Thereof) from Jackson Hole's Echoes

While Powell's speech is scrutinized, the broader context of Jackson Hole often reveals more about the "noise" than the "signal". As one XTOD aptly put it, "My experience with Jackson Hole is that the actual contents of the speech rarely matter. It’s an opportunity to identify the point of maximum pain, and squeeze". The Fed operates significantly through expectations, making speeches potent, but ultimately, actions speak louder than words.

Papers presented at past Jackson Hole symposia consistently point to challenges that defy simple solutions:

• High Government Debt: Barry Eichengreen's paper in August 2023 highlighted how "high debt and deficits are here to stay" and could lead to financial repression. He also questioned whether demand, expectations, and fiscal policy – not just supply shocks – played a significant role in inflation.

• Treasury Market Capacity: Darrell Duffie's paper at the same event discussed how dealer balance sheets might struggle to accommodate the increasing size of the Treasury market due to rising deficits.

• Supply-Side Dominance: There's a growing recognition among policymakers that the economic landscape has shifted from one of insufficient aggregate demand to one where the supply side needs better understanding and response.

This year's discussion continued to echo these themes, particularly the pervasive uncertainty surrounding the economy.

Wisdom Bites for Navigating the Perpetual Uncertainty

In a world where central bankers admit their frameworks need revising and uncertainty remains elevated, perhaps the truest wisdom lies not in predicting the next market move, but in cultivating an enduring mindset.

• Embrace Intellectual Humility: As this blog constantly reminds us, "Nobody knows anything, and that's okay". Forecasting is often a "fool's errand," and even experts get it wrong. Focus on understanding what is rather than endlessly guessing what will be.

• Beware the "This Time Is Different" Fallacy: The temptation to believe current events are wholly unique is a dangerous one. While circumstances evolve, fundamental economic principles and human nature often persist.

• Discern, Don't Drown, in Data: The digital age brings a "Noise Bottleneck," where "the more data you get, the less you know what’s going on". Develop filters and prioritize insight over raw information. As the wise old owl knew: "The more he saw the less he spoke, The less he spoke, the more he heard".

• Prioritize Credibility and Consistency: Paul Volcker's memoir emphasizes the importance of credibility "in restoring price stability and guarding against the ‘real danger [that] comes from encouraging or inadvertently tolerating rising inflation and its close cousin of extreme speculation and risk taking…’". This applies to institutions and individuals alike.

• Focus on What You Control: Your Behavior: Ultimately, "Your behavior matters more than your forecast". Instead of chasing fleeting gains or reacting to every headline, build your own "ark" by focusing on sound principles and risk management, rather than just "predicting rain".

Edward Quince's Wisdom Bites: Nobody Knows (Yet Again) – Embracing History's Rhyme

 Welcome back, clear-headed thinkers! In our ongoing quest to navigate the unpredictable currents of financial markets, today we revisit a timeless mantra from Howard Marks: "Nobody Knows." His April 9, 2025 memo, "Nobody Knows (Yet Again)," echoes a theme he first explored during the tumultuous Global Financial Crisis of 2008 and reprised during the COVID-19 pandemic. This enduring lesson powerfully aligns with our blog’s emphasis on embracing uncertainty and learning from human nature's consistent patterns.

Marks' original "Nobody Knows" memo, published shortly after Lehman Brothers' bankruptcy on September 15, 2008, affirmed his "ignorance of the future as usual, but to an even greater degree given that all prior expectations had been upended". Faced with a market that felt like a "downward spiral without end," he concluded that investors had to "assume it would [be arrested], and thus that we should plow money into financial assets at their highly discounted prices". He reapplied this logic during the "COVID-19 pandemic (which he titled 'Nobody Knows II')".

His 2025 memo re-emphasizes this point, particularly in light of current "economic shenanigans" and the way "global trade norms have been tossed out the window". Marks argues that trying to "analyze the future" in such times is "about as useful as trying to find a rational take on LinkedIn these days – it's an oxymoron". He cautions against relying on "experts" whose predictions are often speculative rather than fact-based.

 We constantly highlight that "history never repeats itself. Man always does". Marks’ recognition that "there are themes that rhyme throughout history" reinforces our belief that "human nature is predictable" even if specific events are not. His admission that "nobody really knows what's going to happen" aligns perfectly with our "I don’t know" mentality.

The wisdom here is not to become paralyzed by uncertainty, but to understand its pervasive nature and act accordingly. Marks’ approach—assuming the world will, in fact, not end and investing with that long-term perspective—mirrors our blog’s advocacy for patience and the understanding that "The ability to stick around for a long time, without wiping out or being forced to give up, is what makes the biggest difference". Even when "chaos is always loud", "patience never trends on X", and "discipline wins over drama". Marks’ insights serve as a powerful reminder that "by focusing on timeless principles, cultivating self-awareness, and maintaining a long-term perspective, you can navigate the inherent uncertainties of life and markets with greater resilience and wisdom".

Edward Quince's Wisdom Bites: Ownership vs. Debt – The Fundamental Choice

Welcome back, intellectually curious investors! Today, we explore a foundational concept in investing, one that Howard Marks distilled with his characteristic clarity in his October 23, 2024 memo, "Ruminating on Asset Allocation." This memo provides a powerful framework for thinking about risk management and aligning your investment decisions with your deeper financial goals, a core tenet of the Edward Quince blog.

Marks begins by simplifying the complex world of asset classes to their essence: "at bottom, there are only two asset classes: ownership and debt". He emphasizes the "enormous difference to own vs. to lend":

• Owners (equity holders) have "no promise of return". Their potential upside is uncapped, but so is their potential for loss.

• Lenders (bondholders, creditors) have a contractual "fixed outcome" – assuming, of course, the borrower fulfills their obligations. Their upside is capped, but their downside is theoretically limited to the amount lent.

The most basic decision for investors, Marks argues, is choosing between these two fundamental approaches. To anchor this decision, one must first identify a "risk posture". This involves determining how much emphasis you want to place on "preserving (defense) vs. growing capital (offense)". He calls this "preservation vs. growth" an "inescapable truth in investing," acknowledging that these two objectives are mutually exclusive.

This aligns perfectly with our blog's long-standing philosophy. We've often stressed the importance of identifying your goals as the first step towards good risk management, recognizing that "taking a risk without having a specific goal in mind is like driving around aimlessly and hoping to end to up somewhere good". Marks’ framework underscores that this crucial choice should be informed by your "investment horizon, financial condition, income, needs, aspirations, responsibilities, and, crucially, intestinal fortitude, or their ability to stomach ups and downs".

Marks also cautions against deviating from one’s "sweet spot" in terms of risk level, a reminder of the blog’s core belief in discipline and self-awareness. He concludes by pointing to the current opportunities in credit at current levels, which he sees as offering attractive returns.

Ultimately, Marks' "Ruminating on Asset Allocation" reinforces that "A prudent way to navigate the inherent uncertainty in the world and economy is by maintaining some flexibility, a buffer, a margin of safety and a level of creativity in planning". It's about making deliberate, informed choices about your risk posture, understanding the fundamental trade-offs, and focusing on what truly matters for your long-term objectives, rather than getting swayed by market noise or fleeting narratives.