The Models That Priced the Water Shock Weren't Wiser — Just Faster

The commodities desks that traded Wednesday's shock did so largely through forecasting systems the market has taken to calling, loosely and wrongly, "the models that saw it coming." Some of them did lean toward the print; several ran the desal-input chain forward and flagged the spike days early. But the near-sentient complex-programming systems now woven through the exchanges did not understand the households on the corridor, or the fear in a standpipe queue, or what a made liter is for. They ran a very large number of correlations very fast and returned a distribution. "Speed is being mistaken for wisdom again," said Dr. Wei-Lin Tan of the Singapore Institute, who has watched this confusion recur with every shock. "A system that prices water faster than a person is not a system that comprehends water. It has no idea what it forecast." The distinction is not academic on a week like this one, when a market is tempted to hand its judgment to whatever guessed the number first. The models were faster. Faster is not wiser. The paper has said so before and will say so again.