Economists make poor predictions. In today's The Age newspaper, various economists made predictions about various economic metrics for 2011. I noticed that to protect the article's credibility, they didn't publish last year's predictions and results, because that would just make the economists look silly, and there predictions for 2011 obviously useless, rather than just useless.
I also note that of the 21 economists that made predictions, all but 4 work within the finance sector, and hence have a vested interest in a bullish performance. It is not surprising then, to find that the two most bearish predictors are Steven Keen and Jakob Madsen - both academics.
For 2011, these 2 bears predict that interest rates will fall to 4.125%, the AUD/USD will fall to 90c, the ASX200 will fall to 4350 in July, and to 4000 by EOY. Yes, I did some averaging to get these numbers.
I have no idea what 2011 will bring to Australia. There are certainly a lot of risks present, including an impending housing market crash, an impending Chinese growth crash, a Euro breakup or default, more US housing/banking foreclosure debacle.
What can an investor do under these circumstances other than play for safety, and wait for value?
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Yes, economists make poor qualitative predictions.
ReplyDeleteEngineers can make pretty good predictions about the machines around them. How much fuel a tractor will need, how fast a certain sized engine will make a car accelerate etc.
Why can't economists do as well?
1. Free markets are chaotic - just like the weather. Ask a meteorologist what the maximum temperature will be ten days from now, then sit back and laugh.
2. Free markets produce bubbles. There are thousands of little bubbles bursting every day. And some much bigger bubbles which burst less often, but operate in a chaotic system.
3. Anyone actually smart enough to consistently predict which way markets will go isn't playing media tart. They are quietly making themselves rich while enjoying their yachts, jets, mistresses ..
Great comment.
ReplyDeleteI love visual point no. 2 creates (in my head).
(And 3 for that matter).