Beware of Financial Predictions and Economic Forecasts.
They Are Frequently Wrong. And, Being “Well Known” Doesn’t Make a Difference. Here Are Some Examples:
1. WAYOFF - Stock strategist James Finucane predicted on 3/24/08 that the Dow, then at 12,361, would rise to at least 18,000 within a year. The Dow begins Tuesday at 8281. Finucane, who correctly called the turn in the market at its October 1987 low, saw an explosive rally coming based upon a huge cash-buildup by investors (source: Barrons)
2. WHICH WAY IS UP? - The average year-end 2008 prediction for the S&P 500 made by 9 Wall Street equity strategists on 1/02/08 was 1612, a forecast that called for a gain of +10% for the year. Instead, the S&P 500 finished 2008 at 903, down 37% on a total return basis (source: USA Today).
3. MISSING IT - Tom Hoenig, president of the Federal Reserve Bank of KC, said on 1/16/08 that the economy was not in a recession. On 12/01/08, the organization responsible for determining the start and end dates of recessions announced that an official recession began on 12/31/07 (source: Denver Post).
4. A BARREL OF LAUGHS - Russian oil executive Alexei Miller predicted in June 2008 that the price of oil would reach $250 a barrel in 2009. Oil closed last Friday at $40.83 a barrel (source: Financial Times).
5. AND HE’S THE FED CHAIRMAN? In a 5/17/07 speech in Chicago, Fed Chairman Ben Bernanke said that Federal Reserve officials “believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited, and we do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system” (source: Federal Reserve).
6. SAY WHAT? - In a 5/16/08 speech in Washington, Treasury Secretary Henry Paulson said “we are closer to the end of the market turmoil than the beginning. Looking forward, I expect the financial markets will be driven less by the recent turmoil and more by the recovery of the housing sector” (source: Treasury Department).
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