Forecasts of a Doomed Economy

Contrary investing used to be a profitable endeavor. Things have changed. The doom business is in full swing as many financial prognosticators seek to hedge their normally ecstatic outlooks in order to sell their advice. When tragedy becomes a consensus sentiment, it used to be the time to buy. Now that formula has to factor in a different set of risks. Namely the incoherent political intrusions and stimulus-austerity gyrations has to head the list. Has forecasting become a lost art or did it evolve into an algorithm supercomputer project? In either case, the doom factor is sure to continue to be a stable from the Cassandra circle as long as an economic recovery allures the former members of the middle class.

Nevertheless, the bulls want you to believe that economic indicators are guardedly improving. The Global Economic Intersection boldly portends.

"Our September 2013 Economic Forecast shows a change of trend. Many portions of our economic model started to expand over the previous month’s baseline.
We continue to warn that consumer spending increases are expanding at a much faster pace than income – and that eventually either a jump in income or a fall in consumption must occur to close this gap. This remains an economic headwind for 3Q2013."

Surely, equities are back in vogue as spending flows. Yet, Tom Stevenson writing in The Telegraph recommends Take forecasts with a pinch of salt...or move to Omaha, for those who have the courage to bet their money on picking particular stocks.

"The problem for investors is that very often, at the individual stock level, good news is not built into valuations for some time after it has become publicly available.
This means that contrary to markets as a whole, where it can be better to travel than to arrive, good company news can trigger sustained outperformance as investors slowly accept the improved outlook.
This might sound like a counsel of despair for investors, but it shouldn't. Awareness of the limitations of knowledge is actually strangely liberating when it comes to managing your investments."

Woe is me, what opportunities are missed by sitting on the sidelines? Almost moves one to subscribe to some of those pricy newsletters. But before you brush off the dust on your wallet, heed the lesson that Ian R. Campbell references when he asks Economic forecasting – how credible?

"Frequently in this Newsletter I have said I believe that many economists wrongly advance a theoretical forecast framework based on irrelevant history when reaching conclusions on what is prospectively going to happen in any particular economy at any given point in time – and hence many economists inherently are doomed to get things wrong before they put pen to paper."

The prediction record of most experts is dismal at best. Therefore, when Charles Colgan, former chair of Maine’s Consensus Economic Forecasting Commission is cited in On economic forecasting as a ‘forlorn hope’. He "humbly admitting he’s botched the past several annual forecasts, Colgan compared himself to Charlie Brown, ever the optimist, who repeatedly tries to kick the football being held by his friend Lucy."

Yes, the small investor is just as dimwitted as Charlie Brown. The fate of most plays in the M A R K E T S, are sealed before they get started. In a corporatist economy, the balance sheets of companies swell, but the return on equity to stockowners often falls short.

One needs to admit, before placing funds in the hands of Wall Street money managers, that the game is speculation, not investing. Fortunes are made by knowing the insider decisions before the public is even aware of the news that a stock is in play. Even bigger sums are extracted from shorting a vulnerable public company as the vultures sense a ripe carcass.