Forecasts of a Doomed Economy

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 pricey 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.

Any thinking citizen with even a modest understanding of economics and commerce must conclude that the consumer patience is still gravely ill. Sophistication in interpreting trend forecasts is not necessary when CNNMoney provides the evidence. 

If the financial sages deem the consumer superfluous and define a healthy economy by a growing public sector, the prospects for a doomed system are inevitable.

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Reading such international financial establishment pronouncements usually provide a reassuring crutch even when countries are going bankrupt. Telling as it is for the spin you are meant to accept, the forecast for personal success in the investment jungle is wrath with predators of all species.

Now all this caution is moot if the global economy enters into a new golden age. Duplicating the prosperity of the industrial revolution with a cyber collection matrix that digitally spies on propitiatory business secrets is not exactly the formula that generates wealth, which is shared by the masses.

The incomparable Paul Craig Roberts is the best political and economic forecaster. In his 2011 article, How the Economy was Lost, Doomed by the Myths of Free Trade, he explains the basic reason for the doomed forthcoming financial meltdown end game.

As the issuers of swaps were not required to reserve against them, and as there is no limit to the number of swaps, the payouts could easily exceed the net worth of the issuer.

This was the most shameful and most mindless form of speculation. Gamblers were betting hands that they could not cover. The US regulators fled their posts. The American financial institutions abandoned all integrity. As a consequence, American financial institutions and rating agencies are trusted nowhere on earth.

This is the forecast that you can bank on.