Economists and their predictions

Article by Mr. Farrell:

William Sherden's findings were summarized in "The Fortune Sellers: The Big Business of Buying and Selling Predictions."

He said, about predictions,: "They are timeless. The political influence on predictions is basic human nature. I see no way that economic forecasting can improve since it is trying to do the impossible."

Get it? Whether you are a bull or bear, optimist or pessimist, predicting the future of the economy is an impossibility, a total illusion. Listen to Sherden's 10 findings in The Fortune Sellers:

1. The forecasting skill of economists is on average about as good as guessing. In fact, predictions by the politically driven Council of Economic Advisors, Federal Reserve Board and Congressional Budget Office were often worse than guessing.


2. Economists cannot predict the turning points in the economy. Of 48 predictions made by economists, 46 missed the turning points.


3. Economic forecasting accuracy declines with longer lead times.


4. No economic forecasters consistently lead the pact in accuracy.


5. No economic ideology consistently produces superior forecasts.


6. No economic forecaster has consistently higher forecasting skills predicting any particular economic statistic.
   Consensus forecasts do not improve accuracy (although the press loves them).


7. Psychological bias affects forecasters and their forecasts. Some economists are naturally optimistic and bullish, others are consistently pessimistic bears.


8. Increased sophistication provides no improvement in forecasting accuracy. Remember the Long-Term Capital Management hedge fund? Two brilliant Nobel Economists backed by Wall Street's elite nearly sabotaged the world economy.

Finally, Sherden says there's no evidence that economic forecasting has improved in recent decades. In fact, forecasting appears to be deteriorating as partisan politics, Wall Street gaming and unpredictable global events invent new illusions.

And so my dear investors: "Nothing is as it seems" remains rule No. 1 when it comes to all economic predictions you rely on for your investment decisions. And the corollary? Rule No. 2: "All economic predictions will fail you." Your best strategy, whether bull or bear, is to trust no one, and question all predictions, especially those your brain is convinced are "true."
Remember, you live in a world full of illusions created by illusionists who know you better than you know yourself. They know your brain derives secret pleasure from being deceived, lied to and manipulated. They know that due to some mysterious design flaw, your brain gets a perverse thrill when you enter the dark theaters of Hollywood, Wall Street and Washington. Thousands of illusionists know you are preprogrammed in such a way that you are vulnerable to their illusions, untruths, deceptions and manipulations.
Wake up ... nothing is what it seems. Whether you have a bear brain or a bull brain, in today's wonderful world of illusions, you cannot time the market and you cannot trust any economic predictions from any illusionist. But you can protect yourself, with a well-diversified portfolio that'll win in bear markets and bulls.
See previous Paul B. Farrell.