Paul Farrell responded to Wharton School prof Jeremy Siegel’s most recent predictions for the Dow by year-end 2013, who said: “My Dow 17,000 projection may turn out to be too timid.”

He channels William Sherden, author of “The Fortune Sellers: The Big Business of Buying and Selling Predictions.” Sherden decided to test the accuracy of leading forecasters over a multidecade period. His conclusion: Forecasters stink.

Farrell summarizes Sherden’s findings in 11 bullet points:

1. Economists’ predictions are no better than guesses
2. Government economists often worse than guesses
3. Long-term accuracy is impossible
4. Turning points cannot be predicted
5. No specific forecasters are better than the rest of pack
6. No forecaster was more expert with specific statistics
7. No one ideological orientation was better
8. Consensus forecasts do not improve accuracy
9. Psychological bias distorts forecasters and their forecasts
10. Increased sophistication does not improve accuracy
11. No improvement over the years

Its worth spending some time reviewing the entire article.

 

Source:
Dow 17,000? Main Street lambs led to the slaughter
Bullish predictions drive Wall Street’s casino
Paul B. Farrell
MarketWatch Feb. 13, 2013
http://www.marketwatch.com/story/dow-17000-main-street-lambs-led-to-the-slaughter-2013-02-13

Category: Really, really bad calls, UnGuru

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

11 Responses to “Economic/Market Predictions: Still Terrible”

  1. PeterR says:

    Mr. Farrell’s dour insights are always a welcome relief, however, let’s be clear that he is NOT predicting that the Dow will NOT get to 17,000. The use of the word “slaughter” in the headline would seem to imply a foregone conclusion which he bemoans, generally speaking, others making! Tsk tsk tsk for the sensationalism IMO (to which PBF is no stranger BTW).

    The market will do what it does, and at times it confounds us and yet keeps going up, seemingly defying the “best predictions.”

    I began investing in the early 1990′s at the start of what turned out to be an incredible run for equities. The daily chart then, as now, had rallies during which it rode the 10, 20, and 50-day moving averages, ever upward. Each support break was NOT a sell point, but rather yet another buy point. Over and over and over.

    “No expectations” may be a good guide here? Vigilance and principled moves . . .

    Good luck to all, but no need to follow Mr. Farrell’s Dour Jones Average either.

  2. Forecasting is certainly fruaght with danger but I think most forecasters understand the limitations of their forecast but do not explain this well. Therefore they tend to be read too literally.

    I am interested in stock market cycles and struggled with cycles that initially appeared great but then tended to be slightly off when forecasting the future, and therefore are difficult to use in trading. This led me to conduct my own research that has culminated in my own cycle work and the discovery of a 2.2/4.4 year cycle.

    I am of the opinion that the secular bear is about to strike back in the second half of 2013 as the 17.6 year stock market cycle continues until 2018, when the next great bull market will properly begin. Again, no forecast is going to be 100% right but having a roadmap is better than ploughing ahead without one.

    We will see Dow 17,000 one day, but not 2013 in my opinion. These type of claims reconfirm my bearish views.

  3. Orange14 says:

    I would be pleased as punch if we see a repeat of this past year and get a 15% return on equities!

  4. AHodge says:

    so i have read it quick
    its too general an attack-with mostly scoffing, often justified in the areas he cites
    i think he’s right about a psychological need for certainty and hucksters playing that

    financial markets are exceptionally difficult
    and stuff like stock price targets as practiced by wall st are pretty much a joke,
    though you can do it with wide enough ranges
    but he is attacking indiscriminately?
    are you going to be a complete know nothing?

    Im glad we have weather forecasts
    and macro forecasts add more value i think
    and even volcano analysts can be a help

    the macro economy is open to analysis
    when i did big model forecasting at whats now Global Insight
    our real GDP growth error rate for the next year from December prior was 0.8% over 20 years
    thats better than clueless.
    but most of the value of an interrelated –all parts fit– big computer power forecast
    is that its completely consistent
    it will of course be “wrong” the final number will be something else
    the virtue for planning is you can track how its going “wrong” or off course and intelligently adjust it. and your own plan
    you may not know much, highly conditional and surprises inevitable
    you should remember that
    but why be an idiot about the future–and insist you “know” nothing? even tendancies?

    even 25 year forecasts are possible and better than nothing IMO
    you can put in good demographics, look at productivity trends, labor movement trends

    all guesswork of course but if you are going to buiild an airport, shipping port or railroad
    suggest you have something rather than nothing?

  5. mad97123 says:

    I wonder if Siegel’s projections included raising minimum wage and chaining it to CPI as Obama proposed. What a wonderful idea, an inflation tax on businesses that benefits of the Muppet class and allows them to participate in the impacts of great money printing fest. Try and inflate your way out of this debt!

    “While the end-of-the-world scenario will be rife with unimaginable horrors, we believe that the pre-end period will be filled with unprecedented opportunities for profit.” Or put another way, “Do you want to be right, or do you want to make money?”

  6. mad97123 says:

    PeterR, you must have “predicted” the top of the 90s run, or you’ve gone nowhere for 13 years.

  7. PeterR says:

    Correct mad, I got out in 2000 +/- relatively intact, and have been back in and out since then.

    As I suggested above, “Vigilance and principled moves . . . “

  8. James Cameron says:

    He channels William Sherden, author of “The Fortune Sellers: The Big Business of Buying and Selling Predictions.” Sherden decided to test the accuracy of leading forecasters over a multidecade period. His conclusion: Forecasters stink.

    Presumably Paul Farrell, who’s never reticent when it comes to predictions of his own, especially dire ones, is no exception . . .

  9. Terry says:

    One question: Where would Paul Farrell be without numbered lists?

  10. cowboyinthejungle says:

    so what this is saying is that economists, traders, brokers, etc. are not skilled in fortune-telling? who would’ve guessed it? so the next thing you know, you’ll be telling me that i shouldn’t be taking my mechanic’s advice on the future performance of the car industry.

  11. cakehydrant says:

    Barry, I enjoy your writing and appreciate your frank honesty about investing, as demonstrated in posts like this one. However, it leaves me wondering, what good are investment advisors if there truly is no reliable (or mostly reliable) method for making predictions? Should we all just give up and invest in index funds? In light of all the uncertainty, how do you, personally, pitch your value proposition to your clients? Why shouldn’t they just invest in an S&P 500 index fund?

    ~~~

    BR: For many people (as I have written repeatedly) dollar cost averaging into broad index funds is their best option. For some people, their situation requires assistance. That is a column I have been toying with writing — and one you may read at WaPo soon.