Foolish predictions from so-called experts

It is truly incredible that the equity market continues to perform so well on the same predictions over and over again. Prior to the announcement from the U.S. and Canadian central banks, the stock market climbed in anticipation of some news. When the reports were released, whether good or bad, invariably they led to the market at least holding its own, based on hopes.

Worth examining in any case are many of the predictions that come from the financial community that seems to sustain the markets.

However, it is revealing that many of the projections are made after they lowered their estimates of the economic outlook. That has become a very depressing routine. A year ago the U.S. system projected growth of about 4% in 2011. Then toward the end of the last year they cut their numbers to 2.8%. The chairman, Ben Bernacke, made the startling admission that, “We don’t have precise reading on why this growth is slowing.”

A similar pattern occurred in Britain. A year ago the bank of England estimated that the British economy would be expanding at a 4% rate in 2011. Later it revised that, cutting the number in half. Time and time again analysts in the financial community are making forecasts about both the course of the economy and the trend of corporate profits. Clearly, they have become almost pointless because of widespread errors. One could assume, perhaps too generously, that there have been only honest mistakes. In any event, what is responsible for this?

People would have had a more accurate gauge of the economy’s operation if the government reported actual Gross Domestic Product growth excluding debt-financed consumption. If deficit spending were not counted, GDP growth would be considerably lower and the prognosis would be more realistic.

Furthermore, a real GDP fails to extend as a consequence of all the deficits incurred, it should become obvious that government-sponsored stimulus programs accomplish very little. In fact, if one subtracted government spending from the totals, the economy in North America actually has shown no growth in the past three years.

The equity markets and the economy seem to be premised on hope. At a time when interest rates are at rock bottom and major stimulus measures that have been put in place, all to no avail, how can any rational analyst make optimistic predictions? Yet, they have been forthcoming frequently. Against that background, it is time we discard or ignore nearly all the predictions are issued by governments of the financial community.


Bruce Whitestone