What a Difference a Year Can Make!

Your humble correspondent has completed a quick survey of predictions made prior to January 1, 2008 regarding the health of the US economy in the upcoming year. To summarize, a significant percentage of those forecasts were about as accurate as Neville Chamberlain’s confident prediction of “peace in our time” on September 30, 1938.

As a representative sampling of these predictions, please consider the following.

On December 24, 2007 The Economist, arguably the world’s most respected journal of international financial news and analysis, predicted that:

“If history is any guide, 2008 should be a better-than-average year for America’s stock markets. Figures… show that since 1926 Wall Street has risen by an average of 8.8% in presidential-election years…”

(I know what you’re going to say: Babe Ruth struck out more often than he hit a home run!)

This leads to the opinions of a “panel of experts” cited by The Market Oracle (UK) who thought that:

“Cash may be king for the moment but financial experts favor a plunge back into equity markets later in the year… Bonds are no place to be in the inflationary environment that is likely to develop next year. And while the US dollar has been one of the biggest currency market casualties of this year, it could be the currency of choice in 2008.”

(Maybe next time the panel will use modern statistical and economic models, such as consulting the entrails of a sacrificed goat, before embarrassing themselves in public.)

On August 29, 2007 Steve Forbes predicted that the market would end the year "far higher than we are today…" On that day, the Dow Jones Industrial Average closed at 13,289.29. At year’s end in 2007, the Dow closed 13,264.82. As of the close of trading today (December 31, 2008) the Dow stood at 8,776.39, a year-to-date loss of 4,488.53 points and a decrease of about 35% since December 31, 2007.

(I guess it’s a good thing that Stevie inherited a few billion, because he doesn’t have a chance if he listens to his own predictions.)

In all fairness, there were some, such as Dom Armentano at Lew Rockwell.com, who accurately predicted the Great Meltdown of 2008. Whether these predictions should be given any credence will be open to debate, since these predictions practically always came from those whose “gloom and doom” forecasts had been issued on an annual basis since at least the year 2000.

An exception to the above must be made for the International Monetary Fund (IMF), whose 2008 World Economic Outlook stated that:

“After years of strong growth, the world economy is decelerating quickly. Global activity is being buffeted by an extraordinary financial shock and by still-high energy and other commodity prices. Many advanced economies are close to or moving into recession…”

(A review of previous forecasts issued by this distinguished organization suggests that this prediction is also the first recorded instance that the IMF has been correct.)

Although you may not realize it, the demand for accurate financial forecasting has increased dramatically in the past year simply because those left with any money after heeding such advice as that cited in this posting are now desperate to hold onto it. Therefore, now is the time to launch your new career as a financial seer, prophet, and messenger from God.

Since there is a pretty good chance that you will be as dismal a failure in your now career as you were in your previous job, here are a few guidelines to help you stay a few steps ahead of the mob of your disgruntled former clients or a federal grand jury.

1. Before dispensing (for a substantial fee) your valuable insights into the financial world, flip a coin. In doing so you will have at least an even chance of being correct, which is substantially better than the batting average of your competition.

2. If your financial predictions are only slightly off, cite “unforeseen market conditions” and then keep quiet until everyone forgets that you were wrong.

3. If your economic prophecy is wrong by more than 20 percent, there is a good chance that everyone else was also off target and no one will notice that you blew it. This is known as the “strength in numbers” defense. Alternatively, try blaming the Bilderberg Conspiracy, the Rothschild family, world Zionism, the Whore of Babylon, or some other tool of the Antichrist as the reason for your ineptness.

Let me close by quoting, as I often do, a statement by my hero and idol, H.L. Mencken:

“No one in this world has ever lost money by underestimating the intelligence of the great masses of the plain people. Nor has anyone ever lost public office thereb