The book “Aftershock” by Weidemer, Weidemer and Spitzer documents economic predictions by people who should have known better but didn’t. Here is a sampling:
- Prediction: “A very powerful and durable rally is in the works. But it may need another couple of days to lift off. Hold the fort and keep the faith!” Richard Band, editor Profitable Investing Newsletter, March 27, 2008.
- Prediction: “AIG could have huge gains in the second quarter.” Bijan Moazami, distinguished analyst, Friedman, Billings, Ramsey, May 9,2008.
What actually happened: AIG lost $5 billion in the second quarter of 2008 and $25 billion in the third quarter. It was taken over in September by the U.S. Government.
- Prediction: “I think this is a case where Freddie Mac and Fannie Mae are fundamentally sound. They’re not in danger of going under…I think they are in good shape going forward.” Barney Frank (D-Mass.), House Financial Services Committee Chairman, July 14, 2008.
What actually happened: Within two months of Rep. Frank’s comments, the government forced the mortgage giants into conservatorships and pledged to invest up to $100 billion to each.
- Prediction: “I think Bob Steel’s the one guy I trust to turn this bank around, which is why I’ve told you on weakness to buy Wachovia.” Jim Cramer, CNBC commentator, March 11, 2008.
What actually happened: Within two weeks of Cramer’s comments, Wachovia came within hours of failure as depositors fled. Steel eventually agreed to a takeover by Wells Fargo. Wachovia lost half their value from September 15 to December 29.
- Prediction: “I think you’ll see (oil prices) at $150 a barrel by the end of the year”. T. Boone Pickens, one of the wealthiest and most respected oilmen today, June 20, 2008.
What actually happened: Oil at the time of Pickens’ prediction was around $135 a barrel. By late December it was below $40.
- Prediction: “I expect there will be some failures…I don’t anticipate any serious problems of that sort among the large international active banks that make up a very substantial part of our banking system.” Ben Bernanke, Federal Reserve chairman, February 28, 2008.
What actually happened: In September, 2008, Washington Mutual because the largest financial institution in U.S. history to fail. Citigroup needed an even bigger rescue in November.
Why don’t they tell us the truth?
How do you feel when your read these failed predictions? Angry? Confused? Miffed? Cynical? I probably feel some of all. And while I don’t claim to know another person’s motives for their actions, I have some theories about why these “experts” didn’t tell us the truth.
They do not know the truth.
They may be “experts”, but (being charitable) I concede that many really had no clue to the imminent housing, banking and stock market collapses. But then should they be called experts?
They have agendas which are contrary to the truth.
Again, I don’t claim to know another person’s motives, but T. Boone Pickens, an oil man, is not likely to make negative predictions about oil. Richard Band, editor of Profitable Investing Newsletter, knows that dire market predictions will normally curtail investing.
Predicting failures could make a leader seem inept.
Barney Frank, as House Financial Services Committee Chairman, may have realized that failures of Fanny Mae and Freddy Mac could be reflections on his leadership ability. Same with Federal Reserve Chairman Ben Bernanke in regard to impending bank failures.
They honestly believe that knowing the truth is not a good thing.
Have you ever had someone hide the truth from you because they didn’t think you could “handle it”? Have you ever heard, “what you don’t know can’t hurt you?” If you are like me, once you learn that a friend or relative withheld the truth because it was “for my own good”, I feel patronized…and angry. It may be that certain experts simply don’t think that us normal down to earth citizens have the fortitude and integrity to deal with reality, so they keep it from us. Is “arrogant” a fitting word here?
The doctor/disease analogy
If your doctor knew you had a life threatening disease, which of these would you prefer:
- Not telling you because your disease would reflect poorly on his ability as a doctor?
- Not telling you because he didn’t think you could deal with the truth?
- Telling you the truth?
You want the truth of course. I realize that economic forecasting is not as an exacting science as practicing medicine, but, be it a doctor, a politician, or an economic pundit, I want to know the truth.
Whom do you trust?
I don’t want to become a cynic, but recent history has given me little reason to trust the so called economic experts. I have therefore vowed to do something far too few of us do: think for myself. I might not get it right either, but at least I know my own motives. And I am the expert in one financial arena: my own finances.
How about you? How do you filter economic predictions? Whom do you trust? Why?