Good Thing I Am Not An Economist

I read about macoeconomic stuff because I find it interesting.  I have no formal education in the area, which makes it of even more interest to me.  I also think this assists me greatly coming to it without a formal education as I did not have years of professors brainwashing me with any specific disposition.  Indeed, my niece just started college and is studying economics and finance, so I wrote to her and asked that she learn what she can but keep an open mind.  To me an open mind is critical.  I cannot name a single author or blog I agree with all the time and my thinking has changed over time.  Some theories I agree with generally and some I do not.  But one thing that has proven itself repeatedly and seems to be THE most sound economic principle is that economists are terrible at forecasts.

Let's take this past week's decision by the Fed to continue ZIRP.  Going into the meeting I think the result was pretty much expected by surveyed economists, but I saw some reports were close to 50/50.  Yet just a few weeks ago the majority of economists predicted an increase this meeting.  Indeed, in July and August over 80% predicted a September increase and over 75% have predicted a September or earlier increase all year.  Go back to January and over 60% predicted it to happen by June.

http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2015/09/economists%20are%20always%20wrong.png

Now if you look at April just under 90% were predicting an increase by September.  Yet in the first half of April I posted here noting that I did not see the Fed increasing rates this year or next and was more likely to start QE4. 


I never changed that belief and am happy to see more folks starting to share it.  Not a difficult call in my book.  The economic outfall around the globe has been there for the whole year for those who cared to look.  The question has never been whether the economy is doing well, it isn't, but how well ZIPR, NIRP and QE around the world can continue mask it.  Mind you, NOT avoid it, just mask it.  They masked the problems for a long time but the cracks are definitely starting to show.  I just don't see why trained economists cannot see this.  Perhaps this is what they were trained to do.  And, more likely, their jobs call for them to be economic cheerleaders, not unbiased readers of the tea leaves.

It does not stop with the rate increase.  On a regular basis dozens of economists come in with a broad range of predictions and it amazes me how often the results are not in their range or even close.  For example, at the end of July I predicted a market crash by the end of the third quarter and the beginning of a recession this year.  Specifically, I said:

Unfortunately, I truly believe it will take a near disaster at this point to teach us this lesson.  Indeed a recession of epic proportions is needed and, like it or not, it is upon us sooner than we would like.  I am going out on a limb here and predicting just such a recession beginning in the last half of this year.  And I will be surprised if the markets do not crash before this quarter is out.  So then we will get to the bottom line and truly see if all's well that ends.

http://financialspiltmilk.blogspot.com/2015/07/alls-well-that-ends.html

It was a guess of course, but an educated one based on an array of reports suggesting the time had come.  Dr. Hussman's website, for one, is a nice place to visit to find some of the best reliable stats and I particularly enjoy his weekly market comment.:

http://www.hussman.net/

And if  you like charts and stats that prove the point, then you will find a host of them nicely summarized here in one place:

http://seekingalpha.com/article/3538036-the-market-in-pictures-the-aging-bull?ifp=0&app=1

All pointing in to the same conclusion.

But few if any economists thought the market was in for a crash this quarter.  Yet we are in the worst global market quarter in over four years and as summarized at The Economic Collapse link below, a crash is happening in the U.S. and around the world.

http://theeconomiccollapseblog.com/archives/the-stock-markets-of-the-10-largest-global-economies-are-all-crashing

Note I say "is happening" and not "has happened."  I think one has happened but do not in the least think it is over yet and the worst is yet to come. 

As for my recession prediction, only time will tell as they do not call a recession until long after it occurs.  We can say for certain, however, that economists are not seeing one.  If you visit the GDPNow website of the Atlanta Fed you will see the consensus range of predictions for third quarter GDP is in the range of just under 2% to just over 3%.  They certainly do not see a recession starting before the end of the year - or at all for that matter.  We will see.

So decide for yourself if you want to believe the economists.  To me, you are better off reading a host of opposing views on this, looking at the facts and deciding for yourself.