Thursday, June 27, 2019

Judging the Financial World's Prophets

Early last year (2018) I wrote a post about the dangers of trying to predict the future and the poor track record of those who try, and to prove the point selected 10 predictions for 2018 from various experts (a term loosely used in this setting) and promised to revisit them in 2019 to see how they fared compared to a random coin toss.  Let’s check the record.
1. Prediction: Bitcoin (the so-called crypto-currency which is all the [speculative] rage now) will decline in value in 2018. (Source:Motley Fool) The coin toss says no, it will not decline.  Actual result: By January 2019 Bitcoin was down nearly 73% from its high in late 2017.
2. Brexit (Great Britain’s exit from the European Union) will be chaos, causing the defeat of Prime Minister Theresa May and the election of the Labour Party’s Jeremy Corbyn.  (Source: Fortune) The coin toss says no to it all.  Actual result: I believe it’s safe to say Brexit has been chaos and is still not completed.  Though May did not depart in 2018, her own exit is imminent.
3. Growth in the Gross Domestic Product of the U.S. will not reach 3% in 2018.  (Source: Fortune)  The coin toss says it will.  Actual result: This was oh so close.  It looks like the official number is 2.97%.
4. The price of crude oil will be $60 per barrel next Christmas.  (Source: Fortune)  The coin toss agrees.  Actual result: Though crude’s average closing price for all of 2018 exceeded $60, it was well below that at Christmas 2018.
5. The Standard & Poor’s 500 index will be at 2950 at the end of 2018.  (Source: Brian Belski at BMO Capital Markets, and many others)  No argument from the coin toss.  Actual result: The S&P 500 index flirted with the 2950 mark in September 2018 but closed the year at 2506 thanks to a big slide in the last quarter.
6. The yield on the 10-year Treasury note will be 2.8% next December.  (Source: Kiplinger)  The coin toss affirms that prediction.  Actual result:  The 10-year Treasury note yield in December 2018 was 2.69% but was at or above 2.8% for some time before that.
7. Inflation will be 2.1% in 2018. (Source: Kiplinger)  The coin toss says no.  Actual result: Inflation officially reached 1.9% for 2018.
8. “A new form of energy” will be discovered on Venus. (Blind—and dead—Bulgarian mystic Baba Vanga)  The coin toss says no.  I realize this prediction on its face is not directly about the economy or your finances, but if such an energy source is actually discovered it will profoundly impact financial markets.  And in hopes of racking up a perfect prediction record for myself, I’m going to weigh in on this one: It won’t happen.  Actual result: Now do I REALLY have to score this one for you?
9. Unemployment will fall below 4% in the U.S. (Source: Wallethub) The coin toss doesn’t agree.  Actual result: The unemployment rate fell below 4% and ended the year at 3.9%.
10. Credit card debt in the U.S. will break all-time records, topping $1 trillion.  (Wallethub)  The coin toss affirms it.  Actual result: The $1 trillion mark was exceeded in November, hitting $1.023 trillion.
If we generously score the experts on #2 and #6 and decide to strictly enforce the numbers and not round up in #3, they ended the year with a 60% accuracy level.  And how about the random coin toss?  Taking advantage of the same generous scoring on #6, the coin toss was right 40% of the time.  I wouldn’t call either of these records stellar.  And it’s enough to affirm my opinion (at least to me!) that listening to the experts—who often are people out to make headlines with bold predictions that nobody will check them on a year later but which if they come true they will herald from the rooftops—is an iffy proposition.
Until next time,
And I repeat the verse from that January 2018 post:  
“But the prophet who prophesies peace will be recognized as one truly sent by the Lord only if his prediction comes true.” Jeremiah 28:9 NIV®*

*Scripture quotations taken from the Holy Bible, New International Version® NIV®
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