A constant siren during this economic disruption is the sound of experts forecasting all kinds of dire, or uplifting, developments ahead.
Take this morning: I wake up, scan Bloomberg to get a sense of the market futures and how the overseas markets did overnight, and see that earnings for Best Buy and ConAgra were higher than anticipated, that GDP dropped more than reported in the fourth quarter and that the market is up.
Interesting, I think. There’s a lot of counter-balancing information. That feels like a shift.
I see that rates for 30-year fixed mortgages are down to 4.85%, the lowest on record.
That’s going to boost some activity in the home market, I think.
Then Nouriel Roubini comes to the table.
From Bloomberg:
U.S. stocks will fall and the government will nationalize more banks as the economy contracts through the end of 2009, said Nouriel Roubini, the New York University professor who predicted last year’s economic crisis.
“The stock market is a bit ahead of the real macroeconomic and financial news,” Roubini, a professor at NYU’s Stern School of Business and the chairman of consulting firm Roubini Global Economics, said in an interview with Bloomberg Television in London today. “We’ll have some major banks going belly up that will need to be taken over.”
Aargh. Dampening.
Fortunately, Nicholas Kristof in today’s New York Times puts some facts to the potency of expert forecasts. Not very accurate, it turns out.
Ever wonder how financial experts could lead the world over the economic cliff?
One explanation is that so-called experts turn out to be, in many situations, a stunningly poor source of expertise. There’s evidence that what matters in making a sound forecast or decision isn’t so much knowledge or experience as good judgment — or, to be more precise, the way a person’s mind works.
Kristof points to research by a University of California, Berkeley professor that shows that on average forecasts by experts were only a little bit better than the outcomes of random guesses. And the more famous an expert was, the more likely the forecasts were to be wrong.
So there it is, scientific proof that when you’re in the middle of a tough situation, the best thing to do it to trust your instincts, keep working hard and gut it out. Because nobody else really has an idea of how things are going to turn out. They just cloak their uncertainty in a lot of data and a lot of authority.
