Horoscopes and Resolutions
It's that time of the year, the time for horoscopes and resolutions.
You know the "your life will change in February" or "I want to quit smoking and spend more quality time with the family."
Let's forget about the personal forecasts, prophecies and resolutions for a moment, shall we? But what about the public ones, so to speak? What about all the wonderful, candid predictions, forecasts, prophecies for this year? What are they really worth?
That's only possible to assess with hindsight, so let's cast out mind back to some of the predictions for 2007.
I give you only three by no means extreme, but rather within consensus-range, forecasts for last year:
The Euro is going to pull back to around 1.25/1.30 dollar.
The consensus was that what we experienced in 2006 was a dollar weakness, not euro strength (duh!) and the dollar, with the tailwind of a still strong US economy, would pull through in the end. OK, OK, we can safely say we still have a dollar weakness, rather than euro strength. But so what? That doesn't slow down the euro one little bit in its trail to appreciate by default, rather than by design.
Conclusion: Bang on -- NOT!
The DAX is in the mature phase of its bull run and will gain between 8 percent and 12 percent (made at the start of the year).
Nobody I remember had predicted the Dax to rise another 20 percent plus. Nevermind China shock in spring (which cost us 7 percent in the Dax) and subprime (which pulled the Dax-listed banks down 8 percent), without these imponderables the ol' Dax would have soared 30 percent or more.
But here are a couple of choice forecasting zigzags (and I apologize upfront to both Deutsche and Commerzbank, because I could have picked any other two out of the big banking pot with the same results):
At the end of 2006, Deutsche Bank originally saw the DAX at 7,200 points by year end 2007, but when it climbed above 7,200 already in April, the bank's CIO quickly issued a new projection of 8,500 before the year is out. Same thing with Commerzbank: 7,400 at the beginning of 2007 turned quickly into 8,500 by the middle of the year. Frankly speaking, I stopped checking for further dynamic "adjustments" of those forecasts. Hmm.
Conclusion: A little off the mark, wouldn't you say?
Oil prices will drop to around $50 dollars a barrel.
Again, these were no overly optimistic projections. Whether it was the International Energy Agency or the Center for Global Energy Studies (CGES), they were all relatively bearish on oil.
Conclusion: We all know what happened in the real world. Only too painfully so, every time we stopped at the petrol station, eh? 'Nuff said.
I could add to this merry list: Gold, copper, bonds, interest rates, even the weather. And trust me, it's perfectly futile to name names here, or identify banks or analysts, because if you follow the rankings of forecasts and forecasters for enough years to render it statistically halfway relevant, you'll notice -- depressingly and/or comfortingly so -- that it matters not (much) which forecasts you follow. Those who get it more than 50 percent right are the stars of the trade.
Doesn't that give you pause?
OK, Ms. Know-It-All, what do you suggest we do? Abolish all forecasts and consult the stars? Roll the dice? Would be worth it as an experiment, I suppose. But better not, in case your diced-out investments fare depressingly well or the stars tell it all.
But guess what? I just received an unsolicited bells-and-whistles e-mail from some astrology site (which shall remain unnamed here) informing me in no uncertain terms that my "life will change dramatically" on Thursday, Jan 10th. I wait with bated breath (but little expectation) and will keep you posted.
Just for further reference (maybe this time next year) some choice predictions for 2008:
Dax to rise, to 8,300 for the more conservative punters, to 9,000 plus for the more bullish DAX watchers. That's a wide-enough berth.
Euro, take your pick: it's either going to retreat towards $1.35 or climb above $1.60.
Oil will stabilize to around $85 per barrel or break out above $100 dollars.
This time next year we shall be wiser ... well, a little. Maybe.
Ciao for now.
Questions? Comments? Send an email!