Yogi Berra said, “it’s tough to make predictions, especially about the future.” Yet there’s a massive industry built around predicting the future state of the economy. Who would have thought that reading crystal balls would become a well paid profession, for TV pundits, newsletters, and investment houses.
How good are those predictions? For fun, let’s look at James Cramer, because he’s a great target for poking fun. In 2021, Tuttle Capital Management filed with the SEC to provide a new ETF: the “Inverse Cramer ETF (SJIM)” which bets on the exact opposite of what Cramer recommends on his CNBC show.
A 2021 study out of the Wharton School analyzed the stock recommendations from the show Mad Money. In the 17 -year period, the S&P 500 gained 7.07% and Cramer’s picks gained 4.08%.
Okay, that’s just taking shots at a media personality. Let’s look at folks whose predictions should be more valuable. Like the Mortgage Bankers Association, which in December 2021 predicted 30-year fixed mortgages at 4% in 4Q22; they’ve already hit 7% in places.
Similarly the Fed’s Summary of Economic Projections on December 15th, 2021 imagined core inflation of 2.4% to 3.2%, and the Fed Funds Rate at 0.4% to 1.1%. Yikes.
Even the (IMHO very reliable) Bloomberg model projects the likelihood of a recession by October 2023 to be 100% (up from 65% previously). I wouldn’t complain if they said 99%. But the hubris of a 100%, that there can’t be any alternative, prediction? That itself practically guarantees that it is wrong. But who knows - Yogi had it right.
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