Economic Forecasters: The Cry For Attention

Economic Forecasters: The Cry For Attention

Look at me! Pay attention to me! Watch this!

Most of us have heard those pleas from our kids who want us to watch them do a somersault, dive off the diving board or otherwise show a new skill they have acquired. Cries for attention are normal as adolescents mature.

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We are witnessing the same phenomenon in the financial media and on financial news networks. Recently, various commentators and so-called market gurus have made extreme predictions, seemingly, in order to garner attention in a crowded 24/7 news space.

The latest example is Jim Rogers pronouncement that “there’s a 100 percent probability of a U.S. recession within a year.” Let’s face it, in the economic sphere nothing is certain.

But, from Rogers’ perspective the strategy worked. The story was picked up by virtually every news source and was the lead story of Yahoo!Finance.

Now, before anyone says that Jim Rogers is financially more successful than I am, I freely make that admission. Being successful, though, doesn’t mean one is correct or that people should follow you or believe you know what you are talking about.

Economic Forecasters  – Nothing New

This tactic certainly isn’t new. People have been making remarkably bad market and economic predictions for decades, if not longer.

Noted economist Irving Fisher famously said that “Stocks have reached what looks like a permanently high plateau…I expect to see the stock market a good deal higher within a few months.” This was seven days before the Crash of 1929.

Economist and author Ravi Bantra peddled a book entitled The Great Depression of 1990. As we all know, the 1990s turned out to be a period of unprecedented economic growth. Bantra received a great deal of attention for his misguided pronouncement as he was awarded the Ig Nobel Prize – a parody of the Nobel Prize. But, the book was a commercial success. “Call me what you want, but don’t call me late for dinner.”

My only point is to take these pronouncements with a grain of salt and treat them as entertainment and not a foretelling of the future. Unfortunately, many people watching financial news networks are more gullible, believing these individuals to have prescient abilities. After all, they are on TV or in the press and make these statements with such conviction.

For perspective, at the 2015 Berkshire Hathaway Annual Meeting, Warren Buffett quipped “We think any company that has an economist has one employee too many.” That may sound harsh, but making investment decisions based on predicting future macroeconomic developments has a lousy track record.

It reminds me that in April 2006 a billionaire businessman stated “I think it’s a great time to start a mortgage company.” The mortgage crisis ensued and the financial system was brought to its knees. That man, Donald Trump, is the likely Republican presidential nominee.

PT Barnum reportedly said “there’s no such thing as bad publicity.” With respect to financial pronouncements, he may be correct. We also know Barnum said “there’s a sucker born every minute.”

This is a guest post by Robert R. Johnson, PhD, CFA, CAIA, President and CEO of The American College of Financial Services in Bryn Mawr, PA.

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Dr. Robert Johnson, CFA, CAIA is the President and Chief Executive Officer of The American College. Prior to joining The College, he served as Professor of Finance in Creighton University's Heider College of Business. From 1996 to 2011, he held a number of senior executive positions at CFA Institute. Bob served on the board of RS Investment Management from 2012 to 2014. Bob is the author of multiple books and over 70 scholarly articles. He is co-author of the books Invest With the Fed, Strategic Value Investing, The Tools and Techniques of Investment Planning, and Investment Banking for Dummies. He has published in the Journal of Finance, Journal of Financial Economics, Journal of Portfolio Management, Financial Analysts Journal, and Journal of Investing, among others. He also serves on the editorial board of the Journal of Portfolio Management. Bob has extensive media relations experience and has been quoted in the Wall Street Journal, Financial Times, Barron’s, and Forbes, among others. He has appeared on ABC World News, Bloomberg TV, and CNN, among others. He is the recipient of the 2013 Alfred C. “Pete” Morley Distinguished Service Award from CFA Institute, the Robert F. Kennedy Memorial Student Award for Teaching Achievement (Creighton University), and Outstanding Faculty Member of the Year Award at Creighton for three years. He holds the CFA charter, the CAIA charter, a BSBA degree from University of Nebraska-Omaha, an MBA from Creighton University, and a Ph.D. from the University of Nebraska-Lincoln.