The title of this post is borrowed from a James Mackintosh column (behind paywall) in this past Friday's Wall Street Journal.
As investors' inboxes once again become clogged with annual outlooks from Wall Street's scribblers, there is little admission of the nearly universal failure to predict what happened this year....
Strategists mostly shrug their shoulders and move on to their 2018 predictions.... Cynics will look at what happened in the past and wonder why anyone bothers. Predictions have a dire track record...
At SMI, we would reject the characterization that we are "cynics" — we are simply realists. And the reality is that no one knows what the future holds. To be sure, occasionally a forecaster here or there may make a guess that turns out to be largely correct, but it is a guess nonetheless.
Investing blogger Ben Carlson says trying to predict the economy and the markets is "a fool's errand." In a post last year, he briefly outlined the past 12 decades of U.S. economic history and demonstrated that the conventional wisdom about "the future" has turned out to be far from correct.
Here's Carlson on recent history.
By 2000, it appeared that [Fed Chair] Alan Greenspan & co. had ushered in an era of the great moderation that had seen just two recessions in the previous 20 years. Investors all wanted to become day traders because Internet stocks were seemingly minting millionaires on a daily basis in the "new economy." Everything was amazing!
By 2010, the S&P 500 had just seen a lost decade and gotten cut in half in both the tech bust and [the global financial crisis]. People were worried about double dip recessions, the stock market was assumed to be in a dead cat bounce that would surely crash again, there were fears of hyperinflation, rising interest rates, a crash of the U.S. dollar, the government going broke and housing was never going to come back again. Interest rates were rising across Europe as their debt crisis was just flaring up and everyone assumed the Fed was powerless to do anything. Everything was terrible.
By 2016, people assume we're in a secular stagnation, interest rates and inflation will never rise in the future, no one can innovate anymore, bonds are unstoppable in the midst of a 40+ year bull market, there are negative interest rates around the globe and the Fed has...propped up both the market and the economy. Very few people are optimistic about the future.
This is not to say everyone is completely wrong all the time. But even a forecaster (or average investor) who is half right half the time will have a rather marginal batting average!
At SMI, we admit to our lack of foreknowledge and therefore we don't make predictions about the precise nature of what will happen or when it will happen. We can say that bear markets have always followed bull markets, so it seems likely that a bear will go on the prowl someday. When that will be or what that bear market will look like (as far as depth and breadth), we simply don't know.
However, we will predict one thing: We predict — with a high degree of confidence — that most predictions about the economy and the markets (and, for that matter, about politics and world events) will prove to be "pathetically wrong."