[TSP_Strategy] Re: Whats up for 2016 --- Over optimism?

 

I wrote a piece called Forecasting Optimism you may want to consider when you hear presentations like this.  From a marketing stand point, it would be difficult to attract new customers with a presentation that says the market is going to tank in 2016 and that NBER will announce a recession started 12 months after the fact in 2017 - usually as the market is bottoming.

Excerpt from "Forecasting Optimism":

 

Let's talk forecast.  I forecast over optimism in forecast.  Over optimism is persistent in forecasts about the economy, earnings, manufacturing and the stock market.  But you don't have to trust me, the Fed's own research shows they have Persistent Overoptimism about Economic Growth.

My favorite line in the report is, "In a cross-country study of private-sector forecasts from 1989 to 1998, Loungani (2001) finds that the record of failure to predict recessions is virtually unblemished."  The report adds, "An updated study by Ahir and Loungani (2014) finds that the private-sector's record of failure to predict recessions remained intact through 2008 and 2009."

But the report points out central bankers may be worse, "A study by Alessi, et al. (2014) finds that one-year-ahead growth forecasts from the Federal Reserve Bank of New York and the European Central Bank from 2008 to 2012 exhibited substantial over optimism, averaging 1.6 to 2.4 percentage points above actual growth."

I find it is interesting to consider from a market and investor psychology point of view.

Michael

TSP Smart Investor

Forecasting Optimism link:  http://report.tspsmart.com/2015/12/03/the-smart-bird-forecasting-optimism/

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Posted by: Michael Bond <michaelhbond@yahoo.com>

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