FINANCIAL PREDICTIONS – SHOULD WE BELIEVE THEM?


Wouldn’t it be nice if we could predict the future? It might not all be good news but at least we could plan ourlives accordingly. It would certainly come in helpful when making investments but I will come back to that later.

Firstly let’s examine the most famous predictor of the future of all time, none other than the 16th century French visionary Nostradamus. In 1555 he wrote a book called ‘Les Propheties’ (The Prophesies) in which hundreds of quatrains, some rhyming, some not, foretold future major events that would shake the world. Here is a purported translation of one of them:

“Two steel birds will fall from the sky on the Metropolis / The sky will burn at forty-five degrees latitude / Fire approaches the great new city / Immediately a huge, scattered flame leaps up / Within months, rivers will flow with blood / The undead will roam the earth for little time.”

These words were interpreted to reflect the 9/11 attack on the World Trade Center in 2001. Nostradamus also predicted the Great Fire of London, the French Revolution, the rise of Hitler, the first man on the moon and the assassination of Kennedy. Or did he? His predictions were in vague terms and could relate to many events. His writings make fascinating reading and continue to provoke many discussions but they do not stand up to factual analysis and the translations are sometimes questionable. For example, steel had not been invented in the 16th century.

Take a look at the quatrain below. Can you read anything into it? “Whole peoples will move to fairer shires / while others flee from water, wind and fires / As one rash ruler causes hills to shake / another’s ramblings keep the world awake”

 

Being sensational helps if you want to attract attention

Many have tried to follow in Nostradamus’ footsteps. Predicting the end of the world is a popular way to get noticed, even if it means a bit of explaining has to be done the day after it didn’t happen.

But beware of those making sensational predictions about the financial markets; more often than not they have a hidden agenda. Below is an article presented by one purveyor of doom, the publisher of an online subscription newsletter, kindly forwarded to me by a concerned client.

‘Gold warning – Why to take immediate action!’

‘Dear Reader,

This is an urgent warning for anyone who has gold  investments. The gold price could be weeks away from a major bust that will see it sink to as low as $700 an ounce. My advice: get out of your speculative gold investments now.

….Watch my video now before it’s too late…………’

The above warning appeared in mid-February 2017. Fast forward four months to mid-June. Out came a new headline and story with a surprising recommendation at the end:

‘The End of Globalism: America Bows Out – The Dollar Dies’

‘Donald Trump’s foreign policy has been decidedly insular ever since his early campaign days. And since getting elected, he’s gone out of his way to insult and alienate every single one of America’s closest allies.

There’s an underground fissure that’s about to shift, unleashing unimaginable destruction on stocks and perhaps your accounts. Only few will escape the bloodbath, and those who do will come out richer than ever.

If you want to be one of them, click here to watch the official video to the very end. The death of the dollar will be a years-long phenomenon that will alter the fabric of our society. So if you want me to cut to the chase, it’s this….‘Thedollar is dead. Buy gold’

So in the space of just four months the newsletter went from a panic-sell position on gold to a panic-buy. So what in fact has happened to the price of gold since February when the writer advised to sell gold immediately?

In mid-February the price was $1,228 an ounce. In mid-June the price was £1,265 (a small gain; not a fall to $700!) Fast forward to this month; at the time of writing it was $1,288. So there were no dramatic moves in gold at all. And the US Dollar hasn’t collapsed.

The real aim of articles of this nature, and you will find plenty on the Internet, is to appeal to the human emotions of fear and greed which will lead many readers to reach for their credit cards by the time they get to the end of the promotional videos.

 

The difference between predictions and forecasts

While both terms may be used to describe the same, a forecast is probably better understood. An example is the weather forecast. It is based on known facts and historical data. By and large the forecasts are fairly accurate but we know they cannot always be right, and sometimes they are badly wrong.

Famously, a British weather forecaster, Michael Fish, once stated jokingly since such events were almost unheard of in the UK, that the South of England was not expecting a hurricane. Ironically a hurricane force storm really did hit the next day. But the forecast was based on the best information available at the time. Forecasts are now much more  accurate.

The same is true of financial forecasting except that the variables in the financial world are even greater than those in meteorology. Sensational articles like the ones I have quoted are not forecasts; they are crude marketing ploys to take advantage of people with limited knowledge of the financial markets.

Forecasts by independent analysts on the other hand are based on facts and carefully thought-through assumptions. They may prove wrong but the intent is to give some guidance. Where fund managers and promoters are concerned they will inevitably paint their products in a positive light. This is understandable provided they do not deliberately mislead but their bias should also be taken into account when making investment decisions.

 

So what predictions can we make now?

For one, Mount Agung is going to erupt. But even the experts don’t know when. It could be this week, next month, next year or maybe in 50 years’ time.  But due to the nature of volcanoes the prediction is a pretty sure one. The hard part is the timing.

Some financial predictions are safe ones too:

– There will be a stock market correction. A fairly easy one after a long ‘bull run’ but timing is the issue again.

– There will be a global pensions crisis. Another safe one given changing demographics, increased longevity and the fact that very few people are saving enough for retirement.

But let’s get back to that second quatrain. Could you relate it to actual happenings? Uncanny? Not really;Nostradamus didn’t write it. I just did. So be wary of predictions!

 

Colin Bloodworth, Chartered Member of the Chartered Institute for Securities and Investment (UK), has spent over 20 years in Indonesia. He is based in Jakarta but visits Bali regularly. If you have any questions on this article or related topics you can contact him at colin.bloodworth@ppi-advisory.com, colin.bloodworth@yahoo.co.uk or +62 21 2598 5087

 

You can read all past articles of  Money Matters at www.BaliAdvertiser.biz

Copyright © 2017 Colin Bloodworth