Is My Crystal Ball Broken?

As the stock market dips then jumps then dips again, it’s important to remember that markets are unpredictable and nobody knows what will happen tomorrow.

Unfortunately, that doesn’t stop the analysts from trying.

An obvious example comes from May of this year.   As the price of oil crossed $120 per barrel on its way to an all-time high of $147, a Goldman Sachs analyst was quoted as saying that $200 oil was “likely”. 

It seemed like a logical conclusion at the time.

Today, though, just five months after the prediction, the analyst’s “likely” scenario looks downright laughable.  Oil is off by more than 40 percent since that day.  And there’s hundreds of examples just like this, all around us. 

Every day, economic experts and analysts are on television, telling us what’s going to happen in the future:

• They tell us when housing prices will reach a bottom
• They tell us when stock markets will rebound for good
• They tell us what the economy will do over the next 12 months

But none of them operate with the proverbial crystal ball — it’s all on “gut”.

Another example is from today’s CNNMoney.com.  In the wake of the government’s banking response, a mortgage analyst predicts 7 percent interest rates over the next six months  This would represent a 1.5 percent from the recent lows.

The rate prediction may be accurate, or it may not.  We won’t know for another six months.  But what we know today, though, is that mortgage rates are all over the place — just like the stock market.  One day up, another day down.  And nobody knows what they’ll do tomorrow.

Predicting the future has always been an inexact science but that won’t stop the experts from trying.  And the experts are wrong as often as anybody else.