Market Forecasts to Ignore in 2015 by Barry Ritholtz
January 5, 2015
There have been so many erroneous calls for a stock-market crash that it's hard to choose which deserves special mention. But I am going to give you two that merit attention: The first comes from Chapman University professor Terry Burnham, who predicted Dow 5,000 before Dow 20,000.
During the years he [Terry Burnham] has repeated this forecast, the market has gained about 40 percent. Read Barry Ritholtz's full article:
Mr. Ritholtz's math is either wrong or deceptive.
I published the Dow 5,000 article after the market closed on July 11, 2013. Read my Dow 5000 full article:
The historical levels of the Dow can be found in many places. Perhaps the easiest is google finance. Click on the "Dow Jones" below the graph, the select 'historical prices' on the upper left.
Value of the Dow when I made the Dow 5,000 prediction (close on July 11, 2013): 15,460
Value of the Dow when Barry Ritzhold wrote his article (close on January 2, 2015): 17,833
% change in Dow since I made my Dow 5,000 prediction [Current level - old level)/ old level]
= (17,833 - 15,460)/15,460 = 15.4%
So the Dow had risen 15.4% between my prediction and Mr. Ritzhold's article (before yesterday's 331 point decline).
Barry Ritzhold writes, "During the years he has repeated this forecast, the market has gained about 40 percent."
Is this libel to write 40 percent when the actual figure is 15.4%? I don't think so because Mr. Ritzhold's statement is technically true in that the cumulative return over 2013 and 2014 is about 40%. It is also true that, "During the century he [Terry Burnham] has repeated this forecast the market has gained about 40 million percent."
I want to point out two positives about Mr. Ritholtz's article. First, he spelled my name correctly. Second, he does point out that my prediction is neither wrong nor right because it is specifically formulated as Dow 5,000 before Dow 20,000. At Dow 20,000 I will not make any excuses. I will be wrong. Conversely, if I am right, I will be sorry that we live in a world with so many macroeconomic policy mistakes.
Financial markets live in terror of the day the Federal Reserve raises interest rates. However, we should fear exactly the opposite: a persistent nightmare of low interest rates. Chronically low interest rates signal trouble, and they inflict financial pain. Ominously, a recent economic poll (interpreted correctly) suggests that interest rates are going to fall, not rise.
|© Terry Burnham|
The Fed has been keeping interest rates at rock bottom lows to supposedly stimulate the economy… The idea that the Fed can save the economy is simply ridiculous. … What about fiscal policy? Can we deficit spend our way to prosperity? This is also ridiculous. Our problem is that we have overspent. If you had a problem of drinking 50 cups of coffee a day, would the solution be to drink 80 cups a day for a while? …
Stocks will decline … I’m not predicting what will happen today, or in the next week or month. I don’t pretend to know the timing. I only think that I see the inevitable.One year later, we revisit the macroeconomic policies and the impact on jobs and profits, and check in on the Dow Jones Industrial Average. In addition, we develop a scorecard to revisit periodically as the government attempts to end the unusual macroeconomic policy environment.