Swedroe: Forecasters Not Held Accountable

May 22, 2017

Dow Could Crash 17,000 Points

This isn’t my forecast. But it’s a good reminder that you should ignore all such forecasts. And it’s a good example of why I keep a file of forecasts—the financial media almost never hold forecasters accountable because that would ruin the game, and people would cease to “tune in.”

This particular forecast of the Dow dropping 17,000 points is from a Dec. 10, 2016, CNBC interview with demographer, economist and author Harry Dent to promote his new book “The Sale of a Lifetime: How the Great Bubble Burst of 2017‒2019 Can Make You Rich.”

The previous day’s close for the Dow was 19,757. (Note that as I write this on May 2, 2017, the Dow closed at 20,950, a gain of about 6%.) The real question is why CNBC would have Harry Dent on the air (I’ll explain later) when virtually every forecast he has made over the past 20 years has been dead wrong, as you’ll see.

A Previous Example
We’ll begin by examining an earlier CNBC interview with Dent from September 12, 2011. Over the prior four calendar months, the market had lost about 10% and the Dow Jones Industrial Average (DJIA) had closed just below 11,000. Let’s take a closer look at Dent’s forecast, which was based on the “changing spending habits of global consumers.”

  • “I think the stock crash started in late April. This is just the first wave down ... I think the crash really starts some time in early 2012.”
  • “Baby boomers around the world, and all the developed countries—Europe, North America, Australia—have peaked in their spending cycles ... and now they’re going to be saving and not borrowing.”
  • “That debt is deleveraging, and that's actually causing deflationary trends. It won't matter how much stimulus the government throws at the system, because baby boomers with their already-huge debt burdens will not want to borrow money and spend more.”

Dent went on to compare the current situation to the Great Depression: “That’s what happened—deflation came in such a deep downturn because so much debt was deleveraging.” Sounds pretty scary and compelling—remember, he’s both an economist and a demographer.

The financial media loves to highlight forecasts because they need investors to “pay attention”—that’s the winning strategy for them even though they know, or should know, it’s the losing strategy for investors. And they anoint the latest guru who happens to get one forecast right.

However, holding forecasters accountable is as rare as the proverbial “black swan.” Jason Zweig, columnist for the Wall Street Journal, pointed out that pigs will fly before you’ll ever see a full list of an expert’s past forecasts, including the bloopers. So somebody has to do the job for them.

Shortly after Dent’s forecast on CBNC, the market turned around and began a huge rally, with the DJIA rising by more than 9,000 points, leaving Dent’s forecast off by about 20,000 points. What’s perhaps even more interesting is that this missed forecast only adds to the long list of Dent’s incredibly ill-timed forecasts.


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