Wall Street WARZONE

10 Reasons You Can Never Trust Any Economic & Market Forecasts Made by Wall Street’s “Experts” on Cable News, Online, Even in the Financial Press

by Paul B Farrell, JD, PhD
| | 5/17/2010

Remember all the dotcom talking-head snake oil salesmen: Merrill Lynch’s Henry Blodget, Morgan Stanley’s Mary Meeker, Goldman Sachs’ Jack Grubman and others. These high-priced prognosticators constantly pushed the investor’s “buy buttons” by increasing our anxieties not just about buy-sell-trade investment decisions, but across-the-board with every other short-term decision we make as consumers and with family, friends, workers.

America really loved “the action” during the go-go days of nineties “new economy,” dotcoms, tech and ”information revolution.” And Wall Street got tons of free advertising while main-lining their message into the brains of the relatively naïve masses, thanks to their “co-conspirators” in the media. For example, cable channels like CNBC and CNN would easily get thirty or more high-paid Wall Street pundits and stock market gurus on-air every day—for free! Today, Wall Street and their advertisers are still rapidly increasing their control over media editorial policies, as publishers make more and more concessions to hold onto a declining base of advertisers.

“Nothing is what it seems:” That rule sure fits Hollywood. It also works for the illusionists of Wall Street. Every illusionist knows that your brain secretly loves being mislead, deceived and manipulated by their fantasies. Want proof? Let’s begin in Hollywood …

“The Illusionist” is a brilliant film about Eisenheim, a magician who fascinated Old Vienna a century ago. “Nothing is what it seems” warns the subtitle. And the clues are everywhere. But they’re not obvious … until later as your brain retraces the unfolding drama, with secrets hidden in Sophia’s beauty, in the ruthless Prince Leopold’s plot to overthrow his father, in the haunting music, old-world scenery, lush camera work, the childhood romance between the prince’s fiancé and the magician, her unsolved murder, the spectacular new show designed by a grieving illusionist to extract revenge, his oriental confederates, the ghosts calling back from the dead, then eventually the dead lover reveals a secret, enraging the prince who … ah, but that would give away it all away, for in this world you and I live in, “nothing really is as it seems” … or is it?

If you’ve read this story so far, then you’ve already proven my point: Your brain actually enjoys being deceived. We accept it in dark theaters. Bit it works as well in the everyday “theaters” of politics and investing and economics—where our brains also demand entertainment, amusement, pleasure! Why else would we accept Wall Street’s grand misleading delusions! Read on …

Why do our brains love to be deceived?

What is it about our brains that pull us inexorably into this shadow world, where we willing accept as “real” a contrived, parallel universe where nothing is what it seems? In a dark theater you accept that your brain has been programmed to trade reality for fantasy and illusion, even lies and deception. You know and accept that you will not only be mislead, your brain wants to be deceived. In fact, it feels cheated when you’re not deceived, when you figure out the film’s plot too quickly or too easily!

Oh, admit it, your brain really does love being misled, lied to and deceived! Why? Because your brain is programmed to deny reality when it doesn’t fit your belief system, and even moreso, because it delights in being tricked by fantasies. It started back when your parents read to you as a child. Call it ‘entertainment” if that helps rationalize your denial. But the truth is: Your brain inexplicably draws some dark secret pleasure from being deceived, mislead and manipulated.

Our brains enjoy being deceived by old familiar “stories”

Unfortunately, your brain functions the same way everyday in the so-called real world of politics, economics and investing. Hordes of illusionists wait for you to enter their “dark theaters”—advertisements, press releases, broker’s tips, breaking news, stock recommendations, etc. Whether you’re a bull or bear, they know your brain will automatically suspend it’s reasoning powers to indulge in a well-crafted “story” that fits neatly into your brain’s preprogrammed mindset of illusions.

The truth is, a bearish brain only “hears” bearish predictions, growls at bullish ones. Visa versa with bullish brains. Get it? Brains are wired one way or the other. The political “brain” is another example: You know it selectively seeks and hears only what it’s “pre-programmed” to hear: Lou Dobbs’ audience is just a bunch of liberal Democrats. And Bill O’Reilly’s audience are nothing but conservative Republicans. Neither has time for the other. Why?.

We screen out contrary facts and opinions in many ways. We only accept opinions that reinforce our preprogrammed illusions. Bull or bear, all investors are trapped in their brain’s cocoon of illusions and delusions, where economic predictions and market forecasts have far more power than any created by Hollywood’s best illusionists—where they’re far more elusive until it’s too late, the bubble bursts, and our money disappears into a magician’s pocket.

The illusory world of economic illusionists

Legendary management consultant Peter Drucker once said; “Anybody who tells you that he understands the American economy ought to be sent to teach modern dance.” And several years ago the headline of a BusinessWeek column by Robert Kuttner, author of Everything is for Sale, said it all: “What do you call an Economist with a Prediction? Wrong.” Yet they keep on predicting, and amazingly, we keep on listening!

Back at the peak of the dotcom mania, another expert researched the accuracy of leading forecasters over a few decades. William Sherden findings were summarized in The Fortune Sellers: The Big Business of Buying and Selling Predictions. When I asked Sherden if his conclusions still fit today, he said: “They are timeless. The political influence on predictions is basic human nature. I see no way that economic forecasting can improve since it is trying to do the impossible.” Get it? Whether you’re a bull or bear, optimist or pessimist, predicting the future of the economy is impossible, a total misleading illusion. Listen to Sherden’s ten key findings in The Fortune Sellers:

  1. The forecasting skill of economists is on average about as good as guessing. In fact, predictions by the politically driven Council of Economic Advisors, Federal Reserve Board, and Congressional Budget Office were often worse than guessing.
  2. Economists cannot predict the turning points in the economy. Of forty-eight predictions made by economists, forty-six missed the turning points.
  3. Economic forecasting accuracy declines with longer lead times.
  4. No economic forecasters consistently lead the pact in accuracy.
  5. No economic ideology consistently produces superior forecasts.
  6. No economic forecaster has consistently higher forecasting skills predicting any particular economic statistic.
  7. Consensus forecasts do not improve accuracy (although the press loves them)
  8. Psychological bias affects forecasters and their forecasts. Some economists are naturally optimistic and bullish, others are consistently pessimistic bears.
  9. Increased sophistication provides no improvement in forecasting accuracy. Remember the Long-Term Capital Management hedge fund? Two brilliant Nobel Economists backed by Wall Street’s elite nearly sabotaged the world economy.
  10. Finally, Sherden says there’s no evidence that economic forecasting has improved in recent decades. In fact, forecasting is appears to be deteriorating as partisan politics, Wall Street gaming and unpredictable global events invent new illusions.

And so my dear investors: “Nothing is as it seems” remains rule number one when it comes to all economic predictions you rely on for your investment decisions. And the corollary? Rule number two: “All economic predictions will fail you.” Your best strategy, whether bull or bear, is to trust no one, and question all predictions, especially those your brain is convinced are “true.” The economists aren’t doing to stop because the media need to fill airspace and paper with copy, and their employers (mostly Wall Street banks, government and think-tanks with political agendas) pay them to spread their message, whatever it is.

Yes, “Big Brother” really is watching you—don’t listen

Just remember, you live in a world full of illusions created by illusionists who know more about you than you know yourself. They have you profiled in many databases. They know how to slant an ad to get you to do their bidding. They know your brain derives a secret pleasure from being deceived, lied to and manipulated—and they surely know that due to some mysterious design flaw, your brain gets a perverse thrill when you enter the everyday “theater of the absurd” in Hollywood, Washington and Wall Street. Yes, these thousands of illusionists know you are preprogrammed in such a way that you’re highly vulnerable to their illusions, untruths, deceptions and manipulations.

Wake up folks … nothing ever is what it seems. Whether you have a bear brain or a bull brain, in today’s wonderful world of illusions, you cannot time the market, and you cannot trust any economic predictions from Wall Street’s illusionist. But you can protect yourself—don’t listen and play their game by their rules.

FirstPubDate: Sept’06

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