Why Bother?
Just in case it wasn't clear enough, the OECD on Monday reminded the world that "this is no ordinary recovery."
The good news is, global growth will be considerably more robust in 2021 than previously forecast, according to the Paris-based organization. The global economy will expand 5.8% this year, far better than the 4.2% forecast from the OECD's December projection.
The figure (below) shows you various trajectories associated with three scenarios, a baseline (black), an optimistic take (gre
Memorial Day – remembering the cosmos has spaceship earth on a short leash. We may be headed for a sudden and violent constriction around the neck. Just how long is that leash?
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As you do often, here you provide enlightening commentary stimulated by thoughtful comments from folks most of us will never read on our own. This is a powerful service. Thank you.
Not for the first time you have pointed to the futility of economic/market forecasts. The statistics of sampling theory and the nature of continuous distributions puts the probability of making a successful estimate of a single point on such a distribution (GDP, S&P, whatever) at 1/infinity = 0, period. Continuous distributions of the behavioral outcomes for closed systems (volatile gas trapped in a sealed vessel) can be successfully parsed into point estimates but not so the open social and economic systems for which we regularly see forecasts in the pages of commentary by so-called experts. These people should know better. Only by pure chance, with odds of essentially zero will economic and social forecasts ever be successful. I wish these guys would just stop doing this junk.
You raise on other point of interest to me as an older party. It is truly observed that when one reaches senior status, is retired, and trying to enjoy the so-called golden years, they become invisible. Getting respect, even for a great life lived well, is a slim prospect, even in the context of one’s children. In today’s society whole classes of people have become invisible. The poor and struggling in what our beloved MAGA man openly characterized as s**thole countries get no respect, no vaccines, little aid, just about nothing. Sure a few missionaries stop by from time to time and if one of these smaller or forsaken lands finds itself in possession of something the world suddenly finds it must have, attention may be paid. Most likely what will happen is those who want our little guy’s precious resources will just takeover the country and steal what they want. Frankly, as I get older I must say it occurs to me that what the developed world needs to do next is feel very ashamed of itself because not many will be going to heaven from this bunch of rich schlubs. As Jesus (I believe) once said, “… it is easier for a camel to go through the eye of a needle than for a rich person to enter the kingdom of God.” He also told his disciples, “Blessed are ye poor, for yours is the kingdom of God.” We got a lot of work to do.
Measuring how the economy is doing, in whole and in parts, is important since it tells us how we’re doing and where we need to improve.
Once you have historical data series, it is natural – indeed, intrinsic to the human mind – to attempt to forecast the future.
Just because a high confidence point estimate is impossible, doesn’t mean the forecasting process is not useful. You learn how the moving parts affect each other, and even a directionally reliable forecast helps guide decisions.
Think about running a business. When you figure out that doing more of X tends to improve profit, that alone is valuable knowledge even if you can’t reliably forecast the coefficient.
In our investing profession, everyone knows that earnings forecasts more than a year out have large errors. But identifying the leverage in the model is highly useful all the same. Running the forecast in reverse – figuring out what is implied by a given FY2 earnings estimate or a given valuation – is a very useful reality check.
For example, if you determine that TSLA’s valuation implies 15% annual growth in FCF forever, that’s useful information. /Snark.
Plus, tracking and reacting to every 50 bp change in GDP forecasts for FY2 does provide lots of jobs.