I save the forecast of the major gurus from various magazines. I put them in a folder and every once in a while I review them.
Where did everybody go amazingly wrong? The US consumer and the dollar. Most analysts expected very slow growth or a recession because the consumer was going to be squeezed in 2006. And the dollar was supposed to tank because of the trade deficit. Wrong! Wrong! Wrong!
Some major bond players expected lower yields… and were wrong. Including ourselves in the first half of 2006. Why? The economy was much stronger than expected.
Those who were right on stocks expected a mild economic slowdown and stable short-term interest rates. This is where we agreed. Stable short-term interest rates are good news for stocks.
Many big names (domestic and foreign) were embarrassingly wrong on the economy and the stock market. Extreme views (sharp recession, deflation, market meltdowns,…) are eye-catching, but usually wrong.
So? What is the lesson?
1. Watch short-term interest rates. If they rise, the market is going to go nowhere. If they stabilize (as it happened in mid-2006 just before the market took off), the market moves higher.
2. Slowdowns always follow rising commodities, inflation, and interest rates. See my The Peter Dag Portfolio on www.peterdag.com.
George Dagnino, PhD
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