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Gary Shilling 2009 Economic Forecasts

Discussion in 'The Economy' started by Chris C, 15th Jan, 2009.

  1. Chris C

    Chris C Well-Known Member

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    It would appear that in at the start of 2008 there were very few who could have predicted where we are now that 2008 has come and gone. One of those few was Gary Shilling...

    Here is an excerpt from a recent article that was written on his 12 predictions for 2009 - http://www.marketwatch.com/news/story/dont-conned-thinking-there-recovery/story.aspx?guid={DD152E8A-13D9-4CBE-B444-7BE9F3148685}

    Some more recent videos with Shilling
    - I think it is really refreshing seeing someone crack out the old calculator and deal with the brutal honest facts about the crisis we are going through.

    Also here is an indepth report on his December 2008 predictions for the future. It's a great read and points out the woes that don't just face America but face the rest of the world.
     
  2. Billv

    Billv Getting there

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    Chris

    Reading so much doom and gloom stuff will not do you any good.
    Do you get to sleep at night?
     
  3. Chris C

    Chris C Well-Known Member

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    I'm sure it will serve me very well if his predictions eventuate, which all of them did last year. I'm not into listening to one advisor over another just because one paints a rosier picture than the other. I'm into listening to advisors that are more correct than the majority of advisors.

    I sleep very well, many would argue I sleep too well. None of this stuff weighs on my mind when it comes to going to sleep, I just find it thoroughly interesting trying to forecast the likely future and gaining a better understanding of how the world works. Plus I'm reasonably good at taking responsibility for, and accepting, the outcomes of my decisions.

    With that said, I'd love to discuss the topic, not my reading habits or sleeping patterns.
     
  4. Billv

    Billv Getting there

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    Chris

    I don't believe that anyone can accurately predict the future.
    It's a guessing game and his guess is as good as anyone else's.

    I have to say though that all this negativity worries me so I have readjusted my position.
    In regards to the share markets, I've stopped buying but I will go against his suggestion and I won't be selling any of my stocks.

    My property portfolio is still in good shape but it would be good to future proof it so when interest rates fall a bit more I'll be looking to fix some of my IP loans for 10 years or more.

    cheers
     
  5. Chris C

    Chris C Well-Known Member

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    I agree that there is always inherent uncertainty about the future, but I disagree with the notion that Shilling's guess is as good as anyone else's. He is a world renowned economist that makes a living "guesstimating" the future, and it really is guesstimating, obviously there is a little guess work involved but at the same time it is also somewhat of a science as well.

    LOL I still think all in all there isn't enough negatively floating around, thus the reason I'm all doomy and gloomy - not because I'm worried about myself, I just think the average joe blow walking down the street doesn't appreciate the gravity of the situation. Even those that would consider themselves "up to speed" in my opinion aren't gripping just how dire the situation "could be".

    Then again, that's just my opinion and this could all just play out like a slightly worse than average recession...

    Well if they a good quality companies and you in it for the long haul it probably won't matter what you do in the short term, but I know I'm planning to be sitting on the sidelines for a few more months.

    I can't complain too much about my IP either, it seems to have appreciated in value, it is now very much positively geared, though I'm still thinking of hedging my bets by shorting a property development company because I'm a little concerned about the potential downside of property at this stage.

    Though I should point out that those suggestions by Shilling are referring to selling property in the US. Whilst I'm sure he wouldn't be bullish on Australian property, he may not feel that it warrants selling IPs.

    It really is quite amazing to me that he is still bullish on the USD though, like I can appreciate that the USD may still appreciate further if things continue to deteriorate, but at the same time I can help but feel when the tide turns for the USD it is going to turn so quickly!
     
  6. Tropo

    Tropo Well-Known Member

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    "I agree that there is always inherent uncertainty about the future, but I disagree with the notion that Shilling's guess is as good as anyone else's. He is a world renowned economist that makes a living "guesstimating" the future, and it really is guesstimating, obviously there is a little guess work involved but at the same time it is also somewhat of a science as well".


    Below is extracted from http://www.invested.com.au/85/idiots-spouting-drivel-35686/

    "Well, they should think about what's happening. I'm talking about economics as forecasting the future.....

    First a quick quiz
    Why did God create so many economists?
    It raises the chance of at least one of them being right!

    Milton Friedman and Eugene Fama put the standard model of economics as a financial tool for markets forward in the 1950s.
    The central tenet of such an idea is that stocks will over time move towards their true and proper value. This concept is founded on two ideas.
    Firstly, people have strong motivation to work out what something is worth. The motivation for doing so is to avoid the potential for loss. People would not pay too much for an instrument. For example, let’s assume you wander down to the local Milk Bar and discover that a litre of milk was $19. As a rational individual you would quickly form a view as to the value of a litre of milk and conclude that based upon your experience $19 per litre was too high.
    The second point relates to point one.
    The markets act as collective information gatherers where all available information is pooled and then acted upon. In essence the market is a giant version of Google. Everything that can be known, is known, and is available to be known.
    Thus, any aberration in pricing is quickly extinguished by the markets collective knowledge of what something is worth. This ensures that there are no sudden swings or shocks to the market, or so the theory goes.

    Unfortunately for modern economics, aka the dismal science, shocks have been hitting the market about once every decade.
    The problem is economists don’t seem to have noticed, as such, any contribution they might make to the subject is somewhat meaningless.

    Traditional economics is based on the concept of equilibrium within financial systems. This equilibrium is maintained by the clean flow of information and rational responses by investors. This leads to post hoc rationalisations about why the market behaves in a given way.
    For example, you will often hear the expression "the market went down on profit taking". Unfortunately such explanations are wrong.
    In their recent paper titled Stock price jumps: news and volume play a minor role, physicists Armand Joulin, Augustin Lefevre, Daniel Grunberg and Jean-Philippe Bouchaud found no correlation between news items and the responses of stocks.
    They analysed the news feeds from both Dow Jones and Reuters (the major sources of information for financial analysts and journalists) and examined the correlation between hundreds of instruments and some 90,000 news items over a two-year period.
    Their conclusion was there was no link between jumps in instrument pricing and news items. Most changes were not directly attributable to any news item at all and the majority of news items caused no change in instrument pricing at all"....
     
  7. Billv

    Billv Getting there

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    Exactly, and not only that, if they explore all possibilities they can't go wrong can they?

    What happens though when they get it wrong?
    Do they apologise to all those people who they advised to sell everything including their shares and their home?

    Will they compensate those people because their nonsense predictions and irresponsible talk created panic and caused markets to crash further and it increased unemployment?

    Finally, when they realise that the sky didn't fall, I am sure they'll try and find an excuse why their dire predictions didn't eventuate.
     
  8. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    But don't you see that this is exactly the problem ?

    Most of the worlds financial markets run on not much more than sentiment. When people feel comfortable, things trundle along pretty well. When they feel confident they take risks and drive up demand for everything. When they feel scared they become very risk averse and demand dries up.

    It only becomes a problem at the extremities - it's when we see a "boom-and-bust" mentality that causes huge amounts of instability in the world.

    Right now you are sowing fear with your negativity - feeling that people need to understand "how serious the situation is". I tell you that for the vast majority of people - they simply won't care, or more the point nothing they can do will affect what is happening, so they just ignore it. Life goes on.

    It is only those people who take risks - who spend lots of money - who are over-committed financially - who will suffer during a downturn. Sure, losing jobs is never great, but it's not as if everyone will be out of work - there is always work out there, it's just that some people may be forced to curb their extravagant lifestyles a bit. Think about it - if we hit 10% unemployment, that means there are still 90% of the working population in a job. For them, they still need to eat, they still need to get to work, they still need health care, they still need the basics in life. For much of the economy, life still goes on.

    The opposite of this negativity of course is the blind optimism that occurs during boom periods. This can be just as bad - and indeed, can lead to asset price bubbles from unrealistic expectations about future growth or earnings potential.

    All I'm saying is that life goes on - some opportunities disappear, but others re-appear. Focussing on dire the situation "could be" is only relevant to those people who have nothing else meaningful in their lives to hold on to.

    Very few people have investments that go beyond their PPOR - and for most of them, even this is not considered an investment. Anyone not close to retirement age is not all that focussed on their retirement savings. The vast majority of the population are simply not interested in the world of finance and live their lives regardless of what happens.
     
  9. Mark Laszczuk

    Mark Laszczuk Well-Known Member

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    This post amuses me, seeing as how you predicted that the market is going to rise 25% later this year. How is your fortune telling any different from theirs?

    Mark
     
  10. Chris C

    Chris C Well-Known Member

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    [/QUOTE]I'm not going to argue that there is a lot of rubbish advice thrown around by people that make their livelihoods off "being in the know", but just because of the inherent difficulty in predicting the economic future doesn't mean that all economists are wrong or lucky.

    Take some responsibility for your own actions. They don't have crystal balls, they are just offering advice. To hold them accountable for the economic future seems is ridiculous.

    They don't cause markets to crash, they cause markets to "correct". Markets bubbling is a result of greater fool theory, ie people that are largely ignorant in the principle of business and investing over pay for assets that have comparatively low yield and declining demand and buy in prices where the market cannot find more buyers for the asset at such inflated prices.


    As I mentioned above, economist predicting corrections is not the problem. The trends that were created were unsustainable, and they weren't created by economists, they were created the masses of ignorance. Unfortunately most intelligent investors also go along for the ride because they know it's a pretty easy way to make money, though they, unlike the majority of individuals, are completely aware that all bubbles eventually pop and so at some point they go in and "take their profits" and look for the next up and coming trend, leaving the laggards to get caught holding depreciating assets and cop the losses.

    Money doesn't grow on trees and not everyone deserves to win. We live in the real world and through the process of natural selection the cream rises to the top while the weak are weeded out, whether it is business or financial markets it doesn't matter - natural selection still holds true. The reality is the faster this bubble pops the sooner the excesses of society are removed and the sooner things go back to normal which allow people to make investments based on sound fundamentals rather that ideas of irrational money grabs.

    I'm not being negative, I'm being realistic. It just so happens when people are delusional and emotional about their investments they detach themselves from reality which in turn makes my realistic comments appear to be "negative".

    The opposite will apply when this recession/depression has largely played out and an informed investors turns around as say "now is the best time to get back into the market" at which point everyone's sentiment will be so low that they will turn and look at him and go "are you crazy, I think you are being way too optimistic!"

    Obviously those that overextend themselves are always asking for trouble, but unfortunately these days in our greedy society this is almost everyone - modesty and living within ones means seems to be an outdated fashion like 80s clothing, though just like fashion it will come back in, but only after some hard learned lessons in frugality.

    Those that are ignorant of the ways the world works gamble with their livelihoods everyday. They don't take risks because they are unaware what risks and rewards that are even available to them.

    Snap, that's hurts Sim - are you implying I'm a no-life loser?

    :p

    Please don't get me wrong in all of this I'm not really worried about my sake, as I have mentioned many times on these forums, I'm young and don't stand to lose a lot in the coming recession. However that doesn't mean I don't take an interest in the ramifications it will have on others, with my main focus being the general Australian population, which are the very ones that you say "will barely notice" because nothing hurts more than the punch you don't see coming - and it's often the one that knocks you out.

    I just think it's a sad reflection of society when the brutally honest facts don't make it into the mainstream media for the "average joe" to digest. So like I said, I'm scare that their isn't enough negatively and that a lot of hard working, honest Australians out there that have trusted the advice others are going to get caught with their pants down as financial reality gives them a swift kick to the balls.

    Once again this is a MASSIVE issue in my mind, because when I'm 30 - 40 years old and the the huge number of retirees start begging the government to pony up more money for their health care that they didn't save for all their lives because they "simple weren't interested" I'm going to go tell the government and all those retirees, too bad, so sad, if only you had taken an interest.

    Ignorance and reliance on government (or anyone else, including economist advice) is just irresponsible, and just like natural selection, the weak are weeded out one way or another. These welfare states that developed countries have morphed into are quickly becoming unsustainable and the core principle of "the government will look out for individuals welfare" goes against nature and it is time that people woke up to the world and realised their survival is no one else responsibility but their own, and we as a herd can't keep telling ourselves there are no lions in the long grass when we can hear them growling.
     
  11. Tropo

    Tropo Well-Known Member

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    "I'm not going to argue that there is a lot of rubbish advice thrown around by people that make their livelihoods off "being in the know", but just because of the inherent difficulty in predicting the economic future doesn't mean that all economists are wrong or lucky".


    Problem is that all those economists (and other “gurus”) are trying to predict or guess the economic future.
    Prediction/guessing means that your chance of success is totally random governed entirely by the law of probability, as they pertain to random events.

    “ Stocks are now at what looks like a permanently high plateau” = Economist Irving Fisher, the week before the 1929 crash....:rolleyes:
     
  12. Billv

    Billv Getting there

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    Mark

    As I've pointed out before, I can't predict the future (none can) so it's a guess, my guess and you are welcome to tell me what your guess is.

    From what I recall, I've said that $1 invested today will be $1.25 in 12 months time or something along those lines.
    I still believe that selected stocks will do quite well and will increase by more than 25%.

    I started buying a few stocks but I've stopped because the market is not stable enough (for me) to put any serious amounts of money in.

    I am watching the markets though, there is a lot of uncertainty around atm but I am optimistic that things will turn around.
    I don't know when but they will.
     
  13. Mark Laszczuk

    Mark Laszczuk Well-Known Member

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    Predict is just a fancy way of saying guess.

    So you're predicting (or guessing, however you want to put it) that the market is going to rise 25% by the end of the year. So I'll ask again:

    How is your fortune telling any different from theirs?

    There are only two possible outcomes from predicting (or guessing) the future. Being wrong or lucky.

    Mark
     
  14. Chris C

    Chris C Well-Known Member

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    You are assuming that the chain of events are random... they are not random at all, they normally follow quite a logical pattern, ie, people predict housing prices to drop because as recession grips an economy, businesses tighten expenses, including labour, as unemployment rises there is an increased number of distressed sellers in the property market coupled with low consumer confidence about the future - thus driving prices down. The basic outcome is not random, however there is obviously going to be some error in respect to the degree of price changes.

    The unfortunate thing is those whose advice is normally worth listening to often comes at a price and as a result is rarely consumed by the masses who are unfortunately left to listen to the FREE advice of the idiots who don't charge for their advice because it's not worth anything. This leaves everyone blaming the media analysts with their journalism degrees that their advice was way off the mark!

    There are a lot of people out there that make fortunes selling their advice alone, not to mention the millions they make from positioning themselves ahead of the masses. You can't truly believe that all economists theories and projections are rubbish otherwise you'd listen to nothing and no one, and you'd know nothing because the vast majority of our knowledge is consumed through others teachings rather than our own experience.

    A rally of 25% from the bottom of the market MIGHT be possible once the bottom is reached, but seeing that I tend to side with the arguement that we have yet to see a bottom, and may possibly not see one in 2009, makes me think a 25% gain from Jan 1st to Dec 31st is virtually impossible, especially given the slow rebound I'm expecting.

    If you are looking for more certainty in the markets it might be worth watching the VIX, it is presently still above 45. I personally feel that it will have to be back below 30 for a good few weeks if not months before we are really through the worst of the storm.

    I got no problem with people that are optimistic, but almost all the people I have questioned about "why they are optimistic" seem to base their argument on statements like "because things have to get better, don't they" or because they read some half arsed media piece that glazed over the real problems, took biased figures and suggested that asset prices are cheap and it is a great time to buy whilst recommending looking at the great big real estate and fund managers ads that are positioned right next to the article.

    :rolleyes:

    It normally takes about a 5 minutes conversation with an presently economically optimistic person before I can have them sufficiently convinced they have no idea about even the basics of how economies operate and they have even less of an idea of just how bad things are likely to become.

    So I pose the same question to you BV, why do you think things will get better, and 25% better at that?
     
    Last edited by a moderator: 20th Jan, 2009
  15. Billv

    Billv Getting there

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    Because they always have done so in the past.
    The sun will shine again tomorrow just like it did the day before and the day before that.

    Economy is not like a 1 way street where you can only drive in 1 direction.
    In the real world, if you are driving along and you come across a flooded street you take a different road. If there is an accident and cars have stopped, authorities will intervene to clear the scene and things will turn back to normal.

    Economists with loud mouths often base their ideas on current data and often ignore the fact that governments and people intervene and adjust their position as situations change so the outcome in the end will be different.

    Finally, you and Mark seem a bit touchy on the subject so I should make myself a bit more clear.
    I am not saying that I can predict the future, I am saying that based on what happened in the past, things will get better, maybe not straight away but I have no doubt that they will.
     
  16. Tropo

    Tropo Well-Known Member

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    You are assuming that the chain of events are random... they are not random at all, they normally follow quite a logical pattern, ie, people predict housing prices to drop because as recession grips an economy, businesses tighten expenses, including labour, as unemployment rises there is an increased number of distressed sellers in the property market coupled with low consumer confidence about the future - thus driving prices down. The basic outcome is not random, however there is obviously going to be some error in respect to the degree of price changes.


    There are two schools. If you prefer ‘not random’ theory that is fine.
    On the other hand if ‘not random’ chain of events works (as you suggest) we would live in a constant paradise (well...almost).
    Error in respect to the degree of price changes is often too big so validity of ‘not random’ theory is still questioned.



    The unfortunate thing is those whose advice is normally worth listening to often comes at a price and as a result is rarely consumed by the masses who are unfortunately left to listen to the FREE advice of the idiots who don't charge for their advice because it's not worth anything. This leaves everyone blaming the media analysts with their journalism degrees that their advice was way off the mark!

    There are a lot of people out there that make fortunes selling their advice alone, not to mention the millions they make from positioning themselves ahead of the masses. You can't truly believe that all economists theories and projections are rubbish otherwise you'd listen to nothing and no one, and you'd know nothing because the vast majority of our knowledge is consumed through others teachings rather than our own experience.



    There are few exceptions....no doubt about it.
    But there are too many economist and other ‘experts’ who do not agree on the same issue.
    So how one is able to determined who is right and who is wrong?
    According to experience of many people I know who were following some of those ‘gurus’, is as productive as tip from a taxi driver. :rolleyes:
     
  17. Mark Laszczuk

    Mark Laszczuk Well-Known Member

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    Hi Bill, not getting touchy, just want to know why you think your predictions are any more reasonable than the economists'. Afterall, you made the statement that the market is going to rise 25% in the next 12 months. I want to know why you think you are able to see into the future and make such a statement.

    Mark
     
  18. Billv

    Billv Getting there

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    Mark

    I am basing my optimism on historical data.
    I've seen charts that showed past bear periods and they never lasted more than 15 months or so.

    I don't have that particular link now but I found something similar and I am attaching the URL below

    Stock Market Cycles, Part 3: Primary Bear Markets -- Seeking Alpha

    Additionaly, fund managers are not getting paid to sit on cash, as soon as there is a feel that the bottom has been reached, they will start buying big time.
     
  19. Mark Laszczuk

    Mark Laszczuk Well-Known Member

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    Basing predictions on past events, huh?

    Mark
     
  20. Chris C

    Chris C Well-Known Member

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    OK so you are basing you predictions on pure optimism and no facts. BV this is the perfect example of what makes me worried for average joes, you should know better, you should be able to base your argument on something more than "just because things have to turn around at some point" and if you don't know better what chance does the average joe of Australia have.

    I'd say less than 5% of the population takes a big enough interest in their finances and economics to actively partake in useful discussion about the future of finance and economics, these forums are a great example of a place where you can partake in such discussions. So this leads me to believe that you are probably a hell of a lot better informed about the situation yet it would appear you are still bullish on the future based on nothing other than the last decade or two of unsustainable credit growth, which we are now due to pay back.

    The reality is how can you think share prices are good buying right now when by most reliable estimates corporate earnings are about to fall 25 - 50% over the next 18 months?

    I'm not that doomy and gloomy, I'm not predicting the sky will fall, I'm not saying the world will end, all I'm saying is that the downturn has yet to be fully priced in. There are many bad earnings reports to come, the really bad unemployment figures are yet to hit, and there is no evidence that this recovery is going to be anything but slow.

    I just don't think it is fair to the general Australian population that the media and the misinformed continue to delude them into thinking there is a set recovery path that recessions have to take or that there are great buying opportunities out there when the worst is yet to hit.

    Now I can't sit here all high and mighty, because the reality is that I have been calling a bottom since mid last year when I saw the market get below 5500 I was like "man there is no way prices can stay this low, this never happens, it has to turn around once it goes below 5,000." Of course the sad reality was I was making judgements based on my feelings, hunches and emotions along with my shallow experience of the share market (all 10 years of owning stocks).

    I'm thankful everyday that I'm young enough that I didn't have a whole lot in the market, and even less in super, so my losses pale in comparison to most. However each time I was wrong in my predictions I was determined to find out where I have gone wrong and I am beginning to learn just how much I don't know and just how complicated this big beast of a world is. Now 3 - 6 months later, having spent many hours every day reading and discussing the world of finance and economics my opinion is ten fold more informed than it used to be and I become more confident in my understanding and I'm able to argue the "why" I think my opinion is informed rather than say "I think X is going to happen" based on nothing but hunches and speculation.

    However the more I have learned the more I have realised that this isn't your run of the mill recession, this will go down in history as a BIG one, and a paradigm changing one. Nonetheless I don't think the world will end as we know it, but I do think that the worst (especially for Australia) is yet to come.

    I'm assuming the "authorities" in this case are the Government and the RBA.

    Firstly, the government is going to end up running a massive budget deficit, and it will look even worse next year. Their commodity gravy train has shut shop for the winter and the Australia economy like the rest of the world is going to slide in recession with their tax revenues.

    With the budget in deep deficit it is going to be very hard for government to continue to throw money at the problem without of people raising eyebrows to question if we can afford it, and I bet there will be a few questions raised of the $5 billion cost of doubling the FHOG, and even the FHOG in general that props housing prices up.

    The RBA would seem to be into a full scale unwind of interest rates, with the market projecting another 75 - 100 basis point cut in February, but there is only so much the RBA can cut rates before the only option left is to print money.

    My point is your authorities you think will save you are broke and clutching at straws. The only thing that will save us is the general population taking a hard look in the mirror and deciding it's time to pull our finger out, and get back to basics.

    Economists are not stupid, they factor in the likely progression of events.

    Saying that we will be better off in 20 years time is of no value to anyone. Anyone can make that call. Saying that things will eventually turn is once again is of no value to anyone.

    Not everyone can accurately predict the progression of events over the next 3, 6, 12, 24 months, but that is the information that people want, not that if you invest today it will be worth more in 10, 20, 30 years time, which still has to factor the uncertainty of the future.

    I completely appreciate what you are getting at, and I'm more than happy to concede that presently the resulting degrees of error would make many economists predictions look like stabs in the dark, but I don't think that negates the principles on which they work, and that like most things in life the process of prediction is becoming more efficient and refined with time, albeit still fraught with error.

    With time though the rules and principles the best performers out there are using will eventually become mainstream and allow even supposed economic media pundits the ability to more accurately predict future movements.

    The same way you decide which school to send your kids to, which surgeon to take for your operation, etc - past performance and qualifications. Even the best can't be right all the time, and the worst will sometimes be lucky on occasions - you just have to operate using averages and medians of past performance.

    I'd love to see the data you are comparing it to, seeing as the US recession is "optmisitically" projected to be the longest since the Great Depression, and that is the best case scenario - I think it is much more realistic that the world will look to come out of recession sometime between 4Q 2009 and 2Q 2010.

    So if you are making your comparisons to any of the last 10 recessions over the last 50 - 60 years you might be rudely shocked that your downside projections are quite high.

    They are also not paid to lose money. People aren't stupid, they are not going to insist on mass that fund mangers re-enter a deteriorating market.

    So while things are trending down you can rest assured they won't be entering the market as they are in the business of making money, not losing it. So if sitting in cash is yeilding higher returns than the dropping stocks then that is where they will be.
     
    Last edited by a moderator: 20th Jan, 2009