27/06/2011 – Can the Fed and Economists Forecast the Future? See This Startling Chart.

Gabriel Wisdom: “Ben Bernanke, the

chairman of the Federal Reserve, says the economy is slowing

but there’s faster growth ahead. Is he wrong?”

Pete Kendall: “Economists are extrapolationists.

They tend to look at what’s happening in the economy and extrapolate

that forward. So here we have a situation where not just Bernanke

but economists in general are looking at… what they call

the ‘soft patch’ and somehow contorting that into growth later

in the year.  

Pete’s startling reply flatly contradicts conventional

wisdom. Most people believe that the Fed really is able to anticipate

the economic future. After all, they’re the most “qualified.” But

what do the facts say?

Pete’s Elliott Wave Financial Forecast Co-Editor

Steve Hochberg recently included this eye-opening chart (from

Societe Generale Equity Research) in his new subscriber-exclusive

video, “Buy and Hold, or Sell and Fold: Where Are

The Markets Headed in 2011?“

The red line in the chart is the S&P earnings,

and the black line shows economists’ forecasts

relative to those earnings. Here’s what James Montier, head of

equity research for Societe Generale, said about it:

“The chart makes it transparently obvious that analysts

lag reality. They only change their minds when there

is irrefutable proof they were wrong, and then only change

their minds very slowly.” (emphasis added)

That comment is spot-on. In 2002-2003, as you can see, earnings turned up despite

economists’ forecasts for earning declines. It took

them a while to “turn the ship around” and play catch-up

with the trend.

Yet in 2007-2008, earnings turned down — despite the

forecast by economists for continued increases. The

devastating truth is that earnings did more than fall in the

first quarter of 2008: they had their first negative

quarter in the history of the S&P. As Steve

said in his subscriber video, “Economists were wrong to

a record degree” — and investors felt the pain.

So what’s the point? Economists do extrapolate the

trend. That approach works fine, until it doesn’t­ —

and you’re on the hook.

Elliott wave analysis never extrapolates trends — it anticipates them.

The Wave Principle recognizes that markets must rise and fall

— and that they unfold according to changes in investor psychology,

in a way that is patterned and recognizable.

—–

Most people believe that the Fed really is able to anticipate

the economic future. Now you know the facts. Uncover

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