Everybody Predicted the Financial Crisis

Includes: DIA, QQQ, SPY
by: Eddy Elfenbein

BusinessWeek has a story on the emerging optimism of folks who, we're told, predicted the financial crisis. I've never understood the fetish the media has for finding gurus.

More importantly, if you look closely at the predictions these folks made, none of them was right, and more than a few were comically wrong. Specifically, the story mentions Michael Panzner, Nouriel Roubini, Gary Shilling, Robert Prechter, Peter Schiff, Nassim Nicholas Taleb, Marc Faber, Stephen Roach, Meredith Whitney, David Rosenberg, Jeremy Grantham and James Grant.

Some like Grant and Roubini are interesting to listen to though I don't credit Roubini with predicting the crash. However, he was closer than anybody. Rosenberg has been massively wrong. Still others like Prechter, Taleb and Roach, I can't even take seriously.

I'll repeat what I've said before, it always pays being a perma-bear. All you need to do is be vague and never give a date. Disaster is just around the corner. Then, whenever anything bad happens, immediately take credit for predicting it. With investing, there's always something to worry about.

I'd also add that being able to predicting complex events like the credit crisis doesn't mean you'll be better at seeing other events. The event will often be so unusual that the skill set needed to see it and the problems underneath is a very poor prerequisite for seeing other complex events. Time and chance happeneth to us all.

Being right most likely means that you have some advantage at the center of a bubble. Predicting the markets isn't like shooting foul shots. If you get one in the bucket, it doesn't say much about how you'll do next. In fact, if you get the last event right, you're probably at a disadvantage in seeing the next turn of the market because your biases have been confirmed.

Both George Soros and Nassim Nicholas Taleb said that what we're in is worse than the Great Depression. Not only is that empirically incorrect, it's incorrect by a lot. The fall in GDP this time around is much less than the 1930s. Here's a prediction for you: Neither will be held accountable for this prediction.