Only Fools Rush In And Forecast The Double-Dip

Sometimes, it’s not easy being a rich, famous business pundit.

These days, the media only wants to know whether the U.S. headed for a double-dip recession.  The question — which is legitimate — is mulled over 24 hours a day,  7 days a week by the media.   Unfortunately, no one knows the answer to the question so experts have to make an educated guess about the probability of a new economic slowdown.    These prognostications are given legitimacy from the media when all they are at best hunches, albeit from brilliant people.  Meteorologists are smart too and get plenty wrong with their forecasts. Why should business pundits be any different?  Remember that the old joke that if someone lines up 1,000 economists one would get just as many opinions is based in truth.

Figuring out which educated guess to believe is confusing for investors because the experts either believe that things are improving or that they may get much worse.  Their crystal balls are anything but clear.

.  For instance, when investor Warren Buffett argued last month that there will not be a double-dip recession, Bloomberg News pointed out that “the billionaire’s outlook contrasts with the views of economists such as New York University Professor Nouriel Roubini  and Harvard University Professor Martin Feldstein, who have said the odds of another recession may be one in three or higher.”

Confused? It gets worse.

BlackRock Inc.’s (NYSE: BLK) Bob Doll recently said that things were getting better — or less bad — and the odds of a slowdown were diminishing.

“I’ve been saying 20 percent all along. It’s probably more like 10 to 20 (percent) rather than 20,” Reuters quotes him as saying. “We’ve had some decent news in the month of September. We’ve had less bad news.”

Goldman Sachs Group Inc. (NYSE: GS) Chief U.S. economist Jan Hatzius figures the odds of a U.S. recession at 25 percent to 30 percent.  Earlier this year, Hatzius had placed probability of a new slowdown at 15 to 20 percent. His view is backed by Mohamed A. El-Erian, the chief executive officer at Pacific Investment Management Co., who places the chances of a slowdown and deflation at 25 percent, as does  Thomas Montag, Bank of America Corp (NYSE: BAC)’s Merrill Lynch division president of global banking and markets.

Other experts side with Buffett.

The New York Federal Reserve Bank’s Website places the odds of a recession in the next 12 months at a minuscule 0.12%.  Jack Kelly, the chief market strategist for J.P Morgan Funds, says that a new recession is possible but “not likely.” Alan Krueger, the Treasury assistant secretary for economic policy, told reporters that chances were slim of the economy going south again.  Barclay’s Capital also doesn’t think one is likely.

In ancient times, we relied on fortune tellers to forecast the future.  These days, we seek enlightenment from men in pin-striped suits.  It was almost as big of a guess then as it is now.

–Jonathan Berr