The underlying thesis — markets as a predicting mechanism — is flawed, and here’s why. I don’t think we can collectively pool our ignorance and create wisdom out of that. If you put 10 million people in a room and none of them know what’s going to happen in the future, you don’t generate any sort of sage prognostication.
However, when you look at the stock markets, and when you learn to read the tea leaves, you can glean a little insight as to what the best and brightest investors actually believe is happening. The problem is, it’s so subjective, and unanticipated events are always leaping up. Nobody really anticipated the Asian virus that had a very deleterious affect on the economy and markets in late 2002 and early 2003. There’s simply no way to anticipate an outbreak like that.
The whole concept of the markets forecasting the future is dubious. The old joke is the market predicted 10 of the last 4 recessions. And it’s very much true.
Presidential Futures: Pools of Ignorance
Business Week, OCTOBER 18, 2004