From Worst to First Second: Business Week Forecast 2007

Bw_forecast

For the past 15 or so years, BusinessWeek has been doing a big year end issue, listing various strategists’ forecasts for market and rate expectations.

In terms of the "contest," its a combination of % gains from the S&P, Dow, Nasdaq, Russell 2000 and 10 year rate.

Despite my views on forecasting and investing, I’ve been participating in the survey the past few years. Its fun, and my firm always likes the PR, so my attitude has been what the hell.

My first year participating, I pitched BW on running a "Folly of Forecast" counter programming; That idea went nowhere fast: "Its a big double issue that sells lots of ads — You wanna participate or not?"

So I did. By coincidence, I was in the top few forecasts — right until the last few
days. Then the picks  slipped to somewhere in the top 10. It all seemed rather random.

The following year (2006), I stumbled into some infamy by making the most Bearish forecast by far (36% correction). As a macro overview, many of the issues we identified turned out to eventually become big problems. But as a market call, Dow 6,800 was pretty awful.    

The following year, I moderated the guesses. So you can imagine my bemusement when I got an email from BusinessWeek earlier this month:

"You are looking like our potential winner (barring
a sudden big move in the market), so I was wanting to get in touch with you as
well. I don’t see to have a current number for you. Can you give me a call?
Thanks."

It turned out that every pick we made — Dow, S&P, Nasdaq, Russell and the 10 Year Yield was spot on — all within 1% of current prices. To make matters even more amusing, our sector pick (Consumer Staples) did very well, and our best stock idea — Mosaic (MOS) — was far and away the biggest gainer amongst the pro picks, up 217% for the year.

click for larger table
Bw_forecast

I think you can see how this is going to play out.

"Barring a sudden move in the market?":  You guessed it — everything moved away from our numbers, and by the end of the week, I got the following email:

"So sorry I wasn’t in touch yesterday. Looks like the market gave you a bum break. By my calculations you’re not the winner, but are very close. Congratulations – and sorry things didn’t work out otherwise."

So, close but no cigar.

Congratulations are in order for Leo Grohowski, Chief Investment Officer, BNY Mellon Wealth Management (but was at US Trust at the time), who had the best predictions.

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Now for the really telling part: The old format — 80 or so strategists in a big double issue laden with ads? That’s now gone. Business week is now doing a much smaller version, with a dozen or so folks polled — much like last year’s WSJ version.

Blame the economy: While I can imagine assembling that issue was huge pain in the ass, but I suspect this year, the print advertising business was just too soft to justify the time and effort of a major issue.

The business is simply not there . . .

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Sources:
Fearless Forecasts from the Pros 2007   
BusinessWeek magazine   DECEMBER 27, 2006
http://tinyurl.com/3x3ube

Where Things Are Headed in 2008
Peter Coy
December 20, 2007, 5:00PM EST
http://tinyurl.com/27sh34

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What's been said:

Discussions found on the web:
  1. Marcus Aurelius commented on Dec 21

    Blame the economy: While I can imagine assembling that issue was huge pain in the ass, but I suspect this year, the print advertising business was just too soft to justify the time and effort of a major issue.

    The business is simply not there . . .

    ________

    I’ll bet you could have predicted that…

  2. JJ commented on Dec 21

    Great forecasts ….. and thanks for all of your hard work throughout the year… as a Long/Short fund manager , I appreciate your provocative and thoughtful musings

  3. halbhh commented on Dec 21

    Consumer spending shot to a 2 year high in November as annual growth of 6.7% exceeds income growth of 6.1% yoy. “Consumers spent with gusto in November, a sign the economy might not be as weak as feared…” – WSJ

  4. Eric Davis commented on Dec 21

    what did you turn in for 2008?

  5. Barry Ritholtz commented on Dec 21

    None! They canned it for 2008

    They asked 10 or so random strategists . . .

  6. tom pitts commented on Dec 21

    maybe you should run a similar contest on your site with your readers?

  7. Eric Davis commented on Dec 21

    I’ve started working on my forecast… I didn’t figure it was fair that I asked you, without coming up with my own.

    Then of course I want to obsess and do a forecast stock by stock in the indexes.

  8. halbhh commented on Dec 21

    Such Market Predictions are mostly luck, of course. Don’t make the error of forgetting that! :-)

  9. donna commented on Dec 21

    What good is a prediction a year out? Of course things are going to change over the year!

    What a dumb idea.

  10. michael schumacher commented on Dec 21

    eric-

    fundamentally those levels should have been breached and lost this year….that they have not is down to the failed policies of growth at any cost (we still can’t pay for that little war) and stupid short sighted people that run them.

    Why would you even want to clean up after this mess as President?? I certainly wouldn’t. There may not be much left as the FCC, FTC, have been busy making more (rich) friends and now the SEC is crying about it’s lack of enforcement simply because it has “old computers”…….I guess it could’nt keep up with Albert Black selling his entire stake three days before SLM’s CC but hey a new computer would have caught that….sure I bet….
    Ciao
    MS

  11. David Price commented on Dec 21

    Hi Barry, Top dog or not you are a credit to your profession. Your insights are valuable to all of us. Keep up the great work.

  12. Eric Davis commented on Dec 21

    MS, I think you’re missing inflation, adjust those numbers and this years numbers and we are down 20% this year, and we will be down 30% next year at those levels.

    Stocks are naturally inflation adjusted(which accounts for the 5-15% earnings growth, which is actually a 5-10% earnings loss)

    It’s just like when an employer offers you a 2% inflation adjustment, and you realize your poorer this year than you were last, since inflation is obviously much higher… Regardless of my computer speed…… That is the Dumbest shit ever.

    I’m still waiting for NBC universal to announce pay cuts/ based on hedonic inflation adjustments for talking heads vs HDTV.

    “We have decided that everyone should make 40% less, since you all have to be less attractive, and the HDTV will help you out, it will be ok, because you will have to go to the gym less and wear less makeup. So overall you will be richer.”

    Based on Cyclicality and my theory we are repeating the 70’s, the next president is Alt-Nixon. Which makes me laugh every time I think about it…. and that it could be Hillary.

    I’m sure none of this has to be explained to you….. but it’s a fun exercise.

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