Experts Who Predicted Recession

“The only function of economic forecasting is to make astrology look respectable.” – John Kenneth Galbraith.

I took a look back through my files to see which market economists or analysts correctly predicted that we would eventually have such an awful recession and horrendous stock market decline. In his article, Last Christmas Before Next Recession, Paul B. Farrell of MarketWatch quotes economists and investment gurus who did not pull their punches. You won’t find a “on the one hand this and on the other hand that” quote among the lot.

Of course, this particular group is always making predictions. So please read the entire post, before you decide how “helpful” their predictions actually were.

The quotes are very slightly shortened (for dramatic effect).

Jeremy Grantham of Grantham, Mayo, Van Otterloo & Co

“Everyone agrees that there are extreme imbalances in the U.S. and the global economy … The bulls believe that all will work out … The bears believe that sooner or later these imbalances will come home to roost. … The probable winning bet [is] a very mean reversal … for the next few years.”

Gary Shilling, economist

“A bursting of the housing bubble will probably be the expansion ender. Signs of the bubble’s demise are accumulating, making a … recession probable.”

Bill Gross of Pimco

“Now after 300 basis points and 17 months of tightening — which by the way is typical of prior bear cycles as well — it should only be logical to expect a slower economy …”

Alan Greenspan

“Our budget position will substantially worsen in the coming years unless major deficit-reducing actions are taken. The consequences for the U.S. economy of doing nothing could be severe.”

Farrell goes on to recommend extreme steps to prepare for the bear market and recession.
“You need a wake up call: Total shift of consciousness, an extreme mental makeover, a massive attitude adjustment. … This is real war.”

He ends with this question, “Are you prepared to survive the recession and bear market likely to hit in 2006?”

Yup. You read that right. That’s 2006. The article was posted on December 12, 2005. Had the article been posted on December 12, 2007 that would have been really impressive. Frankly, being two years early in calling a recession is not at all useful. In point of fact, the S&P 500 had returns of 15.8% in 2006 and 5.5% in 2007.

So, what do you call people who are right, but two years early?

“Wrong.”