Updated: May 3, 2013 12:14PM
Originally published: January 15, 2004
This is the season when economists make their forecasts. They get to make a new one every year, and only the economists with winning forecasts call attention to their previous predictions. The Wall Street Journal’s annual survey of economists is a particularly interesting indicator, because its consensus forecast is always so far from the mark.
Over the years I’ve collected a pool of economists and market watchers whose forecasts I value, because they tend to be so basically correct. Personally, I try never to make forecasts, only to repeat the ones I tend to agree with.
Thus, it is with great surprise that I just received the news that for the third straight year, my forecast for the performance of the Dow Jones industrial average -- high, low and close -- was the winner amid an exclusive group of institutional money managers. And ditto for my forecast of the 2003 Nasdaq performance. I don’t know what I was thinking last year at this time when I forecast the Nasdaq would close the year at 1,960 (actual: 2,003.37) or the Dow at 10,890 (actual: 10,453.92). My predictions weren’t right on the money, but they were closer than anyone else.
This is a private contest run by Michael Lewis’ Free Market Inc., an institutional research group. Every year the money mangers get together to forecast the markets. The names of these highly esteemed and highly compensated participants are held in strict confidence because their jobs depend on their performance! For the record, my interest rate forecast was way off the mark, but the family honor was redeemed by my son Rex Savage, who won the category of best Fed funds rate forecast.
It’s all particularly ironic, because personally I did nothing to benefit from my correct guesses -- and that’s just what they were. I do remember feeling that the market certainly shouldn’t decline for four years in a row, unless it was the end of the world, and then who would remember my prediction anyway?
So I guessed high. But in my own accounts, I practiced just what I’ve always preached: a program of regular investing, which, over the long run, I hope will bring me out far ahead.
This year’s forecasting session takes place next week. I think I’ll retire with honor, and just take notes. In fact, that’s what I’ve been doing recently, when I moderated the Executives’ Club of Chicago annual economic forecast lunch. I get to choose the participants, those with outstanding track records. Here’s a recap of their predictions, and some of my other favorite sources.
Diane Swonk, chief economist, Bank One, consistently has been bullish in recent years -- and consistently correct. Though Diane typically dodges most stock market questions, she was bullish both on stocks and the economy last year. This week she forecast the Dow would top 12,000 in 2004.
James Cramer, the inimitable CNBC pundit, is hard to pin down on most subjects, except the stocks he likes. This year his picks included a lot of energy stocks, since he says he’s “searching for the next Nextel,” a telecom stock that jumped 16 percent last year. Cramer seeks companies that are “de-leveraging,” getting rid of debt. He figures that some of these “ugly ducklings” will turn into swans, while the Dow should move to 12,500 in 2004.
Robert Genetski, the former Harris Bank economist, now has his own economic and market research firm, www.classicalprinciples.com, and stresses the benefits of lower taxes, less regulation and a sound currency. Comments Genetski: “Through the implementation of sound economic policies, the U.S. economy is on the cusp of what will prove to be one of the strongest and most impressive periods of economic prosperity in its entire history.”
Bert Dohmen, publisher of the Wellington Letter, one of my all-time favorite investment letters, says: “It can’t get any better than this.”
Basically, they’re all bullish. And that make me feel good. It’s an interesting game economists play -- being right with forecasts. That’s how they measure their success. But that’s not how individuals measure financial success. For us, it’s all about what you make, what you keep, and how you make it grow.
I don’t know where the economy is going in 2004. But I have a pretty good idea of where you and I should be going. It doesn’t involve guessing stock market highs and lows. And that’s The Savage Truth.
Terry Savage is a registered investment adviser and is on the board of the Chicago Mercantile Exchange and McDonald’s Corp. She appears weekly on WMAQ-Channel 5’s 4:30 p.m. newscast, and can be reached at her Web site, www.terrysavage.com.