Poor Michael Fish. Last week we used his picture to illustrate a story about how you should take all forecasts on markets and economies with a pinch of salt. Then late last week Andy Haldane, the Bank of England's chief economist, referred to the general failure of his profession to forecast the financial crisis of 2008 as its "Michael Fish moment".
This is unfair on two levels. The first is that, unlike that of the economists, the BBC weather forecaster's mistake was a one-off with few lasting consequences. Sure, a few hours before the great storm of 1987, which felled six of the seven oaks of Sevenoaks and left hundreds of thousands without power, he forecast that there was no need for most of us to worry because all "the strong winds would be in Spain". But the majority of his forecasting career passed in a blur of adequately accurate predictions.
The second is that in his forecast Fish was doing what all the most accurate forecasters do. He was saying that nothing very exciting was likely to happen that tomorrow would in all likelihood be much like today. This makes sense. After all, be it weather or GDP growth, gradual shifts are far more common than dramatic changes.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
With that in mind, look to the forecasts made by the UK's top economists at the beginning of 2016. They were, says David Smith in The Sunday Times, pretty good. They forecast growth, inflation, joblessness and the current account to be not that different to their levels in 2015 and they were generally right. What is interesting, however, is that all these forecasts were based on the assumption that the UK would vote to stay in the EU. So growth might fall a bit pre-vote (uncertainty) and rebound post-vote (uncertainty gone). Had they known that the vote would go the other way, they would almost certainly have offered rather different forecasts.
They would probably have been convinced that Brexit would have caused an immediate recession, a house-price crash and hundreds of thousands of job losses. They would then have been completely wrong because as we now know, things have carried on much as they were before anyway, making the original forecasts look pretty good!
There's a lesson here. Most years nothing dramatic happens. There is lots of scope for them to happen but mostly they just don't. So while this could be the year politics goes really nuts, bonds collapse and stocks crash, it is more likely not to be. So the sensible investor will approach the markets Fish-style (we'll notice wind in Spain, but it won't affect us), yet prepare for the odd oak to come down too. Assume the world will muddle on as normal, but hold gold as insurance against another 1987 or 2008.
-
Christmas at Chatsworth: review of The Cavendish Hotel at BaslowMoneyWeek Travel Matthew Partridge gets into the festive spirit at The Cavendish Hotel at Baslow and the Christmas market at Chatsworth
-
Tycoon Truong My Lan on death row over world’s biggest bank fraudProperty tycoon Truong My Lan has been found guilty of a corruption scandal that dwarfs Malaysia’s 1MDB fraud and Sam Bankman-Fried’s crypto scam
-
Governments will sink in a world drowning in debtCover Story Rising interest rates and soaring inflation will leave many governments with unsustainable debts. Get set for a wave of sovereign defaults, says Jonathan Compton.
-
Why Australia’s luck is set to run outCover Story A low-quality election campaign in Australia has produced a government with no clear strategy. That’s bad news in an increasingly difficult geopolitical environment, says Philip Pilkington
-
Why new technology is the future of the construction industryCover Story The construction industry faces many challenges. New technologies from augmented reality and digitisation to exoskeletons and robotics can help solve them. Matthew Partridge reports.
-
UBI which was once unthinkable is being rolled out around the world. What's going on?Cover Story Universal basic income, the idea that everyone should be paid a liveable income by the state, no strings attached, was once for the birds. Now it seems it’s on the brink of being rolled out, says Stuart Watkins.
-
Inflation is here to stay: it’s time to protect your portfolioCover Story Unlike in 2008, widespread money printing and government spending are pushing up prices. Central banks can’t raise interest rates because the world can’t afford it, says John Stepek. Here’s what happens next
-
Will Biden’s stimulus package fuel global inflation – and how can you protect your wealth?Cover Story Joe Biden’s latest stimulus package threatens to fuel inflation around the globe. What should investors do?
-
What the race for the White House means for your moneyCover Story American voters are about to decide whether Donald Trump or Joe Biden will take the oath of office on 20 January. Matthew Partridge explains how various election scenarios could affect your portfolio.
-
What’s worse: monopoly power or government intervention?Cover Story Politicians of all stripes increasingly agree with Karl Marx on one point – that monopolies are an inevitable consequence of free-market capitalism, and must be broken up. Are they right? Stuart Watkins isn’t so sure.
