Why Predictions Don't Work

In the past couple of months we have seen how futile it can be to try and predict the future. If one were to look at the stock market for the first half of the year, everything seemed to be coming up roses. Who can complain about a ten percent increase in the major stock indices in just six months? On the other hand, many analysts predicted that the price of oil would come down this summer. Events in Egypt reminded us quickly that predictions are useless. Oil moved up significantly at the end of June. The next question is whether higher gas prices will cause the economy to slow down while consumers adjust their spending patterns. The same can be said about interest rates.

Many analysts predicted that long-term rates would rise this year. Few predicted the scope of the rise as rates on home loans have moved up from historic lows overnight. Will this increase affect consumer spending? In the short run it appears that consumers are coming off the fence and purchasing homes in reaction to the increase in rates. This is giving real estate another shot in the arm. But what about the long-run? For a year we have warned consumers that there would be no notice when rates rise and the sale on America's real estate ends. We could not predict when and how quickly it would happen. Now we know. The good news is that rates are still low when measured against historical patterns. Those who are older remember rates on home loans which were 15% or higher. Today, we will not predict whether higher oil prices or interest rates will slow the economic recovery which finally seems to be gaining steam. But we certainly will hold out that possibility.


Mike Ervin
mike@mikeervin.com
www.mikeervin.com
(650) 766-8500
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