Bogus Expert/Forecast Alert (Latest Column for the Huffington Post)

Below is my latest column for the Huffington Post:

I had some time to kill this afternoon and sat down to watch the boob tube (like I said, I had time to kill).

After flipping through several channels, I landed on CNN, where a host of "Your $$$$$" announced that a guest would be joining them after the break who was not only one of the first to call the current downturn, but who was now claiming that "the end of the recession was in sight."

Naturally, my interest was piqued, and I put down the remote for a moment as a flurry of commercials flashed by.

When the program continued, I learned that the "expert" making this prediction was Lakshman Achuthan, managing director of the Economic Cycle Research Institute (ECRI). Apparently, his research group had recently made the following announcement (via Reuters):

"The economy is on the cusp of a growth rate cycle upturn -- a cyclical acceleration in economic growth ..In other words, U.S. economic growth ... which is still plunging deeper into negative territory, will start becoming less negative in short order."

Hmm, interesting. OK, I thought, let's do a quick Google search to try and verify the firm's alleged forecasting prowess in regard to the current recession-cum-depression. Below are two of the reports I found [Italics mine]:

"Gauge of U.S. Economy Falls in Latest Week - ECRI" (Reuters, Dec. 29, 2006):

The Economic Cycle Research Institute, an independent forecasting group, said its Weekly Leading Index slipped to 138.5 in the week ending Dec. 22 from 139.7 in the prior week, due to higher interest rates and more jobless claims.

However, annualized growth in the week ended Dec. 22 rose to 3.8 percent from 3.4 percent in the prior period, a reading not reached since last February.

"Given the steady improvement in the WLI, recession is no longer a serious concern," said Lakshman Achuthan, managing director at ECRI.

"Achuthan of ECRI Sees U.S. Slowdown But No Recession: Audio" (Bloomberg, Nov. 16, 2007)

Lakshman Achuthan, managing director of Economic Cycle Research Institute, talks with Bloomberg's Tom Keene in New York about Americans' concerns about the likelihood of a recession, the outlook for the U.S. economy and the impact of the dollar on inflation.

So much for being ahead of the curve! Aside from the fact that one of the worst downturns this century (which had been correctly anticipated by yours truly and other [mostly] non-economists) began only a month after ECRI discounted this possibility, it took a further three months for the "forecaster" to acknowledge what many ordinary Americans already knew was taking place (see "UPDATE 1-Leading Index Shows US Economy in Recession, ECRI Says").

My first question is: Why do ECRI's opinions about the future matter?

And my second question is: Is it any wonder that the mainstream media keeps losing credibility -- and its audience?

Comments

[anonymous]

"Is it any wonder that the mainstream media keeps losing credibility -- and its audience?"

yep, couldn't agree with you more!

I for one have blocked pretty much most of these MSM from my cable.. I have cancelled my Newsweek (or Weak News as I call them), NYT and Time subcriptions.

I used to watch CNN, MSNBC and most of these MSM very very regularly.. NOW? If I heard them say "the Sky is blue", I would have to look up myself to believe it.

Most of these MSM are stupid enough to believe that the the reason they are losing viewers and readers like me is b/c of the economy, heck I think even as I am trying to save money, I can afford a 65 cent newspaper, most of us can.

They have no clue that they are losing their audience because they have LOST the most important commodity they have: TRUST... I,among millions, no longer trust them and will not trust them for a LONG LONG LONG time.

[Independent Accountant]

MP:
Is LA talking about a change in the rate of decline, i.e., the derivative of "GDP function" is becoming less negative, i.e., the second derivative is now positive? If so, the long-awaited end to the recession is not at hand in LA's opinion.
I'll stick my 78 cents (or 2 1913 cents) in. I expect the recession to end in 2009's 4th quarter or 2010's first. We'll see if I'm right.

[zygomega]

My first question is: Why do ECRI's opinions about the future matter?

ECRI are a primary opinion source on growth and inflation used widely as the raw material for the secondary opinion market (brokers and investment bankers). It matters because of this, at least. There are so few alternative independent leading indicators. I have no knowledge of the audio cast content or context, but I recall a correct call in June 2008 about the speed and severity of the contraction.

And I agree with you, as an aside,that simply thinking about the macro situation in 2006/2007 meant you were probably more aware of the coming crises than just looking at numbers.

[farang]

"..I recall a correct call in June 2008 about the speed and severity of the contraction."

A "correct call" in June of 2008? A joke, yes? The "contraction" started in December of 2007. The housing bubble burst in 2006. Legions of us knew September was going to be a doozie of ARM resets.

And this "'expert called it" in June of 2008??

So, you mean AFTER the shit had already hit the fan and splattered on all the walls? THAT June of 2008?

Some "call."

I hope many will take the next logical step, and be strong enough within themselves to pull the curtain back, and see who or what is influencing, feeding us the lies we are stuffed with in the msm sources.

Is that a Mockingbird I hear?????

[DavosSherman]

Define experts.

IM never so HO an expert is someone who gets it right, not someone who is called an economist.

We grow up telling ourselves lies, Santa, Easter Bunny, Tooth Ferry and when we reach adulthood we listen to more lies, GDP, inflation, debt and "experts".

Thank heavens for blogs like this and many other good ones!

[roger]

(We grow up telling ourselves lies, Santa, Easter Bunny, Tooth Ferry)
we don't tell ourselves lies it's the grown ups that fill our brains
with this hog wash as a kid my parents straight out told us no such
thing as Santa Easter bunny etc...
Xmas was celebrated as a Solstice and gift where exchanged in between
members of the family a much more honest & healthier approach

[allan]

I find myself a little shocked to find anyone involved in the forecasting our financial future, such as Mr. Panzner, spending their time criticizing the inaccuracies of other forecasters. Mr. Achutan has been by far one of the best forecasters over the years. Any google search will show that he has been among the most consistent in giving early warning to oncoming recessions and the eventual recoveries. In an April 21, 2008 Forbes.com interview he stated, “The 2008 recession guarantees many months of job losses that will boost foreclosures and feed the credit crisis.” For several months before that he stated that a recession was a strong probability, but might might be averted by very strong Fed action.The action did not come in time and he acknowledged that by that interview.

For my money, the most important factor in determining the value of a forecaster is his ability to help me preserve and increase my capital. However slow Mr. Panzner feels Lakhsman Achutan was in forecasting the oncoming recession, there is one simple fact. Had you taken his warning in April 2008, you would have exited the market with the S&P at about 1425. That was still not far from the top of the market and had you shorted it, you would have bagged a 40% profit when many were losing half their portfolio. Now you would be reentering the market at about 900 on the S&P, having avoided nearly all the carnage. Mr. Achutan was similarly accurate when it came to forecasting the 2001 recession and recovery.

In reality, I think that Mr. Panzner should get a little more than the forecasting of one economic crisis right before he becomes the judge of every economist in the world. Then again, reality doesn’t come to the Huffington Post that often.

[J]

The 1st link -- "Gauge of U.S. Economy Falls in Latest Week - ECRI" -- does NOT contain the text you quoted.

[Michael Panzner]

J: Oops, sorry. The link has now been fixed.

[Owen Tarton]

I find myself agreeing with Roger's post above. ECRI has been much better than most forecasters, and been on the right side of changes in risk in the markets for a number of cycles. That's a big deal. As a result, they will draw the fire of those who are more closely linked to the Wall Street machine as no good deed goes unpunished! ECRI's professional reports are expensive to access but there's a lot on their website, including interviews and data.