Forecasting and Accountability

From an article in the April 2016 Modern Trader magazine on oil price forecasting, Garrett Baldwin wrote:

     > At the heart of it is the incapability of the human mind to wrap itself
     > around the sheer size and factors that go into this global market. When
     > something is this large with this many moving parts, we try valiantly to
     > find shortcuts or justify one specific variable. Each day, a headline
     > says that oil prices fell because of whatever factor an energy journalist
     > can point to that day.
     >
     > It’s over-simplification at best, and malpractice at worst… And it’s
     > clear that no one has a clue what oil prices will hit by the end of the
     > year because of so many factors beyond our grasp. No one is suggesting
     > that forecasting should be abolished, but history has shown that when
     > it comes to accurately predicting oil prices, all bets are off. Are we
     > willing to admit we’re just not good at this?
     > …
     > Right now, oil prices are hovering below $30 per barrel, a level that
     > was deemed impossible just a few years ago. I remember sitting in a
     > lecture with a prominent economics professor not long ago. He told
     > the room that we wouldn’t see oil under $100 per barrel in our
     > lifetime again. He somehow still has tenure.
     >
     > In the end, I still argue the real problem is that there is no
     > accountability. People are allowed to make any prediction they want,
     > and it is quickly lost in the 24-hour news cycle. When the prediction
     > doesn’t come true, the blame falls on some unforeseen variable.

The article was on oil prices but it certainly is good information to know about financial forecasting in general. Baldwin’s words are consistent with those of Bob Veras in Doomsday Forecasting (a Primer): “nobody, including those who reported your alarmist views, will check up on your track record.” The lack of accountability allows anyone to forecast anything.

Personally, I believe the fault should not fall on the forecasters but rather on the readers who try to make use of the information. Forecasting is not actionable, period. That is why I categorized this post under “financial literacy.” Once I can identify content as a forecast, I can dismiss it and move on.