Recently, Jamie Dimon has pointed out that economic forecasts have been inaccurate, which is not an unusual occurrence.

Forecasters have consistently been incorrect about the economy.

Yesterday, I found it amusing to learn that JPMorgan Chase CEO Jamie Dimon was astonished to discover that the economic predictions of the leading Wall Street banks had been completely incorrect in the past 18 months. Dimon advised caution: "I would exercise great caution when making predictions about what may occur next year," he stated at the Future Investment Initiative summit in Riyadh, Saudi Arabia.

He’s not the only one who seems surprised.

The New York Times published a separate story on Monday, titled "New Normal or No Normal? How Economists Got It Wrong for 3 Years," which highlights the inaccuracies of economists' forecasts regarding inflation in 2021 and the recession in 2023.

The forecasting community has been embarrassed by inaccurate predictions, according to Torsten Slok of Apollo Global Management, who stated this in a Times story. We are still trying to understand the new economy.

If it weren't for Covid, my forecast would have been accurate.

The "old economy" and "new economy" are equally difficult to predict for stock pickers, analysts, strategists, economists, and the Federal Reserve.

Despite the disruptions caused by Covid and the Russian invasion of Ukraine, it is important to note that incorrect forecasts are the norm rather than the exception. Wall Street and others are frequently wrong, and this is not due to the pandemic.

Why can’t anyone get the future right?

For ages, it has been a widely accepted joke in academic circles that accurately predicting the future is difficult.

In my book, "Shut Up and Keep Talking: Lessons on Life and Investing from the Floor of the New York Stock Exchange," I dedicate multiple chapters to exploring the enigma of why no one can accurately predict the future, as both amateur and professional stock pickers are equally inept.

Despite having the best economists, the Federal Reserve has a poor track record of predicting short-term trends in inflation and GDP.

In general, forecasters are not very good at their job.

In his 2005 book, "Expert Political Judgment," University of Pennsylvania professor Philip Tetlock examined the predictions of nearly 300 experts across various fields, including politics, economics, and the social sciences, including academics, economists, and journalists.

His conclusion is that there are few indications that possessing expertise enhances the capacity to produce accurate or discerning predictions.

What are the two big issues that make it difficult for everyone to accurately predict the future?

What’s wrong with the future?

Biases limit the accuracy of forecasters' predictions.

Predictions made by forecasters are often influenced by biases such as overconfidence, herd behavior, and selective information gathering.

The future is uncertain due to unpredictable events that can impact outcomes.

Although it's unsettling to accept, the truth is that we have limited knowledge about the future.

The stock analyst must predict the future earnings, dividends, and their impact on the stock price one year from now.

How hard could that be?

It is challenging to determine the outcome of a company as there are numerous variables that can influence it.

Some factors may be predictable, but many are not.

New shocks or surprises on the macro level, such as inflation, rising interest rates, war, or cyberattacks, may affect the economy. Similarly, a new competitor, acquisition, or unforeseen merger may impact the company.

All forecasts were rendered useless due to the gigantic outlier known as Covid.

Predicting the behavior of humans, such as CEOs, is as challenging as forecasting stock prices.

Some individuals have mentors who support and direct them in their careers, while others face demotivating setbacks. Many people experience personal events that impact their work performance, such as health problems that may lead to serious illness or retirement.

Predicting the U.S. economy one year in advance is a challenging task, even for experts.

A study by the Federal Reserve's research staff revealed that the Fed's economic forecasts for the years 1997 to 2008 were not any more accurate than average benchmark predictions for economic activity one year ahead.

The Fed's difficulty in accurately forecasting inflation can be attributed to the numerous variables considered and incorrect assumptions made. The Times article highlights other factors that impacted recent economic forecasts, including the Russian invasion of Ukraine, overly pessimistic growth projections, and inadequate real-time consumer savings data.

Forecasts have always been inaccurate, regardless of whether Covid or the Russian invasion occurred.

Still worth a try

Should we abandon our efforts to predict the future? Absolutely not.

Although we won't become nihilists, I have become more humble about my own and others' forecasting abilities after observing the Wall Street chaos for 30 years.

Dimon emphasized the importance of forecasting probabilities and preparing for various outcomes, rather than relying on a single course of action, as he stated at the conference: "Prepare for possibilities and probabilities, not calling one course of action, since I’ve never seen anyone call it."

Philip Tetlock's Good Judgment Project aims to improve forecasting by training individuals to reduce cognitive biases.

New edition of Stock Trader’s Almanac

Seasonal trading patterns, which have been observed for decades, have a better than even chance of repeating in the stock market, despite past performance not being a reliable indicator of future returns.

The Stock Trader's Almanac has released its 57th edition, providing excellent guides for those interested in following trading patterns.

Jeffery Hirsch, CEO of the Almanac, is continuing his father's legacy by following in his footsteps and discovering new trends, just like his father did with the "Santa Claus Rally" and "January Barometer" in 1972.