He Who Dares Wins

09/04/2009 by info.

People are not very good at predicting economic cycles or the depth of those cycles, including supposed expects in their fields.

Sometimes policy makers are the ones who make the misjudgement, the Chancellor of the Exchequer on 24 November 2008 predicted that the growth in the economy in the UK would start in June 2009, now he tells us that he was wrong in that prediction and the depth of the recession was worse than he thought.

A recent report in America suggests that 20% of people think that the economy will improve in the next few months up from 8% last month. Of course the report could have said that 80% of people think that things will stay the same or get worse!

Is this however a good indicator of a recovery? These surveys are good at recognising bandwagon effects nothing more, as if 100% of people think that stocks and shares will increase in price then it will be a self-fulfilling prophecy, as increased demand will mean that prices WILL increase, its simply laws of supply and demand.

Both corporate and personal balance sheets are improving. Evidence suggests that people are repaying debt rather than spending money increasing their net worth, and when they feel confident that the economy has bottomed out they will start to consider spending or investing again.

The majority of us however will miss the boat, as the people who called the bottom of the property and stock market, and dared to invested at that time, will be the ones who benefit from the bandwagon effect not those who waited for indicators to show them that it was the right time to invest.

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