Buttonwood: How to predict what cannot be predicted?
What does Buttonwood have for us this week then? Well, incidentally his column this week deals with quite the same I have been indulging myself on lately: Predicting markets and economic performance is almost impossible but by by god, we love to do it! Or as Buttonwood so eloquently puts it; "Who needs forecasts? What we want is certainty."
There are two main points in this week's Buttowood column ...
Firstly, Market and economy predictions are essentially very difficult but he makes this excellent point; market analysts and economist have to try;
"(...) that doesn’t prevent more or less every analyst at every brokerage firm or bank from giving his pennyworth at this time of year. It’s what’s expected of him."
And as a man of the trade Buttonwood do not hold back and obviously he offers his 50 cents on the coming year which brings me to the second part; the predictions for 2006 (I will describe those predictions I actually have a fair chance to comment on given my knowledge).
1. Business M&A's and private equity investment will rise.
2. Investment in global equity and bonds will rise, but when will we see a correction on those asset prices?! "It seems there is no mechanism available to check this wall of money, with its tendency to keep investible asset prices unnaturally and perhaps irrationally high."
3. An accounting scandal in USA. Buttonwood is unclear on which firm and and even industry to watch out for but as he puts it; "comboy reporting standards" are what we want to look out for.
4. A foreign bank takeover in Italy. Well, now that Fazio is actually gone (French article!) I might even agree with him on that.
5. The merger of two European stock exchanges.
With his final points Buttonwood ends on a rahter negative note ...
"Sadly, Buttonwood cannot rule out some nasty possibilities, such as a disruptive terrorist attack in a European city, an epidemic of avian flu in Europe or America, another bad hurricane season or an earthquake on the Pacific rim.
The danger, however, is that several events coincide with, say, a loss of confidence in the dollar, or the collapse of a company involved in global markets. Robust though the financial system appears, it has been tested recently only by operational disruptions that lasted a few hours or days, not by the threat of widespread insolvency."
Certainly we don't hope all of Buttonwood's predictions to come true, but to see some an example of market economy in Italy would surely be nice :).