The death of prognosticators

Lately, in the financial press and television as well as in quite corners of the local drinking holes, you find many who describe how they saw the whole thing coming – the financial meltdown, the real estate bubble, the commodity bubble, the hedge fund collapse – everything. It was so clear – the leverage was high, the debt levels unsustainable and “smart guys’ in Wall street were making stupid bets on everything. If any of these people had such infinite wisdom just 24 months ago, they could have retired the richest in the world. So, the question keeps popping up why these sages still work for a living or why they are drinking their sorrows away.

The answer may be simple – in hindsight everything is crystal clear. But since neither special theory of relativity nor quantum mechanics allow a safe passage to the future, such retrospective knowledge is as good as garbage. The ability to “see” what has happened is of no value – but if some believe that history will give them guidance for the future, they are entering fool’s paradise. Conventional wisdom appears to be that the world is ending – the Mayans prescribed the violent end to civilization in 2012. The prognosticators see troubles everywhere – private equity, US debt levels, US $ hyperinflation – it is the most deadly cocktail of problems. If any of these prognosticators shorted the US stock market, consistent with their beliefs just 6 months ago, they would have been carried out in a stretcher by now. Not to be left behind, many academics have also jumped on the bandwagon to hell – some predicting the end of humanity earlier than 2012.

If the world is expected to end in 2012, the discounted value of the world just a mere 2 years away to today will be nearly zero. Since the asset values have not collapsed to zero, there is a probability that we may find each other at the long side of 2012. But then, the doomsayers may be right as well. If the world does end, the most satisfying outcome will be the elimination of the prognosticators themselves.