The Investment U e-Letter: Issue # 401
Monday, January 10, 2005

Interest Rate Forecast… The World’s Best Prediction for 2005 Will Surprise You
By Dr. Steve Sjuggerud, Advisory Panelist, Investment U

The Wall Street Journal polled 56 economists about this year’s interest rate forecast, and 55 agree: Long-term interest rates will rise in 2005. But wait! Don’t go making plans just yet…

Today I’ll show you why those 55 out of 56 economists are likely wrong, and how it leads me to believe that interest rates have a better chance of heading lower in 2005 rather than higher.

Right about now you probably don’t believe my interest rate forecast. But you will after reading what I share with you…

“The Experts” Disastrous Interest Rate Forecast Track Record

Twice a year, the Wall Street Journal polls economists for their interest rate forecasts and predictions.

It’s nice of the Wall Street Journal to make the effort. However, after having 46 polls of the experts since 1982, the historical record shows that the only use of the “expert” interest rate forecasts is as a contrary indicator. Let me explain:

In the last six polls, the “experts” have predicted HIGHER interest rates in every poll. However, interest rates have steadily moved down. In fact, interest rates have been consistently moving down since the early 1980s, and the experts have consistently predicted incorrectly.

The actual interest rate forecast record of the world’s highest paid financial “experts” for forecasting interest rates is nothing short of disastrous.

Not only were they not even close in forecasting what interest rates would be, they couldn’t even predict the direction interest rates would move correctly.

Since 1982, the beginning of Wall Street Journal’s Forecasting Survey, the experts have gotten the direction of interest rates right in their forecasts less than one third of the time.

Flipping a Coin to Beat the Experts

Said another way, you or I could have flipped a coin as our forecast of the direction of interest rates. And we would have crushed the predictions of the experts.

Right now, 55 out of 56 experts are predicting higher long-term interest rates in 2005.

Most people will believe these forecasts. Investment U readers will know these interest rate forecasts are completely worthless.

If they have any value at all, it is as a contrary indicator… Which tells us that interest rates may well fall in 2005.

Good investing,Steve

Today’s Investment U Cribsheet

• In the convoluted world of Wall Street, a forecast of lower long-term interest rates now becomes a low-risk bet… If the experts are telling their firms that interest rates are headed higher, then those firms are currently positioned for higher rates. The convoluted part is, if all the bets out there are currently on higher interest rates, then rates won’t likely rise much higher. “The boat is full,” traders say. And the boat is full for higher rates right now – so a prediction of lower rates is actually a low-risk prediction.
• Credit for discovering and publicizing the awful record of the “experts” – and the truth that nobody can predict interest rates – goes to Jim Bianco, of www.ArborResearch.com.

Related Articles

• Interest Rate Prediction…How Low Can They Go?
• Long Term Interest Rates: Are Lower Rates On the Way
• US Interest Rate Predictions… How Not To Predict Interest Rates
• Stock Market Predictions for 2006: A Huge Bull Market for Foreign Stocks

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