JANUARY 2023 – ISSUE 11
What to Predict?
AUTHORS: Hugh Donaldson and Jared Grylls
“Prediction is very difficult, especially if it is about the future“
Niels Bohr – Danish Nobel Laureate in Physics and father of the atomic model.
“There are two kinds of forecasters: those who don’t know and those who don’t know they don’t know”
John Kenneth Galbraith – Canadian-American economist, diplomat serving in the administrations of US Presidents:
Franklin D Roosevelt, Harry S. Truman, John F. Kennedy and Lyndon B. Johnson.
“All your knowledge is about the past and all your
decisions are about the future’’
Ian Wilson – former GE executive.
At Platypus, we fall into the Niels Bohr camp in regard to forecasting and prediction. A recap of some predictions for 2022 that we have recently reread have reconfirmed our position.
In late 2021, a view had emerged that inflation would prove temporary and transitionary and that in response that US Federal Reserve would need to increase the Federal Funds rate 3 or perhaps 4 times taking the Fed Funds rate to 0.75%-1.25%. The Federal Funds rate target at December 1st 2022 is 3.75%-4.00%.
The same predicament befell Philip Lowe, Governor of the Reserve Bank of Australia who described as “embarrassing’’¹ a forecast made in late 2021 that there would be no rate rises in Australia until 2024. The Governor did caution that his statement was “highly conditional’’² on inflationary developments. Nevertheless it was seen by wide sections of the public as a promise. At the most recent RBA meeting it was announced that the targeted cash rate would be 3.1%, 3% higher than at the end of 2021.
Yet sensible people continue to forecast, in a New York Times feature in July 2022 – 8 opinion writers wrote an article titled “I was wrong”. Paul Krugman winner of the Nobel Prize for Economic Science was one of the eight, who wrote a confession titled “I was wrong about inflation’’ and yet as Howard Marks³ observes his confession.
“doesn’t have any mention of abstaining from modelling, extrapolating or forecasting in the future’’.
Where does Platypus stand in regard predictions for 2023 then.
1. We acknowledge that Niels Bohr is right.
2. We agree with John Kenneth Galbraith.
3. The decisions we make are about the future.
At Platypus, we need and do look at what consensus is
forecasting – at the macro level for the global economy and the
Australian economy. We also look at consensus forecasts at the
micro level for the individual companies that we invest in, have
invested in, and have on our radar screen to potentially invest in.
We need to know what the market is forecasting. This gives us
a solid foundation to make judgements and decisions about the
future. The consensus is the starting point, our benchmark from
which we anchor our decisions.
That said here are the consensus not Platypus forecasts for
1. Australian Financial Review 3/5/22
2. Howard Marks Oaktree Capital – Chairman’s
3. Annika Foundation Speech 8/9/22 Memo. ‘The Illusion of Knowledge’.
4. Barrenjoey Research, Macrobond, Bloomberg
5. Visible Alpha
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Without limiting the foregoing, this material may contain estimations about future matters (including forecast financial information) which are based upon selected information known and assumptions made as of the date of this material. Such estimations are subject to risks and uncertainties and actual results may be materially different. Nothing contained in this material may be relied upon as a promise, representation, warranty or guarantee by PAM (or any other person, including any director, officer or any related body corporate of PAM) in respect of such estimations.