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Well-reasoned forecasts

We normally don't spend much (if any) time discussing various forecasts for the new year. That's because we think very little of most attempts at forecasting — it mostly amounts to guessing, and that we can do without.

That said, I do still read some forecasts every year. I do this not because I'm particularly interested in what the authors predict will happen, but rather I'm interested in the reasons why various predictions are made.

In other words, I have very little confidence in the predictions people make, but I do think there are occasionally pearls hidden within the reasoning used to arrive at those predictions.

As an example of the forecast type I find helpful, I pass along this 2011 analysis by Edward Harrison (hat tip to The Big Picture blog). You won't find predictions regarding where the stock market will go this year and such in it, but then I've just told you those are the least useful parts anyway.

Rather, he explains why he is cautiously optimistic for 2011. He starts with a current review of the economy, explaining why double-dip recessions are the exception rather than the rule, and that in light of the positive economic trajectory, there is every reason to believe the recent technical recovery will blossom into a full-blown cyclical recovery. However, he also lists and explains five specific risks that threaten to derail the recovery.

Finally, I thought his comment that debt is a mechanism that pulls demand forward is both solid and thought-provoking. Done on a grand scale, as has occurred over the past 25 years, it's not surprising that demand would be soft for some time to come, as we've borrowed for a long time from future consumption.

It's a good read if you have the time, not just for the thoughts themselves, but as an illustration of the type of forecast that can actually help you sift through ideas, as opposed to the much more common "guessing" type that serves mainly the forecaster — that is, if should he or she be so fortunate as to have some guesses actually come true!

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