We put little credence in economic forecasting and for good reason, very few are able to get it right.
As we (on this blog and at High Rock) predicted at the beginning of the year, 2015 to date has been no exception.
Our key theme for 2015 was to "expect the unexpected".
According to Bloomberg, "forecasting benchmark interest rates has proven quite difficult this year".
Of 28 major central banks around the world, analysts have missed the mark on 20 of them (71%) by under (or over) estimating how low (or high) rates would go.
Falling oil prices leading commodity prices in general lower and the negative impact on developing economies, slowing growth in China, under performing developed economies, high levels of debt and higher financial market volatility have all taken their toll.
Now add in the significance of pending S&P downgrades of major US banks (that have too much risk on their books) and the need for other global banks (including Canadian banks) to shore up their capital structure and we get a broader sense of the uncertainties that still exist.
All of this should really be a wake up call for investors to have a close look at the risk profile of their investment portfolios.
Low interest rates and low returns can drive investors to chase higher portfolio growth by increasing their risk profiles.
After 6 1/2 years of above average returns, it is easy to fall into the trap of wanting or demanding that this continue. Investors need to guard against complacency. The August equity market meltdown should have raised the yellow flag.
Expect the Unexpected!
Scott Tomenson,CIM Managing Partner, Chief Investment Strategist