The so-called experts get it wrong again!
A month ago, persons such as life-long oilman T. Boone Pickens and analysts at Goldman Sachs were forecasting that oil prices would rise to $150 by the end of July and to $200 by the end of this year. Yet, petroleum prices have gone in the opposite direction over the past week, with the price of West Texas Intermediate Crude Oil falling more than $18 a barrel since July 14.
The consistently inaccurate forecasts made by Wall Street analysts, economists, and so-called gurus, leave many investors scratching their heads wondering how those professionals could be so wrong so often.
But it is important to remember that experts have ulterior motives when making their forecasts. For example, sell-side analysts at investment banking firms, by forecasting oil prices to rise dramatically, create a willing group of naïve investors who traders at those firms can sell their holdings to in oil futures.
Meanwhile, persons like T. Boone Pickens have an inherent interest in forecasting higher oil prices. After all, he sells oil.
I, on the other hand, have only one motive when making economic or financial forecasts — to be right. Because if I were consistently wrong in my forecasts and analyses of the financial markets, subscribers to my monthly investment newsletter, The ETF Strategist, would likely cancel their subscriptions, and I’d soon be out of a job.
Fortunately, I’ve been mostly right about the direction of security prices since the inception of The ETF Strategist last September, as our Conservative Portfolio has returned 2 percent through last Friday’s close and our Aggressive Portfolio has returned 13.9 percent, while the S&P 500 has lost 14 percent.
I’ve also been correct in my analysis of the oil markets. Those of you who regularly read my Moneynews.com commentaries may recall that I first warned investors about the likelihood of an impending big drop in oil prices in an article I wrote on May 20, “Oil Prices Greatly Extended – Expect a Significant Pullback.” In that article, I told readers that the ongoing slowdown in the U.S. economy and the recent stabilization in the exchange value of the dollar would cause oil prices to fall significantly over the next couple of months.
Since then, the dollar has rallied against the euro and other major currencies, and Federal Reserve Chairman Ben Bernanke acknowledged in his testimony to Congress on July 15 that high oil prices and the recent economic slowdown have caused demand for petroleum products to fall.
By the way, contrary to claims made by most of the so-called experts, the worldwide supply of oil has risen considerably over the past six months, while the demand for oil has fallen.
In a follow-up article that I wrote on June 12, “Oil Could Fall Hard, Very Soon,” I told readers that my experience suggested that Congress would likely implement measures to curb the fervent speculation in the commodities market, and that any such actions could cause oil prices to fall sharply.
Well, guess what? This morning, reports out of Washington reveal that the Congress may outlaw certain elements of trading in the oil futures market, such as limiting the number of contracts that large institutional investors like Goldman Sachs and Morgan Stanley can hold.
According to Alaska’s Senator Lisa Murkowski, Republicans in the Senate may allow a vote on the proposed holding limits before the end of this week. Meanwhile, the House of Representatives plans to vote on similar measures before starting a month-long break in August, and President Bush has signaled that he will consider any resulting legislation.
Now, I’m not trying to suggest that my forecasts are always correct, because they’re not. But, if you go back and review all of the commentaries that I’ve written for Moneynews over the past year, you’ll see that I’ve been right about ensuing developments in the financial markets much more often than I’ve been wrong. And, subscribers to The ETF Strategist have so far profited handsomely from those forecasts.
For example, subscribers who followed my recommendation to invest in an inverse-oil ETF on May 27, 2008 are already up more than 20 percent in that ETF.
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