This blog has often speculated about the business of forecasting and prediction; warning commodity investors in particular of the poor track record, the dangers of faux accuracy and the often misaligned incentives of the forecaster.
“The future ain’t what it used to be” – Yogi Berra
This November marks the two year anniversary of the publication of my second book, “Crude Forecasts: Predictions, Pundits & Profits In The Commodity Casino”. The book was my attempt to formalise everything I’d learnt and written on the subject into something that would hopefully change investor and industry behaviour for the better. To mark the anniversary I’m giving away 25 voucher codes to download the Audible version of my book for free (in order to claim read the rest of this article).
“It’s like déjà vu all over again.” – Yogi Berra
The crude oil price forecasting track record has improved slightly since the book was published. Over the past few years the average oil price forecast had an error of 18% over just six months (an improvement from 27% error seen over the previous decade) and away by 11% over a 12 month outlook period (much better than 30%).
“No one goes there nowadays, it’s too crowded.” – Yogi Berra
New EU rules that came into force in 2018 forced asset managers to pay directly for research. Mifid II, formally known as the second Markets in Financial Instruments Directive, was widely regarded as one of the most complex sets of financial rules to be introduced in response to the 2008 financial crisis. EU regulators became concerned that trading costs (which tend to be passed on to asset managers’ clients) were inflated to include the cost of providing “free” research reports.
Research was frequently used as marketing fodder, raising the profile of the investment bank among current and potential new clients. Once these regulations were introduced, the incentive to appear on financial TV networks peddling their research will be much lower, or at least will only be open to those that can justify the expense.
That has also meant that forecasts of commodity prices and other assets are much less visible to the public than they were just a couple years ago. I know from my own Twitter feed that forecasts just are not as prominent as they were. And that’s a good thing.
“We made too many wrong mistakes.” – Yogi Berra
Forecasters (well some) also tend to be more humble than in the past. Whereas in the past an incorrect forecast was quickly shelved away in the basement, some are digging them out in their gory detail. CRU in particular have been open and honest about what they got wrong.
In order to claim your free Audible download of Crude Forecasts: Predictions: Pundits & Profits In The Commodity Casino simply reply to this email. Only Materials Risk subscribers.
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