By DAVID MOON, Moon Capital
September 30, 2007
Billionaire T. Boone
Pickens is one of the world's experts on oil and one of the richest people in
the world. His oil and gas interests have earned him enough money to become one
of the country's most prolific philanthropists. The Chronicle of Philanthropy
named him as the fifth largest charitable giver in
Pickens knows a little
about the oil industry. He predicts that oil prices will hit $90 a barrel before
Larry Kudlow is a former
economic advisor to Ronald Reagan and a commentator for CNBC. Both he and an oil
company CEO on his show recently made a compelling case for $45-a-barrel oil in
the near future.
It reminds me of the old
accountant joke: 'What's 2 plus 2?' Correct answer: 'What do you want it to be?'
People love predictions.
If you want to get on television, take a stand about something. It really
doesn't matter if you're right; it only matters if you're passionate. Just look
at any of the cable argument shows.
In our industry people
constantly want us to make predictions about the stock market or interest rates
or the economy. I'd rather not. First, short-term changes in those variables
have limited influence on our long-term investment decisions.
But most important, it
can't be done ' not successfully anyway. But at parties, in the restroom, on the
street, everybody wants to know, 'What's this economy going to
Let's ask the real
USA Today surveyed 56
economists this year who believed that the risk of a recession in the following
12 months was just 4 percent. The Wall Street Journal surveyed a different group
of 52 economists ' obviously a more pessimistic lot ' who put the odds at 36
percent, almost ten times as great as the USA Today
I suppose color graphs
and short articles make a person optimistic.
Folks always want to
know how the stock market is going to perform this year. Well, in graduate
school we learned that the stock market goes up about 10.5 percent a year. If
someone just pinned me down and forced me to make a prediction, that one would
seem to be pretty safe.
In the last 50 years,
the return of the S&P 500 has fallen more than ten percent outside the
average return more than 60 percent of the time. It has never returned 10.5
percent. The market is seldom average.
Like the football fans
spending unproductive hours around the water cooler during Georgia week,
you can find someone to predict about anything you want to hear. CNBC has to
fill 168 hours of programming each week. And like many of those football
conversations, a lot of the folks on CNBC don't know much about their topic
Perhaps the best
economic prediction I've seen in print was the headline of an article in
Barron's several years ago: 'Rates to Rise, If They Don't
David Moon is president of Moon Capital Management, a
Knoxville-based investment management firm. This article
originally appeared in the News Sentinel (Knoxville, TN).