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Predict the FTSE? Stick it on horses!

Byline: John Wyn-Evans

EVEN with their famous supercomputers Met Office forecasters often look like mugs.

This is the problem with chaotic systems. It often only takes a small change in one variable early in the chain to cause a huge change in the endpoint.

Another group of people who often look like mugs are investment strategists.

There is one good reason I don't set out my forecast for where the FTSE 100 will be on a given day in the future, such as the last day of the year, and that is because I know that I will almost inevitably be wrong.

Financial markets are extremely chaotic systems, despite the fact that no end of pundits are lined up every day who will tell you exactly what is going to happen next.

Going back to the weather, similar problems are evident in, for example, flooding caused by heavy rain.

"Once in a thousand year" events have had a habit recently of occurring a few years apart.

Now this just might be that the last flood was 998 years ago and the next one will be in another 998 years, but it doesn't feel like that when you're bailing your house out twice in five years.

More probable is that the mathematical models have not been updated to account for the likes of global warming.

Just now, there are several coins in the air which could fall either way.

Who will be president of the United States? Will the Federal Reserve raise interest rates? Has Quantitative Easing and negative interest rate policy reached the end of the road? Will fiscal stimulus take up the running? If so, how will increased deficits affect the bond market? Will inflation finally be created? Closer to home - hard or soft Brexit? Given that the people who are making these policies seem to have no conviction about what they are going to do, it feels like a heroic leap of faith for us to second guess them.

We might as well have a punt on the 3.30 at Newmarket.

John Wyn-Evans is head of investment strategy at Investec Wealth & Investment Sponsored column

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Publication:The Birmingham Post (England)
Date:Sep 15, 2016
Next Article:A good policy to think about the unexpected.

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