Bill Gross is forecasting GDP growth in the range of 1-2% for the next 3-5 years instead of its 'normal' 2-3%. He's also forecasting a natural unemployment rate of about 6-8% instead of the previous 4%. (Reuters)
These percentage changes might be small, but a 1% change in the GDP or unemployment is a gigantic thing.
As much as I respect the guy, nobody should be making forecasts 3 to 5 years out into the future. Well, at least they shouldn't rely on these forecasts. Any predictions that far out into the future is susceptible to too many variables and unforeseeable circumstances. Guessing what's going to happen to the market economy 3 months out is difficult enough. 3 to 5 years is near impossible.
The best analogy I can give is the prediction of the weather. While we can make some general guesses on what the weather will be like three years from today, the forecast of the exact temperature is futile. 3 years in the future from today is May, so the weather forecast will be warm. The exact temperature will be futile, because too much shit can happen in the interim. Will there be storm clouds? Will there be unseasonable high or low pressures? Those things are near impossible to predict in the future.
I know B has made billions and I've made tens of dollars, but he's been wrong before about long term forecasts. In his book, Everything You've Heard About the Market is Wrong aka Bill Gross on Investing, he made some incredibly bad forecasts of the economy. It turned out we had some of the best years when he predicted otherwise.
B may be bond genius, but I question his current actions.
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