PREDICTING THE FUTURE IN 2023

         

 “It’s hard to make predictions, particularly about the future.” Yogi Berra

The Twilight Zone, an anthology television series created by Rod Serling in the late 1950s, had a major influence on my early view of the world. The episodes that most fascinated me dealt with the show’s protagonists finding ways to predict the future. The greedy actors, attempting to score ill-gotten gains from profiting off future events, always ended up badly.

Moving forward to December 2022, the emerging new year brings forth an avalanche of crystal ball gazing experts in domestic and foreign policy matters, finance and new cultural trends. Unlike the Twilight Zone, our modern prognosticators are looking through hazy crystal balls. Their conjectures can simply be useless, or worse, dangerous. This commentary will examine the limits and advantages of attempting to predict the future as we move forward in a complex world.

Using data to predict future events is not unlike predicting the weather. The broader the category, the easier it is to get it right. (It will rain tomorrow and be sunny the next day.) Conversely, more precise forecasting is difficult. (Where will the hurricane make landfall?) The time and money spent on learning how to interpret present data to predict future events is all about gaining results that are more focused and accurate.

Investment forecasting is especially fraught with erroneous results. Few investors predicted the devastating market crash of 2008 or the two years of upheaval caused by the pandemic. The outliers who correctly read the tealeaves and bet against the herd made millions. The rest of the herd went over the cliff and has been slow to financially recover.

Past failures do not discourage the financial press from making predictions for the New Year.  This December, the Wall Street Journal, BARRON’S and the financial cable networks have all published their forecasts. Most pundits are calling for at least a mild recession in 2023 and a continuing rise in interest rates until inflation is under control. Oil and gas stocks remain in favor, but are undergoing volatile swings. Picking individual stocks for the year will likely be less successful than ancient efforts by the Oracle of Delphi.

Many investment advisors believe those stocks that have fallen the most in 2022 will be winners in 2023. Unexpected moves in the Ukraine conflict, China reopening or interest rates will have an immediate effect on stock prices that will require a nimble approach.

Predicting world events occurs on two levels. Similar to investment gurus, international journalists enjoy speculating on future world events. Each year, the renowned Economist magazine publishes an entire issue on The World Ahead. These attempts at prediction tend to be broad in nature.  For example, this year the Economist is naming the war in Ukraine as the primary force shaping the future. It believes that energy prices, inflation, interest rates, economic growth and food shortages all depend on how the conflict plays out. The Economist forecasts a grinding stalemate as the most likely outcome in 2023.

On other issues, the Economist believes an unseen benefit in the Ukraine war will be a world acceleration toward renewable energy sources. It sees China at an economical peak with India on a mission to catch up. The Economist speculates that a China-Taiwan conflict is more likely over the next 12 months.

The second level in predicting world events involves a more serious exercise than the impressions of journalists. Policymakers routinely make highly consequential, difficult-to-reverse decisions. They depend on information provided by national security specialists. There is no situation where leaders would not want better visibility into the future.

Ironically, use of statistical forecasting, a tool used by meteorologists and management consultants, is resisted by those security agencies that could benefit from statistical analysis. Policy experts are more likely to rely on their own professional acumen and experience to provide analysis. They are comfortable in providing a “story” to policymakers and in avoiding more narrow statistics. They believe it is better that a given analysis be “believable” with a good narrative than be “probable” with mounds of boring statistics.

Only in 2015 did the CIA begin defining probability ranges in its work product provided to national policy makers. The change has been slow to catch on.  Moreover, world leaders like President Biden have a long history of relying on their hunches, based on a good story to back it up, rather than on calculated odds determined by statistical analysis.

Last year, the Biden administration got it right in predicting when Russia would invade Ukraine. Nevertheless, when it comes to truly novel questions like Putin’s use of nuclear weapons or his desire to end hostilities, all experts and observers are left scratching their heads. Relying on analysis regarding Putin’s subjective intent may be as dangerous as playing “Russian roulette.”

On a personal level, predicting events that effect our lives supports the development of critical thinking skills. It requires us to draw upon prior knowledge and experiences as well as observations to anticipate what might happen.  It is another tool to aid in escaping “herd-mentality” in order to reach our own valid conclusions.