An “Economic Analyst” Blog

The Finish mobile phone producer Nokia decided to stop selling its products in Japan (luxury products excepted). It looks like the market share Nokia managed to acquire in Japan did not meet the expectations and the investments no longer seem profitable.

Does this mean that Nokia will start focusing on European markets? Will other companies in the industry follow its example? Will this be the start of a global trend that will make companies “retreat” towards their traditional customers?

American billionaire George Soros thinks the peak of the current crisis will arrive in two months. If we do the math, we conclude that, after president Obama takes office, the problems will start solving themselves (or at least this is what Soros thinks). Maybe some psychological factor is also involved in this…

Anyway, apart from predicting the crisis peak, Soros does not forget to mentioned that he also predicted this crisis in his last book. This is obviously another prognosis that fits into this category. Nevertheless, it is interesting to see how these people insist on being able to make accurate prognoses by highlighting their right guesses and completely ignoring the wrong guesses.

Standard & Poor’s just reduced the Ford rating from B- to CCC+ (seven grades below investment quality).

This happened while Ford, General Motors and Chrysler try to convince the US Congress to accept a bailout plan for the auto industry. It looks like the Congress does not want to spend people’s money so easily, therefore the bailout might be delayed. In this case, the three big companies in the US auto industry might be in trouble.

The Ford rating just dropped. Will GM and Chrysler follow?

Today, the italian finance minister claimed that the first person that predicted the current crysis was the current pope, Benedict XVI. In an article published by Joseph Cardinal Ratzinger in 1985, he stated that a decline in ethics can actually cause the laws of the market to collapse.

Apart from the fact that it is funny to try to make the Pope a “economic analyst”, in my opinion, this kind of prediction fits in the cathegory I mentioned here.

In addition to this, should we accept as granted the fact that the current crysis is caused by the decline in ethics? Was this proven? Or, at list, is this generally accepted?

It makes sense the gas price to rise when oil price rises and to drop when oil price drops. But, it looks like people do not want to understand that the gas price increase / decrease cannot be directly proportional to the oil price increase / decrease.

Oil price has now dropped below 50 USD a barrel from a 147 USD high (almost three times). There are people who are asking why the gas price hasn’t drop three times and complain about it. They tend to forget that, when the oil price rose, the gas price did not rose proportionally. At that time, they complained about the gas price rise, but they did not think it might get worst.

On the other side, the gas vendors are not fair either. Let’s suppose that, at some moment in the past, the gas price was X and the oil price was Y. During a period of time the oil price moved to Y + y; for this reason, the gas price moved to X + x (as mentioned, we have y / Y > x / X). When the oil price dropped back to Y, the gas price only dropped to X + xx (xx < x, but xx > 0). Therefore, even if the oil price is now the same as it was some time in the past, we now pay for gas a little bit more than we payed at that time.

The conclusion is, that oil and gas prices do not move in sync, but when oil price rises, gas price quickly rises too and when oil price drops, gas price does not drop as quickly as they rose

We should not expect that, if the oil price returns to a certain level, the gas price will also return to the same level. Fair? I do not think so! To be expected? Certainly!

I was watching the other days a show where an experienced economic analyst was invited. The US markets opened lower, but were recovering. The Dow Jones index was -20 points from the previous close and was slowly gaining. When it reached -7 the analyst said that, if we wait a little longer, we’ll see the market go into the green area. Immediately, the index reached -1.3 points from the previous close and then started to drop and never recovered that day. It was quite funny.

The Dow Jones values were removed from the screen and not mentioned again for a few minutes

It is quite easy to make prognosis. If you have the feeling something might happen, you can say it will happen. Sometimes you are write, sometimes you are wrong. The secret is to make people thing you are right most of the times.

Therefore, whenever you guess something, you must make sure you let everybody know that “I told you so!”. If you guess it wrong, just forget about it. I noticed this is what most economic analysts do…

Another trick is to make prognosis in a way that will always allow you to say you were right. For example, you may predict that: if stock prices drop, there are high chances investors to buy gold and gold price to increase and if stock prices increase, there are chances gold price to decrease. It is a good prediction and you are covered both ways. You must be very unlucky to see the stocks and gold drop at the same time.

The conclusion of the first post in this “economic analyst” blog is that most analysts do not really make accurate predictions. We just have the impression they are smart people.