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Kauders Portfolio Management Newsletter 67 recalls the erroneous official forecasts of the early 1990s. It then argues that economic relationships change, and therefore forecasts of interest rates, inflation rates, unemployment rates, growth rates, et al are of little relevance in managing investments.
The big picture is still deflationary and a renewed downward drive in share prices is likely. "In future, people will borrow less, so less money will be spent. This will mean less economic activity and a lesser feeling of well being! In our consumer society, less spending means sluggish economies, which in turn must damage equities, force interest rates down further and therefore reinforce the case for Gilts. As the global downturn broadens and deepens, there cannot be increasing profits to justify increasing dividends and higher share prices: such days are over."
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