Pete Wargent blogspot

Co-founder & CEO of AllenWargent property advisory & buyer's agents, offices in Brisbane (Riverside) & Sydney (Martin Place) - clients include hedge funds, resi funds, & private investors.

4 x finance/investment author - 'Get a Financial Grip: a simple plan for financial freedom’ (2012) rated Top 10 finance books by Money Magazine & Dymocks.

"Unfortunately so much commentary is self-serving or sensationalist. Pete Wargent shines through with his clear, sober & dispassionate analysis of the housing market, which is so valuable. Pete drills into the facts & unlocks the details that others gloss over in their rush to get a headline. On housing Pete is a must read, must follow - he is one of the better property analysts in Australia" - Stephen Koukoulas, MD of Market Economics, former Senior Economics Adviser to Prime Minister Gillard.

"Pete Wargent is one of Australia's brightest financial minds - a must-follow for articulate, accurate & in-depth analysis." - David Scutt, Business Insider, leading Australian market analyst.

"I've been investing for over 40 years & read nearly every investment book ever written yet I still learned new concepts in his books. Pete Wargent is one of Australia's finest young financial commentators." - Michael Yardney, Australia's leading property expert, Amazon #1 best-selling author.

"The most knowledgeable person on Aussie real estate markets - Pete's work is great, loads of good data and charts, the most comprehensive analyst I follow in Australia. If you follow Australia, follow Pete Wargent" - Jonathan Tepper, Variant Perception, Global Macroeconomic Research, and author of the New York Times bestsellers 'End Game' and 'Code Red'.

"Pete's daily analysis is unputdownable" - Dr. Chris Caton, Chief Economist, BT Financial.

Invest in Sydney/Brisbane property markets, or for media/public speaking requests, email pete@allenwargent.com

Monday, 12 November 2012

Great RBA paper on the uncertainty of its own forecasts

It often makes me chuckle when I hear financial commentators making detailed and specific forecasts.

"The economy will be slow until mid 2024, when it will start improve..." or "I foresee no movement in property prices in your suburb for 30 months, when there will be an upturn..."

The Reserve Bank today released a very interesting paper about its own ability to make acurate forecasts. It's interesting to note that even our own central bank understands that its ability to forecast unemployment a year from now is no better than an out-an-out guess.

It's also interesting that the RBA recognises that even making a longer-term prediction of some variables does not improve the level of certainty.



So next time you hear a specific forecast from someone on Australia's GDP growth for the next year, ask them about what level of certainty they can give you on their prediction, even to within one entire percentage point.

If the expert claims to be certain, then you can be certain they aren't an expert! The same applies for forecasting next year's unemployment rate.

Here are the RBA's key conclusions:

"-Uncertainty about the forecasts is high. Confidence intervals span a wide range of outcomes.

-RBA one-year-ahead forecasts have substantial explanatory power for both the level and change in inflation. This contrasts with the experience of some foreign central banks.

-However, deviations of underlying inflation from the target at longer horizons are not predictable. This is a desirable feature of an inflation-targeting framework.

-Underlying inflation is more predictable than headline CPI.

-Forecasting economic activity is more difficult. As has been found for many forecasters overseas, the RBA’s forecasts of GDP growth lack explanatory power.

-Forecasts of the unemployment rate outperform a random walk only for a few quarters ahead.

-Relative to private sector forecasts, RBA forecasts of inflation have been marginally more accurate while forecasts of GDP growth have been less accurate. The differences are small.

-Uncertainty about some key variables does not increase with the forecast horizon. We know about as much about economic growth in the current quarter as we do about growth two years ahead."