Jewish World Review August 21, 2000 / 20 Menachem-Av, 5760
http://www.jewishworldreview.com -- GEORGE SOROS is making news this week with a big new apology for having wrongly predicted a global financial crash. "Basically I got carried away in thinking the system might actually collapse," the hedge fund titan told the press. "I goofed."
In a new book, "Open Society: From Global Capitalism to Global Democracy" Mr Soros reverses the direction he took in his doomsaying 1998 volume "The Crisis of Global Capitalism: Open Society Endangered".
Mr Soros has said he failed on two counts: not predicting the alacrity with which the Federal Reserve and banks would respond to overseas troubles with infusions of liquidity, and overlooking the stabilising effect of the tech boom. His editor at PublicAffairs, Peter Osnos, tells us that while Mr Soros may have apologised, the second book is also a confirmation of the first, in that it reinforces Mr Soros's thesis that open and free societies are all-important.
But this is mere detail. The real question here is a bigger one: exactly how much does a goof really hurt those whose careers hinge on their calls and their prognosticating? Not much, if a quickie telephone survey by your author is any indication. In fact, the futurist types often recover fine from their bloopers, or even profit from them.
Consider Ed Yardeni, Deutsche Bank's Y2K point man. Over the course of 1999, the forecaster's appalling predictions of imminent millennial breakdown turned his website, 'yardeni.com', into a survivalist's icons. Thanks to Mr Yardeni, any number of Americans wasted New Year's Eve sitting among supplies of Gatorade and freeze-dried beef in their basements.
By the quiet early hours of January 1, Mr Yardeni knew it was time to pull a Soros. "I goofed", he wrote in his morning posting. Although he says he had "no hesitation" about the confession, it wasn't easy for him. "If you really believe something, you don't want to let go of it right away." Eight months later, 'yardeni.com' is thriving, although material about its old obsession is conspicuously absent on the home page.
Mr Yardeni attributes this comeback to the fact that he apologised so punctually and frankly. "I certainly didn't get anyone say they never want Yardeni's stuff again," he says. Besides, Mr Yardeni says, some of his warnings, or at least the earlier ones, did much good, "institutional investors who take my material talked to CFOs and their companies then did prepare." Too, he adds, "anybody that's wrong and doesn't admit it just gets ignored after that."
Then there is Henry Kaufman, whose dark visions for the future earned him the nickname Dr Doom. From a desk at Salomon Bros in the 1970s, Mr Kaufman waved red flag after red flag about inflation, warning of the inevitability and necessity of future interest rate hikes.
For a long time, he was correct--and alone. "Every dime that interest rates went up," he recalls, "other forecasters said that was the end." Not Dr Doom, some of whose formative years were spent in a Germany not recovered from the hyperinflation of 1923.
Dr Doom's Soros moment came when he failed to change his call after interest rates peaked in the early 1980s. By his own admission, he recognised the new trend many months too late. Finally, in a 17 August, 1982 Salomon Bros memo titled "The Prospects for Interest Rates", the economist allowed that it was time for a fresh look at rates.
The reaction to the innocuous-sounding "Prospects for Interest Rates" was every forecaster's dream. It set off the largest single-day rise the Dow had seen to that date and short-term interest rates plummeted. The FT published the news under the headline "Wall St surge as Kaufman predicts interest rate fall".
In other words, if you are important enough, changing course may win you yet more fame. (For more, see Mr Kaufman's memoir, "On Money and Markets", published recently by McGraw-Hill.)
All of which indicates that errors, even colossal ones, may not damage those who make them quite as much as they may seem to at first. But it also suggests that the loyaler followers of specific prognosticators may want to reconsider their fealty to individual gurus and wise men.
Or, as Michael Steinhardt, Mr Soros's fellow hedge fund titan, put it to us: "Anyone
who thinks that George Soros or Michael Steinhardt or anyone who made a lot of
money has the ability to project the future is
JWR contributor Amity Shlaes is a columnist for Financial Times
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