S&P and the Trouble with Forecasting

Publication: Bloomberg BusinessWeek

Author: Rick Wartzman

08/12/2011 - Very early in his career, when he was a 19-year-old trainee at an investment firm in Frankfurt, Peter Drucker ventured blithely into the world of forecasting. Stock prices, he proclaimed in a prestigious economic journal, were absolutely certain to keep going one way: up and up and up.

A few weeks later—in October 1929—the market crashed, helping to usher in the Great Depression. “Like so much of this work,” Drucker later recalled, “it proceeded from a self-evident assumption by means of impeccable mathematics to an asinine conclusion.…


In truth, as notoriously undependable as S&P’s crystal ball has been—and as complicit as it may have been in creating the housing bubble—S&P is hardly alone in having failed to prognosticate accurately. For instance, a recent report by the Pew Center on the States and the Nelson A. Rockefeller Institute of Government found that in 2009, half the states overestimated revenues by more than 10 percent, “starting a trend of unwelcome surprises.”

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