The Utility of Macro Forecasts

Most forecasts consist of extrapolation of past performance. Because macro developments usually don't diverge from prior trends, extrapolation is usually successful. Those who follow expectations based on extrapolation don't enjoy unusual profits when it holds. Once in a while, the behavior of the economy does deviate materially from past patterns. Since this deviation comes as a surprise to most investors, its ccurrence moves markets - meaning an accurate prediction of the deviation would be highly profitable. The bottom line for me is that forecasts can't be right often enough to be worth while.