Perhaps the most accurate weather forecast in history was made by American comedian George Carlin: “Weather forecast for tonight: dark”. The most famous weather forecasting organization is the United Kingdom’s Meteorological Office (the Met), which was formed in 1854 as a service to mariners.
By their own studies, the Met said they have about 80-percent success rate in forecasting rain three days ahead. Extending the time period of the forecast lowers the accuracy rate to little more than a guess when you go out three to six months in the future. There are just too many factors to consider.
The same is true for nonmanipulated financial markets.
In September 2015, when the peso-dollar rate was below 46, I was asked by a local bank my forecast for 2016. I told them with supreme confidence that the peso would go to 48 to the dollar. I was absolutely accurate. On January 25 and 26, 2016, the peso traded at 48. And that was the last time the peso hit 48 until near the end of last month. The bank never called me back.
Currently, every expert is being asked about the Philippine peso and what the exchange rate will be in the near to medium future. Unfortunately, you do not get paid the big bucks by saying, “Honestly, there is no way for me to give an accurate prediction—too many variables”.
Meteorologists have an 80-percent accuracy calling for rain three days ahead. No financial expert in his or her right mind would be willing to bet big money on what the peso-dollar rate will be next Monday but can say with confidence three months down the road.
Prior to the second-quarter Philippine economic results, local economists were asked what they thought the number would be. These are well-trained people with years of experience. Yet, the spread between the highest and lowest forecast was over 20 percent. That is like being told that price of something is somewhere between P6,300 and P7,800.
That is not the analysts’ fault. There are just too many variables that can significantly move
The current excuse for the Philippine peso being above 48 is because the US dollar is strong. But that is not accurate. The US Dollar Index (USDX), which prices the dollar against a basket of currencies, is trading below 97. But the USDX was at 100 on January 21, 2016, and the Philippine peso was at 47.70. On May 2 the USDX traded at 92; the peso at 47.40. The dollar has depreciated by 8 percent; the peso has appreciated by 0.6 percent.
The peso may well move to 50. And it may also do what it has done every year—except 2013—since 2009, and appreciate in the first quarter of the New Year. No one really knows and that is the fun part of the financial markets. They do what they are going to do and it does not matter. You must be prepared for all scenarios—up, down and sideways.
E-mail me at email@example.com. Visit my web site at www.mangunonmarkets.com. Follow me on Twitter @mangunonmarkets. PSE stock-market information and technical analysis tools provided by the COL Financial Group Inc.