By Ian Cowie

8 November 2012

Barack Obama's re-election as American President received a chilly welcome from Wall Street

Barack Obama's re-election victory received a chilly welcome on Wall Street, as the economic realities of the credit crisis remain unchanged regardless of whether America has a Democrat or Republican President.

While the giant American fund manager Fidelity correctly predicted in August that rising stock markets suggested Obama would win, as reported in this space at the time, other experts have argued about whether history shows share prices rise more under Republicans or Democrats.

City regulators insist that the past is not a guide to the future. Even accurate information about the present may prove little help with forecasts. As scientists might point out, Heisenberg's uncertainty principle reminds us that the more we know about the precise position of a particle, the less we can know about its momentum.

But I would hesitate to lean too heavily on the theories of a Nazi rocket scientist. Instead, I prefer a joke told by Alan Steel of Alan Steel Asset Management, which demonstrates why predictions are particularly fallible where humans are involved - as is the case with stock markets - and the very act of observation can change the people being observed or the prediction being made.

With apologies to prigs who can't understand that you don't need to be solemn to make a serious point, here goes:

It's November and the Native Americans on a remote reservation in South Dakota asked their new chief if the coming winter was going to be cold or mild.

Since he was a chief in a modern society, he had never been taught the old secrets. When he looked at the sky, he couldn't tell what the winter was going to be like.

Nevertheless, to be on the safe side, he told his tribe that the winter was indeed going to be cold and that the members of the village should collect firewood to be prepared.

But, being a practical leader, after several days, he had an idea. He telephoned the National Weather Service and asked: "Is the coming winter going to be cold?"

The meteoroligist at the weather service responded: "It's too close to call at this stage but this winter might be quite cold."

So the chief went back to his people and told them to collect even more firewood in order to be prepared.

A week later, he called the National Weather Service again. "Can you give me any better forecast about whether it's going to be a very cold winter?">

"Yes," the man at National Weather Service replied, "it's going to be a very cold winter."

The chief again went back to his people and ordered them to collect every scrap of firewood they could find. Two weeks later, the chief called the National Weather Service again. "Are you absolutely sure that the winter is going to be very cold?"

"Absolutely," the man replied. "It's looking more and more like it is going to be one of the coldest winters we've ever seen."

"How can you be so sure?" the chief asked. The weatherman replied: "We've never seen the Indians so busy collecting firewood."

Quote courtesy of The Telegraph
Thursday 8 November 2011