Economists know more about how the fragments of society work than anyone. In school they are taught to break down the economy into its tiniest parts and to quantify each minutiae so it can become part of a formula. Once done those econometric formulas should become a viable equation to predict how the total economy will react when a change occurs to any part of the formula.

Since economists know all this I must ask if these formulas are so good at predicting the economy why aren't all economists rich?

They aren't. And I will give you some clues why.

The more complicated a formula the less likely it is to work. When the economy is not reacting the way an economist thinks it should based on his formula he will tell you that one part of his equation is not acting "normally", whatever that is. Another thing you will find is there is no Holy Grail formula. Each one of these PhDs has tweaked the basic one and either added or subtracted parts or maybe changed the weighting of certain parts. If you ask 1,000 economists for an answer to what will happen and why you will receive 1,000 different reasons. That doesn't mean they are all wrong. It does mean there is no one right way to arrive at a correct prediction. The law of averages will have many with a valid answer even if their reasoning is wrong. Sometimes pure luck is enough.

When I was a floor trader there were a thousand guys trading and each one had a different method to determine if the market was going up or down. One wanted to buy. Another thought the market was headed lower and wanted to sell. At that moment you realize that there is a 50/50 chance one of them is correct. Every time an economist makes a prediction you and I could be a winner or loser.

There are some very smart economists. Not too many. Once in a while one of the young ones come up with an idea that all the others eventually adopt such as the Laffer Curve which we will not explore here. Until an economist has gone through a major bull and bear market cycle you would not want to live or die with his predictions.

Al Thomas

Albert W. Thomas has spent most of his life in the field of finance. In 1965 he founded an insurance holding company, Security Dynamics Investment Corporation, after having been an agent and General Agent for several life insurance companies. In 1970 he became cofounder and president of Real Life Estate, Inc., that marketed a unique real estate and life insurance package.

After he became interested in commodities he bought a seat for his personal trading on the Chicago Open Board of Trade, which is now known as the MidAmerica Commodity Exchange. Later he became a full time trader and also acted as a commodity broker for a few select clients. By fellow floor traders Al is considered to be an excellent technical analyst much of which is outlined in his book IF IT DOESN'T GO UP, DON'T BUY IT! It became a best seller on Amazon.

In 1981 he sold his membership on the Exchange and with his wife, Carolyn, lived full time aboard their 41' ketch, the Aumakua (which means guardian angel in Hawaiian). They sailed in Florida and the Bahamas for two years.

He founded World Trading Group in 1984 that grew to the seventh largest introducing commodity brokerage firm in the U.S. with 35 offices from coast to coast, Alaska and Canada. It was sold in 1992.

Al is a graduate of Northwestern University with a B.S. degree in Commerce and is a member of MENSA. He is now president of Williamsburg Investment Company that syndicates his weekly financial column since 1999 to more than 300 newspapers and writes a financial market letter called Over My Shoulder that is quoted in Barron?s and many other publications. A 3-month trial subscription is available on his web site. He is a regular guest on several financial radio talk shows.

His favorite pastime is fishing.

Mr. Thomas is available for speaking engagements. Please call 321-453-5300 for more information.