Kevin Goldstein-Jackson: A gut feeling of unease about the Footsie

Having won last year’s FTSE 100 forecast competition with a prediction of 5,280 (FT Money, January 3-4 2009) my prediction of 3,980 for this year-end (January 2-3 2010) worried a number of people – especially as I said it was “just a gut feeling and I can’t explain it!”
This made me re-examine what might have led to the gut feeling.

At first, I couldn’t pinpoint reasons, so searched the internet for clues and came across the book Gut Feelings: The Intelligence Of The Unconscious by Gerd Gigerenzer. I have not yet obtained a copy but intend to do so as Gigerenzer directs the Centre for Adaptive Behaviour and Cognition at the Max Planck Institute for Human Development in Berlin.

The book argues that “gut feelings” are the result of “unconscious mental processes” that “apply rules of thumb” gained from our environment and experience and take into account “only the most useful bits of information”. Apparently, these gut feelings can lead to good decisions in picking a spouse, medical procedures and shares.

So, thinking again about my 3,980 FTSE prediction, it may have been created by a feeling that some dramatic disasters might occur around the world – financial, natural, or criminal. I have not
yet decided what action
to take.

I am concerned that nothing much seems to have been done to improve corporate and financial governance in the UK and that private investors are still unable to run their own pension schemes and tax-efficient individual savings accounts (Isas) except via nominees and managers. What happens
if institutions’ computer systems fail and millions
of documents are lost
or corrupted?

According to accounting firm BDO, losses from frauds reported by UK companies soared by 76 per cent last year to “nearly £2.1bn”. I suspect that the unreported total of fraud is perhaps 10 or 20 times more – especially if it includes deceitful dealings in derivatives, carbon trading, VAT transactions, property dealing, online fraud and generally lying to obtain an unfair pecuniary advantage.

The UK government could probably raise £1bn or more by offering sizeable financial rewards to people who produce evidence of significant financial crimes so that, after successful prosecution under the Proceeds of Crime Act 2002, the illegal gains can be confiscated and the fraudsters locked away.

That Act is wide-ranging and even affects “tainted gifts”. Perhaps that is what deters politicians and others from action.

● In FT Money’s review of the housing market in 2009 (January 2-3), the predictions made by a semi-tame fox that visits my garden proved to be the most accurate – which has attracted a lot of comment! So let me answer a few readers’ queries. The fox made its forecast by choosing from a range of numbered, identical-sized pieces of chicken – these were put in a line and
I recorded the first one picked. Last year’s prophetic fox has disappeared, but I don’t know if it has moved away, or been kidnapped by jealous fund managers. The fox that chose this year’s entry did not necessarily pick the +1 per cent piece because it was the first in line, as the second piece chosen was +3 per cent.

Kevin Goldstein-Jackson is an active private investor writing about his own investments. He may have a financial interest in any of the companies and trading strategies mentioned.