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Tuesday, Feb. 26, 2013, 12:01 a.m.

Fooled 'em again.

That is, the economy fooled almost all of the contestants in my annual Derby of Economic Forecasting Talent, or DEFT. The nation's economic recovery continued in 2012, but at so feeble a pace that 22 out of 23 contestants guessed too high on economic growth.

All 23 contestants overestimated inflation, guessing 2.67 percent to 6.7 percent. The actual figure was 1.76 percent, according to the Consumer Price Index.

Even the contest winner, investment manager Randy Jeffs, the founder of Progressive Capital Managers in Irvine, Calif., guessed too high on growth and inflation. He won with accurate estimates on oil prices, retail sales and unemployment.

When it came to estimating what the interest rate would be on 10-year bonds at the end of 2012, all but one contestant guessed too high. The actual figure was 1.76 percent. Estimates mostly ranged from 2 percent to 3.9 percent.

Durward P. Jackson, a retired professor of information systems who tied for first place last year, was the only person who guessed low on interest rates. And he used a random number generator to make his estimates, as he had in 2011.

Of his success last year, Jackson said, “In my own flippant way, I was trying to make the same point as you, that prediction is a random walk. I just got lucky.”

The difficulty that contestants — and I might add, professional economists — had in estimating key variables in 2012 was nothing new. I have run the Derby of Economic Forecasting 10 times since 1999.

I've observed that whenever a key economic variable veers off trend, almost everyone misses it, whether they are economists, academics, plumbers or mail carriers. Contest participants — and the world at large — didn't foresee the economic collapse of 2008, nor the huge jump in oil prices in 2009, nor the snail-paced recovery in 2012.

I am not criticizing anyone for these misses. It is extraordinarily hard for anyone, including experts, to predict the future. Investors should understand this hard truth, so that they don't place undue faith in forecasts.

Nevertheless, the desire to forecast is embedded in the human genome. Who am I to try to discourage it? Indeed, I want to encourage it by inviting one and all to enter the 11th Derby of Economic Forecasting Talent. That includes you, dear reader.

The entry rules are simple. Contestants must answer six questions about how the economy will fare in 2013. Entries should include a phone number and the contestant's occupation. Entries without these items may be disqualified.

You can email your DEFT contest entry to me at It must be received by midnight March 10. People who dislike email may write to DEFT contest, John Dorfman, Chairman, Thunderstorm Capital, 1 Liberty Square, 5th floor, Boston, MA 02109.

Here are the six questions:

• In 2012, the U.S. economy, measured by gross domestic product, grew 2.2 percent in real (inflation-adjusted) terms. What will GDP growth be in 2013?

• Inflation, measured by the Consumer Price Index, was 1.76 percent in 2012. What will inflation be in 2013?

• The interest rate on 10-year government bonds was 1.757 percent when 2012 ended. What will it be when 2013 ends?

• A barrel of oil cost $91.82 when 2012 drew to a close. What will it cost on Dec. 31, 2013?

• Retail sales totaled $416.1 billion in the United States in December 2012. In December 2013, what will the comparable figure be?

• Unemployment fell from 8.3 percent at the end of 2011 to 7.8 percent in 2012. When Dec. 31 rolls around, what will be the unemployment level?

Explanations of the reasons behind your answers are appreciated but not required.

Edward DeFazio, who was the Hudson County prosecutor in Jersey City, N.J., when he entered the contest, took second place. He is now a state Superior Court judge. His guesses on economic growth and inflation, while high, were lower and more accurate than those of most contestants.

Third place was a tie among five individuals: Joseph Caterina, a financial planner; Jeff Christides, a retired chief financial officer; Irene Patz, a computer specialist; Jim Penikas, an executive with a company that makes software for car dealers (who also tied for third last year); and Alan Strauss, a retired civilian logistics manager for the Army.

Randy Jeffs will receive a trophy for his efforts, as will the winner of the next contest.

For the coming year, Jeffs envisions a continuation of the gradual economic recovery. He thinks the federal budget tussle and the spending cuts known as the “sequester” will be more of a nuisance than a serious problem for the economy.

John Dorfman is chairman of Thunderstorm Capital in Boston and a syndicated columnist. He can be reached at

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