This is a crazy time economically. Covid-19 has had a dramatic impact on unemployment which is still more than double the pre-pandemic level. Fortunately or unfortunately some of the effects on

Prediction markets allow the 'wisdom of crowds' to estimate the likelihood of a wide range of events. Very few are certainties or completely unlikely. So the estimates fall on the range of unlikely to very likely.

The Economist writes about 'What to expect in 2021 according to prediction markets' in a recent issue. The forecasts relate to a wide range of issues from the economy to politics and international relations. Some are related like 97% chance that there will be fewer than 125,000 daily flights by June 30th and that the 77% chance that the US will reopen travel with the EU by May 1st. Given recent trends in the pandemic seems the first will be very likely while the latter much less so.

Some of the predictions are almost certain to come true by June 30, 2021. 63% predicted 'Over 450,000 confirmed covid-19 deaths in the US' seems like a certainty right now give the US is quickly approached 400,000 before the end of January and vaccines are rolling out more slowly than expected. Others are much less likely such as 70% expecting 'Republicans control Senate at the end of June' which seems much less likely after the Georgia run-off election results.

Given that these projections were made less than 3 weeks ago it shows how quickly things can change. The 'facts' that we rely on to make estimates can move quickly leading to a very different sense of the future. This is further complicated in today's environment. Interest rates are at rock bottom. How will this affect loan performance going forward, especially if interest rates increase? Once loan forbearance programs end and eviction bans expire how will collections be impacted? Net:  forecasting is hard.

What does this mean for your CECL estimates? CECLNow has two advantages when it comes to forecasting. First, using multiple approaches to forecast losses helps to mitigate the impact of external events like the bans on foreclosures. Second, we apply a similar 'wisdom of crowds' approach to economic forecasting. By bringing together many individual estimates the average numbers are more likely to be accurate. Each client benefits from these advantages.