Willfully, or simply out of blindness, the professional “Pollyannas” are ignoring obvious indications of economic and market downside.

Ever wonder if forecasters have a window in their office?

Maybe it’s just a mid-Atlantic thing, what with our mercurial weather and all. Last Sunday, I was trying to figure out what to wear to one of those vile garden parties that are all the rage this time of year.

(My wife tells me that if I can’t enjoy these affairs as part and parcel of a normal person’s social life, I should think of them as “networking,” or perhaps even “research into the human condition.” Except she scolds whenever I try to take notes.)

Regardless, I couldn’t help but wonder if our local forecaster was operating from, say, the moon or such. He kept prattling on about sunny skies and balmy breezes, while I was looking out at ominously dark clouds and sudden wind gusts bending over the tops of my fruit trees.

Prepared (For What It’s Worth)

Pointing this out offered no respite, so I dressed in the usual uniform: khaki slacks, a golf shirt and my least-worn boat shoes. I also stuffed a fishing hat and windbreaker in my wife’s tote bag – just in case.

Unfortunately, my “brilliant foresight” only went but so far. When the sky inevitably opened up on us, I was thanked “oh so much” as she draped the jacket over her shoulders and strolled off for the shelter of our host’s covered patio.

At least she left me the hat.

Turning a Blind Eye to Risk

Speaking of prognostications that fly in the face of reason, our friends at the National Association of Business Economics (NABE) would have us believe in a similarly sunny outlook. Their “leading forecasters’” latest assessments claim that the situation going forward is considerably more bullish.

The group’s president (and Point Loma Nazarene University’s chief economist) Lynn Reaser discounts escalating European risk, choosing instead to focus on the improving outlook Stateside: “Growth prospects are stronger, unemployment and inflation are lower, and worries relating to consumer retrenchment and domestic financial headwinds have diminished.”

Her panel is calling for real gross domestic growth to exceed 3.1% for both 2010 and 2011. They figure that Americans will achieve this in part by foregoing thrift and reducing savings from their earlier estimation of 4.6% to a mere 3.4%.

They are also somewhat enthralled by the sudden increase in home sales, which are reputed to have climbed some 7.6% in April. Unfortunately, they cannot seem to tell the difference between genuine clearing skies and a mere dry spot under one’s umbrella.

Action Is Not Evidence

Most any honest arbiter credits that spike in housing (they are houses, damn it, not “homes”) to the White House’s $8,000 credit for first-time buyers. This is a charming program, which sought to use newly invented dollars to pump up the moribund real estate market by encouraging folks who couldn’t quite make the bar cash-wise to dive in and buy anyway.

The good news, I suppose, is that at least this round of financial lightweights aren’t saddling themselves with punitive interest rates for the next 30 years. On the other hand, they won’t have the option of refinancing in a year. Either they will manage their current payments, or they will stumble and add to the wave of foreclosures sweeping over the market.

The problem is, our esteemed forecasters at the NABE seem to be (in part at least) crediting April’s action to natural causes, rather than seeing it as just more vapid central bank stimulation.

The Price of Stupidity

Allow me to illustrate how such things work in the short run: In and around Las Vegas right now, there are some 9,517 brand-new never-occupied houses sitting vacant (as per David Streitfeld at The New York Times). Another 5,600 houses have been served notice of repossession by lenders in the first three months of 2010, and can be expected to land on this overstressed market shortly.

(Streitfeld – and the Times no less – call the latter “homes” too, but I simply refuse take part in this casual destruction of the language!)

It comes as no shock to hear that prices are off by some 60%! And yet, in the midst of all this real estate carnage, builders are frantically buying vacant lots, and are already assembling some 1,100 new houses. Brokers are literally holding tent sales out in the desert trying to convince rubes that this is “the second coming of real estate.”

No Income = No Wage Pressure

And what do we expect to come of this effort? Let’s return to that NABE report for a moment. Unemployment is expected to remain well above 9% in 2010, and drop no lower than 8.5% by the very end of 2011.

One might argue as to how and when inflation will raise its ugly head again. But wage pressure certainly does not appear to be cropping up anytime soon, not while bosses can smile grimly and point out to raise seekers the long line of folks who would gladly do their job for less.

I would point out that there are more than a few players out there who are declining the NABE’s rosy outlook, choosing instead to look out their own windows at the storm clouds on the near horizon.

A Clearer Forecast

Barclays (NYSE:BCS) recent survey of actual investors (as compared to the NABE’s poll of professional tea-leaf readers) showed that 35% of Japanese participants, 25% of Americans, 17% of the Swiss, 16% of U.K. respondents, and a whopping majority of respondents from Monaco all figure that the global situation will get quite a bit worse before it gets any better at all.

Why do we care about the opinion of the residents of such a tiny Mediterranean principality? The joint is an infamous tax haven that never did join in the Frankenstein creature that is the European Union. Your average “man on the street” in Monte Carlo is quite possibly better connected and better informed than many ministers and secretaries in Paris, Berlin, London or Washington.

And even those ministers and bankers know full well that the situation is considerably more dire than we are being told, as evidenced by yet another spike in the London interbank offered rate or LIBOR, which has just hit yet another high, climbing above 0.50% for the first time in some 10 months.

As I mentioned last week, LIBOR is an excellent picture window revealing the real a far more useful forecast as to the rain that is about to fall on our party. In Thursday’s column, I will once again equip you with a jacket and rain hat, in the form of a specific option that you might purchase against the coming storm.

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