About a year ago, the Vice Chairman of Blackrock, Byron Wien, acknowledged that his prognostications for 2010, with a dismal 5% success rate, had missed the mark. Like many, I said to myself, "I can do better than that." So I sat down at my computer and published, for all to see, what I thought was in store for 2011. Today is the day I look back and see if I did indeed, do "better than that." For those that are so inclined, you can access the original newsletter here: - I predicted the DOW would finish higher.
Correct: The DOW finished the year in positive territory, gaining +5.6%. - Investors will run to get back into the stock market.
Incorrect: it was looking good in March when this headline appeared on the ICI website: "Little-guy investors appear to be on board: Since the beginning of the year, investors have put $24.2 billion into U.S.stock mutual funds after withdrawing $96.7 billion in 2010." This all changed when volatility reared its head and the small investor reversed course. - The bond market's 30-year bull run will come to an abrupt halt.
Incorrect: The bull market in bonds continued for 2011, yet, while inaccurate, my prediction was in good company. - The recovery will be less than robust.
Correct: GDP growth (excluding 4th quarter results, which haven't yet been published) was up 0.4% the 1st quarter, 1.3% the 2nd quarter, and 1.8% the 3rd quarter, with many fearing that a double-dip recession was a possibility. - Unemployment will remain high.
Correct: Even though unemployment ticked down, it had little to do with job creation and more to do with the 2.5 million unemployed Americans that quit looking for work altogether.[1] - President Obama's approval rating will improve.
Correct: 49% now approve of the job President Obama is doing.[2] He ended slightly higher than were he was at the beginning of the year (48%), but, like the S&P that ended about where it started, neither its trajectory nor Obama's approval rating were linear throughout the year, falling to a low of 40% in August of 2011.[3] - The Federal Reserve will leave interest rates where they currently are.
Correct: The Fed Funds rate did not move, and, in August of 2011, Chairman Bernanke announced that he would leave interest rates unchanged until mid 2013. - Housing prices will continue to decline.
Correct: We saw a further decline in housing prices of -4.1% in the 1st quarter of 2011, then a rebound of 3.8% in the second quarter, a 0.1% increase in the 3rd quarter, but a -1.2% decrease in October, which is the most recent date for which data are available.[4] - Utilities will be the winning sector in 2011.
Correct: Utilities were the best performing sector in 2011, up +14.8%.
- Corporations will either spend through acquisitions, or return money to shareholders in the form of dividends.
Correct: Dividend increases reached $50.2 billion in 2011, an increase of 89.2% over the $26.5 billion in dividend increases posted in 2010.[5] The U.S. announced $820 billion of M&A deals in 2011, the highest deal value since 2007, and 14.4% higher than in 2010.[6]
In 1913, Henry Ford said, "The problem with my customers is that they can only extrapolate the 'present,' they can't see into the future. If I was to ask them what they wanted from Ford Motor Company, they would say 'a faster horse.'" The way I see our job, in this business of finance and economics, is that we need to see it before it becomes obvious and to not extrapolate "the present." More importantly, to peer around the corner and try to ignore the noise. A lesson I have learned in my many years in this business is this: it is the snake you don't see that bites you. [1] ABC News [2] The Washington Post / ABC News Poll [3] Gallup [4] Case-Shiller index [5] PRNewswire, January 4, 2012
[6] Mergermarket.com _________________________________________________________
Talking Points
Here are this week's talking points: the right thing to say when trying to make a point.
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"Youth is when you're allowed to stay up late on New Year's Eve. Middle age is when you are forced to."
-Bill Vaughan -
"The function of economic forecasting is to make astrology look respectable."
-John Kenneth Galbraith -
As an indication of the vastness of the Fed's efforts, the central bank provided emergency loans, asset purchases and other aid totalling roughly $7.8 trillion during the two-year period ending in March 2009.
-The New York Times, January 6, 2012 -
"Drugs have taught an entire generation of Americans the metric system."
-P.J. O'Rourke -
"To stay competitive, one must change their tactics at least every 10 years."
-Napoleon Bonaparte -
Historically, from 1947 until 2011, the United States' average quarterly GDP growth was 3.28%, reaching a historical high of 17.20% in March of 1950 and a record low of -10.40% in March of 1958.
-Trading Economics, January, 2012 - "Good judgment comes from wisdom; Wisdom comes from experience; Experience comes from bad judgment."
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