For several weeks, a rotation has been underway in the U.S. market, with money moving away from some...
A Year of Hits and Misses
12/18/2008 1:19 pm EST
This is the time when many of us look back and take stock of how we did in the past year. Today I’ll review how this column’s predictions turned out in 2008.
The verdict: some big hits but some even bigger misses.
There’s no way around it: I simply missed the worst market since 1931 by being too bullish for too long and underestimating the impact of the credit crisis on the economy and equity markets.
Back in January, I predicted that we’d narrowly avoid a recession, that the credit crunch would ease, and that stocks would hit new highs later in the year.
Um, wrong on all counts. But that didn’t stop me from doubling down on that bet, in an in-your-face column called “What Bear Market? What Recession?”
That commentary, published in May, came during a lull in the financial crisis and before a cascade of data clearly indicated plummeting consumer confidence, rising unemployment, and ultimately, declining gross domestic product (GDP)—plus the 20% drop in stock prices that officially defines a bear market.
And I had plenty of company in my early optimism among some big-name advisers who predicted even higher stock prices than I did (although some of them turned cautious pretty early this year).
But no excuses, folks—wrong is wrong.
“Never become hypnotized by the beauty of numbers,” wrote Nobel laureate V.S. Naipaul. My lesson: Watch the data, but don’t be bound by them.
So, besides that, Mrs. Lincoln, how was the play?
Well, actually, not bad, and if you go back slightly beyond this calendar year, even better, as some longer-term trends played out pretty much as I envisioned them.
I’ve been particularly prescient in forecasting the direction of emerging markets, currencies, and some commodities, especially oil.
Last October, as the Shanghai Composite index soared above 6,000, I recommended “that no investor put another dime into high-flying China-based mutual funds, ADRs, or ETFs at this time. And if you were smart or lucky enough to invest in China before, you should promptly lock in at least half of your hefty gains. In fact, I'd cut exposure to emerging markets in general to no more than 5% of your portfolio.”
And back in June, before the Beijing Olympic games and before economic problems emerged in “invincible” China, I wrote: “You have a case for much lower economic growth down the road than the pundits are projecting…The China miracle may be losing some of its luster.”
At that point Shanghai was trading near 2900. It fell all the way to 1700 before its recent rally.
I also wrote that emerging markets in general were running into trouble and that “the risks, which promoters of these vehicles chose to ignore, have returned with a vengeance.”
Nowhere was that more true than in Russia, whose market held up better than most for much longer, propped up by the oil price bubble. Shortly after its invasion of Georgia, I speculated that falling oil prices and doubts about the Putin/Medvedev regime would cause investors to abandon this market—and the whole concept of BRIC (Brazil, Russia, India, China) investing.
“These days, investors have many ways to play oil or other commodities while avoiding Russia’s political and economic baggage,” I wrote. “BRIC investing now looks like just the latest in a long line of marketing gimmicks that promise investors instant riches but deliver only heartache.”
Since then, Russian and emerging market stocks have collapsed, along with the illusion that these countries could “decouple” their markets and economies from that of the US.
Oil prices, too, have collapsed. I saw that clearly—if a few weeks early—in late May when I wrote that weakening demand and a near-certitude that oil had nowhere to go but up meant that crude was peaking. “If you've just bought an oil ETF, I'd suggest putting in a stop-loss order,” I warned. “This market is going down, baby!”
At the time, crude was changing hands in the $130s per barrel range. It topped $147 before heading much, much lower, and currently trades around $40.
I also thought that the decline in commodities prices was much more than a correction.
One reason: I didn’t buy all the inflation fears that swept through the market in early summer.
“Inflation in the US simply isn’t near what it was in the bad old 1970s, when it approached 10% at its peak—and it’s not likely to get there,” I wrote.
I also predicted a US dollar rebound (albeit a little early) and a weakening of the British pound, both of which happened.
“Expect to hear fewer British accents in US shopping malls next Christmas,” I wrote, “and a vacation in England or Scotland may once again be affordable.” It was, as we found out when we went to The World Money Show London last month.
Beyond market predictions, this column has written extensively about the financial crisis throughout the year. And I’ve consistently been far more critical of the Wall Street “geniuses” who got us into this mess much earlier than most in the media.
I’ve blasted the Wall Street culture for being “corrupt” and “rotten to the core,” and expressed little sympathy for many of the “professionals” who’ve lost their jobs in this crisis.
I stand by every syllable, and my only regret is that more of them aren’t on the street, after what they’ve done to our country and our economy.
I’ve blasted the payment of bonuses to any of these people since January, when I urged the firms to make employees give them back.
Back in October, I warned that the surviving big firms were preparing to pay their remaining employees substantial bonuses this year, only this time indirectly subsidized by taxpayer dollars from the Troubled Asset Relief Program.
And believe it or not, it seems to be happening, as Goldman Sachs and other firms have vociferously pledged not to pay bonuses to top executives while keeping the spigot open for everyone else.
I’ve also tried to keep readers informed and on track as much as possible in this difficult market.
In April, I laid out the many reasons individual investors shouldn’t buy individual stocks, which turned out to be good advice as many issues were crushed even worse than the market averages. I also continued to urge true diversification as a way to mitigate the markets’ savage volatility and keep losses down. And I’ve tried to help you stay focused and level-headed in a situation none of us can even pretend to control.
I don’t expect much from the markets in the year ahead—although I hope to be pleasantly surprised. I’ve been chastened this year, but I’ve always called things as I’ve seen them. I’ll continue to do so in 2009.
But one thing we can all be bullish about: 2008 is nearly over.
So, happy holidays and a healthy, more prosperous new year! I’ll see you again in January.
Howard R. Gold is editor of MoneyShow.com. The opinions expressed here are his own and do not necessarily reflect the views of InterShow or MoneyShow.com.
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