At the beginning of the year, I cast my runes and offered nine predictions for 2013.
Iâm going to do the same come 2014, but, first, I have to mark myself on last yearâs effort.
So what did I get right? And what did I get wrong?
The most important thing to remember about predictions
We’ll follow the marking system I suggested last year – two points for a hit; one or a ‘nearly right’; nothing for a flunk.
Perhaps, as one person suggested in the comments, we should give minus points for a flunk, because a bad call often leads to an opportunity cost â the money I invested in A, which went down, could have been invested in B which went up.
That’s not a bad idea at all – and I think that’s how I’ll do next year’s. For now I’ll stick with the system as planned. But it does bring me to the most important lesson of all.
It’s easy to make predictions. It can even be fun. But being human, while sometimes you get them right, often you get them wrong. Far more important is managing your risk.
Company X is trading at 500. You predict it’s going to go to 1,000. It turns out to be a dud and it goes to 100. Are you still holding X? Or did you have some risk management â a contingency plan â in place, to get you out of the trade without taking too big a loss? Thatâs what to bear in mind as we head into forecast season.
Let’s start with the big picture. I suggested we’d see ‘more of the same’ – that ‘extend and pretend’ is prolonged. The BoE base rate would stay at 0.5% (yes). Economic stagnation would continue (yes and no – depends on the sector). Any kind of unravelling was unlikely (yes).
House prices wouldn’t fall by more than a few percent, if that. In London they’d be flat (how wrong was I?) and would remain unaffordable to the young (right).
Anger would simmer and occasionally boil over (very much so). Lending would remain tight (yes), entrepreneurs stifled (not so much) and bureaucrats dominant (yes).
But in all, despite more yes-es than nos, I was too bearish. Built on dodgy foundations though it may be, the economy has done better that I expected.
Now for the specifics.
1. No country will abandon Europe this year â 2 points
This sounds stupidly obvious now, but this time last year, so many countries seemed to be on the verge, that I felt the prediction was justified.
2. The UK will lose its AAA rating â 2 points
Bingo. It happened in February. I also suggested that ‘sterling will fall a bit, but remain within current established ranges. $1.66 will be its high for the year against the dollar, while $1.54 will be the low’. The high has been $1.64 and the low $1.48. (Not bad). And against the euro I suggested a range of 80-81p to 88-90p. The low was 80p, the high 88p. Bullâs eye.
3. The Bank of England to own 40% of UK government debt â 0 points
Though government debt has risen over the year, Bank of England ownership of that debt has not. It has been flat. Which means that the percentage owned by the BoE has actually fallen.
4. Gold will flirt with $2,000 an ounce â 0 points
A big and painful NIL POINTS. Gold didn’t rise 15%. It has fallen 25%. And I was way too slow in getting on the right side of this trade.
5. Egypt to experience heavy inflation (20%-plus), if not hyperinflation â 1 point
I had no idea in January that Egypt was going to have the horrible year it has. Of all the predictions I made, I most wish this one had been wrong.
Annual urban consumer inflation hit 13% in November, according to state statistics agency CAPMAS. The price index for urban food and non-alcoholic beverages rose by almost 20%. I suppose I can just about argue one point for this. Inflation is heavy, and official measures understate, but itâs not quite 20% – and itâs not hyper.
6. Oil (West Texas Intermediate) goes above $100 a barrel â 2 points
And some. $112 was the high back in August.
7. Most stock markets are range-bound⌠– 0 points
âAnd end the year maybe 5% higherâ. The S&P is up over 20%. Wrong, wrong, wrong. Nil points.
8. ⌠except Japan â 2 points
I was bullish on Japan, saying, âStrength in the Japanese stock market will continueâ. But not bullish enough â my targets were too low. I’ll give myself 2 points though because of my call on the yen. I said the dollar would eventually buy as much as 100 yen. It now buys you 102.
9. The bond bubble doesnât burst⌠yet â 2 points
I suggested the US long bond (the 30-year maturity), which began the year at $146, would end the year lower than it began, but it wonât yet enter its long overdue, full-blown bear market. $128-$130 would be the low for the year. The low is $129. Bullâs eye.
10. A Brucey-bonus prediction â 2 points
As my 10th, bonus prediction I suggested Manchester United would win the league and that QPR, Reading and Wigan would be relegated. That was another hit – not that I made any money out of it.
All in all, I got more right than I got wrong – 13 points from a possible 20. I’m particularly pleased about the oil and US long bond calls, as well as sterling.
But 2013 has left me with a bad taste in my mouth. That’s because I was so terribly wrong on three particular things: gold, the stock market and London house prices. Let’s hope I get these right in 2014. We’ll see when I make my predictions early next year.
â˘Â Life After The State by Dominic Frisby is available at Amazon. An audiobook version is available here.
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Category: Market updates