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January 5 predictions
Dec. 17th, 2009 08:57 amI made some predictions at the beginning of the year, stating where I would be going with things.
The problem with revisiting this kind of stuff is that so many people (intelligent people, at that) say "how can he have thought that?" without realizing that their knowledge of subsequent events colours their view of things. Hell, I even do it to myself. It's absolutely impossible to return to your frame of mind and frames of reference even a few months ago, let alone at the beginning of the year.
That caveat aside, here it is:
Comments:
1) As it happened, I did retire some debt. £10k, in fact. I just couldn't find anything else sensible to do with it, and the clincher was the fact that I can pay off £80k of debt before I even have to think about tax problems on my rental income. Well, I wish I could pay off £80k of debt, but you know what I mean.
2) Interest rates. Got the "down to 0.5%" roughly right. Wrong about timing of rerise in rates (another reason for the decision to retire some debt).
3) Sterling: Way wrong on pessimism about Sterling. It held at 1.06 against the euro and has since recovered to 1.12, although I got the shape of the "curve" right.
4) Dollar/Euro. Too pessimistic about dollar.
5) Dollar/Pound ("cable") Too pessimistic about Sterling's bottom, but got curve fairly right and was almost alone in being Sterling bullish (v dollar) in March when it became apparent that the bottom was going to be in the 1.30s rather than 1.20s.
6) Unemployment and output. Slightly worse than even my pessimistic figures.
7) FTSE: Not right, but got the curve correct. Current performannce of FTSE continues to baffle me, but the clear explanation is the effect of quantitative easing, which seems to have gone right through to the bottom line with the investors' lament "What do I do with my money? Hell, why not the FTSE? "The trend is your friend"".
8) Gold: Very good, A or A+ for Birks here.
9) Oil: Not good. The China fiscal strategy (see a recent post of mine on this) was probably the main cause of that fuck-up, although there may also have been some supply issues.
Conclusions: It's a lot easier to get the general curve right than it is to guess exactly where that curve will be on the graph. Overall mark: B- or C+, I'd say.
The litmus test. How did I do?
Well, equities went okay. Of the four stocks that I picked (Whitbread, Ladbrokes, William Hill and Havelock Europa), I've done well out of Whitbread (close to 80%) and okay on Ladbrokes and William Hill. Europa has halved, but I still think it a sound company. My small company investments have done reasonably well over the years (for a start, their numbers are usually far less opaque than they are for the FTSE 100 companies!) and I like Havelock's relative lack of gearing -- the one thing which has caused me problems when investing in smaller companies in the past.
IG Index was a net loss of a grand on the year I think. Suffered by shorting Barclays and the FTSE when the former was at 160 and the latter was at 4700. Also made small loss on going long on Feed Wheat. There has to be a way to back soft commodities, but I'm now beginning to realize that this niche sector is actually quite volatile within itself. And the subtleties of deciding whether feed or milled wheat is the better bet (they can head in opposite directions!) is clearly one for the specialists. Any punting on softs by me would really need to be in some kind of "basket", and then you suffer from third-party fee syndrome.
US investments were stars. Index-linked was up 12% mark-to-market (plus the dividend, obv) and equity was up 10% on when I bought it and up 35% from March low. Dividend continues to come in quarterly on that one as well.
Where and why did I go wrong?
As I said, it's hard to put yourself back in your economic frame of mind as of Jan 1 2009.
I definitely misjudged the effect of QE on equities (a real one of "how could I have done that, it was obvious", and my only consolations are that I was (a) far from alone and (b) I was bullish enough on equities to have added to my holdings. It was just a case of "I could have made much more".
Too pessimistic on Sterling. This is a perennnial bugbear of mine and I was glad at last to get a bullish call right in March, even though I didn't follow it up with sufficient vigour. Market overshot on the upside, obv (when it got to $1.70), and I still feel that $1.63 is a mite high. The curiosity here is that the rate isn't much to do with follar/pound and is everything to do with dollar/euro. And THAT is to do with the euro -- specifically, Greece and the other debt basket cases who are in deep shit and are either going to need ECB support or will need to quit the euro after getting IMF backing.
In a way, several countries have "quit" the euro already, in the sense that any plans to join it are now either permanently on hold (Latvia) or have been abandoned altogether (UK). But no country that has gone in has yet come out, and the implications of such an event would be so frightening for the intrinsically risk-averse ECB that bailouts would go in before such an event was allowed to happen. A trip by Greece to the IMF would implicitly make that happen, because it would then be marching to a completely different economic drummer. I can't really see how Greece could get IMF support and stay in the Euro, but, in any case, the complexities are so great that I am sure that the ECB wouldn't allow it to happen.
The markets think the same, and the euro is weakening as a result. (Incidentally, much as I hate the short-term day-to-day commentaries about currency movements being "because" of something or other, in this case I do think that there is a fundamental macroeconomic issue at play. Weakness in the weaker Eurozone economies is a case of "when you are a billion pounds in debt, it's the bank that is in trouble", and in this case the bank is the ECB and, by implication, Germany and France. And the implication of that is a euro coming under pressure, even though Germany and France have emerged faster from the recession than the UK.)
________________
The problem with revisiting this kind of stuff is that so many people (intelligent people, at that) say "how can he have thought that?" without realizing that their knowledge of subsequent events colours their view of things. Hell, I even do it to myself. It's absolutely impossible to return to your frame of mind and frames of reference even a few months ago, let alone at the beginning of the year.
That caveat aside, here it is:
And so it is that my positions in the market appear somewhat to contradict my opinions about the most likely outcomes for 2009.
Inflation: My position. Not retiring debt, would be willing to take on more long-term debt at reasonable price. My prediction for 2009. Low numbers throughout year, going negative in the middle for months. (1)
Interest Rates: Down to 0.5% by June, back up to 1.5% by December. (2)
Sterling: Down to a bottom of about 92p against the euro. Remaining sub-parity by December (98p-ish).
Dollar: Strong until May or June, then weakening against euro to $1.60 or so by December. Strengthening against sterling ($1.27?) but weakening in second half to $1.55 or thereabouts. (3)(4)(5)
Unemployment: Dreadful. See ouput
Output: Ghastly. Minus 2% to minus 2.5%. (6)
FTSE: Despite a return of fears about inflation, no immediate boost to the market. However, bottom is reinforced by retail investors who now have nowhere else to put their savings. Low of 3,400 to 3,500 in April. Rebound to 4,500 by December. (7)
Gold: Excellent. $1,100 an ounce by December. (8)
Oil: Remaining in the toilet. $30 to $40 by December without much volatility this year. (9)
Comments:
1) As it happened, I did retire some debt. £10k, in fact. I just couldn't find anything else sensible to do with it, and the clincher was the fact that I can pay off £80k of debt before I even have to think about tax problems on my rental income. Well, I wish I could pay off £80k of debt, but you know what I mean.
2) Interest rates. Got the "down to 0.5%" roughly right. Wrong about timing of rerise in rates (another reason for the decision to retire some debt).
3) Sterling: Way wrong on pessimism about Sterling. It held at 1.06 against the euro and has since recovered to 1.12, although I got the shape of the "curve" right.
4) Dollar/Euro. Too pessimistic about dollar.
5) Dollar/Pound ("cable") Too pessimistic about Sterling's bottom, but got curve fairly right and was almost alone in being Sterling bullish (v dollar) in March when it became apparent that the bottom was going to be in the 1.30s rather than 1.20s.
6) Unemployment and output. Slightly worse than even my pessimistic figures.
7) FTSE: Not right, but got the curve correct. Current performannce of FTSE continues to baffle me, but the clear explanation is the effect of quantitative easing, which seems to have gone right through to the bottom line with the investors' lament "What do I do with my money? Hell, why not the FTSE? "The trend is your friend"".
8) Gold: Very good, A or A+ for Birks here.
9) Oil: Not good. The China fiscal strategy (see a recent post of mine on this) was probably the main cause of that fuck-up, although there may also have been some supply issues.
Conclusions: It's a lot easier to get the general curve right than it is to guess exactly where that curve will be on the graph. Overall mark: B- or C+, I'd say.
The litmus test. How did I do?
Well, equities went okay. Of the four stocks that I picked (Whitbread, Ladbrokes, William Hill and Havelock Europa), I've done well out of Whitbread (close to 80%) and okay on Ladbrokes and William Hill. Europa has halved, but I still think it a sound company. My small company investments have done reasonably well over the years (for a start, their numbers are usually far less opaque than they are for the FTSE 100 companies!) and I like Havelock's relative lack of gearing -- the one thing which has caused me problems when investing in smaller companies in the past.
IG Index was a net loss of a grand on the year I think. Suffered by shorting Barclays and the FTSE when the former was at 160 and the latter was at 4700. Also made small loss on going long on Feed Wheat. There has to be a way to back soft commodities, but I'm now beginning to realize that this niche sector is actually quite volatile within itself. And the subtleties of deciding whether feed or milled wheat is the better bet (they can head in opposite directions!) is clearly one for the specialists. Any punting on softs by me would really need to be in some kind of "basket", and then you suffer from third-party fee syndrome.
US investments were stars. Index-linked was up 12% mark-to-market (plus the dividend, obv) and equity was up 10% on when I bought it and up 35% from March low. Dividend continues to come in quarterly on that one as well.
Where and why did I go wrong?
As I said, it's hard to put yourself back in your economic frame of mind as of Jan 1 2009.
I definitely misjudged the effect of QE on equities (a real one of "how could I have done that, it was obvious", and my only consolations are that I was (a) far from alone and (b) I was bullish enough on equities to have added to my holdings. It was just a case of "I could have made much more".
Too pessimistic on Sterling. This is a perennnial bugbear of mine and I was glad at last to get a bullish call right in March, even though I didn't follow it up with sufficient vigour. Market overshot on the upside, obv (when it got to $1.70), and I still feel that $1.63 is a mite high. The curiosity here is that the rate isn't much to do with follar/pound and is everything to do with dollar/euro. And THAT is to do with the euro -- specifically, Greece and the other debt basket cases who are in deep shit and are either going to need ECB support or will need to quit the euro after getting IMF backing.
In a way, several countries have "quit" the euro already, in the sense that any plans to join it are now either permanently on hold (Latvia) or have been abandoned altogether (UK). But no country that has gone in has yet come out, and the implications of such an event would be so frightening for the intrinsically risk-averse ECB that bailouts would go in before such an event was allowed to happen. A trip by Greece to the IMF would implicitly make that happen, because it would then be marching to a completely different economic drummer. I can't really see how Greece could get IMF support and stay in the Euro, but, in any case, the complexities are so great that I am sure that the ECB wouldn't allow it to happen.
The markets think the same, and the euro is weakening as a result. (Incidentally, much as I hate the short-term day-to-day commentaries about currency movements being "because" of something or other, in this case I do think that there is a fundamental macroeconomic issue at play. Weakness in the weaker Eurozone economies is a case of "when you are a billion pounds in debt, it's the bank that is in trouble", and in this case the bank is the ECB and, by implication, Germany and France. And the implication of that is a euro coming under pressure, even though Germany and France have emerged faster from the recession than the UK.)
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