Friday, December 31, 2010

2010 - Economic Predictions - Scorecard

Back in Jan I made six predictions for 2010. This is a review of these and a discussion of how I went. Soon, I'll try my hand for 2011, but that's another post.

1. Double dip recession by mid year
Miss. It didn't happen, although it felt like it might at one point. Of course, you could argue that we never got out of the first dip, but that's beside the point here.

2. There will be trouble with US treasuries
Miss. I underestimated the Fed's ability to make up the demand with the likes of QE2. The US now owns more treasuries than any other country. They are eating their own dogfood. This is a short term tactic which has kept the game going, but it's a very risky thing to do.

3. Geopolitics will become more unstable
Miss. I'm glad to be wrong here. There have been some stresses in Europe, Mid-East (Iran) and Korea, but it's more or less held together.

4. Gold/Silver will have a rough ride
Miss. I should have specified the currency I was considering Gold / Silver in, and I thought I gave an indication of yearend up or down - but re-reading it I chickened out and didn't. Gold has stayed above US $1000 and is now trading at over $1400. Silver has recently gone balistic, after doing not much for the first 6 months of the year. My reasoning for the turbulence was linked with the double dip idea, so it's not surprising it also failed.

5. The US dollar will have a rough ride too
Miss. The USDX went up, quite a lot by mid year, and has since come back down to more or less where it started. Not really what I thought would happen. There are some sounds that the US dollar might be under threat - with rumours of alternative reserve currencies, but these have not been substantiated, yet.

6. Inflation? Deflation?
Hit! Well, a fairly easy call this one. I said "Deflation on the things you own or don't need (luxury goods), inflation on the things you need (food, energy). ". Food and Energy have gone up, in some cases dramatically, and certainly not by government statistics which are basically lies.

So... how did I do? Quite badly, really. I am reminded by the saying "Being early is the same as being wrong". The main thing I didn't anticipate is the willingness to dig the debt hole deeper and deeper to keep the game going. The bailouts of companies, or in the case of the EU, whole countries, continues as a matter of course. Default is a dirty word, as the interconnections are too strong and would mean systemic failure. Although nobody really believes that we are on long term sustainable policies or trends, the short term outlook in the year was positve and remained so. In other words, the future has been sacrificed for the sake of the now. How long this can go on is for my next post...