Attention: This is not from me, but one day I started getting this spam mail on the markets and actually enjoyed it enough that I continue to read:
PREDICTIONS FOR 2001
Like the Ghost of Christmas Future, I come to you today.
This is usually an exercise in self-humiliation. No one can
actually predict the future. And, as there are an infinite
number of things that might happen, the odds of guessing
right are slim.
Still, actions have consequences. And sometimes those
consequences are as obvious and predictable as what you
might expect when you see a sumo wrestler strapping on his
skates next to a lightly frozen pond.
That is what makes the Darwin Awards so entertaining. A
reader can see what is coming - though the consequences of
imbecility are invisible to the imbecile himself.
The most flagrant imbecility of the year 2000 was the absurd
pricing of Internet and technology shares. An observer need
not have gutted a chicken nor studied the stars in order to
see how this absurdity would end. So, I do not expect any
special applause for my prediction last year at this time
that "the Rocket Chips will fall to back to Earth."
Since January of last year, the Internets have felt the
earth's gravitational pull and have lost 74% of their value.
Many of them have already struck the ground or been burned
upon re-entry into the Earth's financial atmosphere.
Nor should I expect any measure of respect for my corollary
prediction that the blue chips would do relatively better
than the Rocket Chips, or "old economy stocks will
outperform new economy issues," as I put it.
Sure enough, Dow stocks have held up pretty well - with only
a 6.2% loss for the index. And many stocks suggested in
these pages are up in value - most notably, Philip Morris,
which almost doubled in value.
My other major predictions for last year were less obvious:
I forecast a decline in "American Triumphalism" and a fall
in the dollar. I said that "Main Street and Wall Street
would converge." I suggested that gold, oil and natural
resources would increase in price...and I probably predicted
a few other things I would just as soon forget about.
But here we are, dear reader, another year older. Another
year wiser...and, I hope, another year richer.
"All that really matters," said my friend and ex-neighbor
Francois last night. "is your health. Everything else you
can work out. But when your health goes - you're finished."
Francois retired in September. Then, his back gave him
trouble - to the point where, a couple of weeks ago, he
could barely walk. Louisette's hand required surgery, from
which she has yet to recover.
"With a comfortable house, a big stack of firewood, and a
big garden," Francois made a sweeping gesture with his hand
to point out the features of his new life in retirement,
"money doesn't mean much to us. But health? Ah...that's
another matter...."
You may wonder why, dear reader, I interrupt this look into
the future with this little vignette from my visit to
Francois last night... It is only to keep things in
perspective. This is the nice thing about making financial
predictions - they don't really matter.
So, recognizing that the predictions that follow are as
important as they are likely to be accurate, I offer the
following:
*** Last year, it was the tech and Internet stocks that got
hit. This year, it will be the overpriced blue chips. GE,
for example, will fall sharply.
*** Deflation, not inflation, will bedevil the markets and
frustrate investors. Already, more than $3 trillion has
disappeared from U.S. capital markets. This was wealth on
paper that had no corresponding real economy parallel. There
were no factories, no sales, and no profits to back it up.
Even after the losses suffered by investors in the year just
finished, there remains another $5 to $7 trillion in excess
valuation on Wall Street. Unless the Fed can pull off
another boom in the credit cycle, more of this paper wealth
will be destroyed in the year ahead.
*** Stocks are still much too expensive. The Dow P/E is over
20. The Nasdaq P/E - even after getting cut in half from its
high point - is still close to 100. Again, barring a
successful credit boom - which is unlikely - the Dow should
sooner or later sink below 6,000...and the Nasdaq should
fall below 1,000.
*** The Greenspan Put will prove worthless. Greenspan will
cut rates. And he will increase the money supply. But these
efforts will be too little and too late to offset the
effects of a deflationary collapse. Investors who borrowed
on their homes in order to buy stocks last January paid a
high price to play the market - a loss of nearly 30% on
average. While not yet acting like Japanese, they will be
more cautious in the year ahead. And businesses, too, will
be reluctant to add capacity while inventories stack up in
warehouses. The Fed Funds rates will come down. But the real
return on borrowed money will remain negative for most
borrowers. As a result, people will reduce their debt levels
and begin saving.
*** The U.S. dollar will continue to decline against the
euro. Against all odds, the euro will rise above $1 - and
beyond. This will have a number of serious consequences.
Overseas investors will withdraw funds from U.S. capital
markets. U.S. dollar-denominated assets will fall in price.
Prices of foreign goods will rise. And, the trade deficit
will fall.
*** Genius will fail - derivative positions total about 10
times the entire U.S. GDP. Trillions of dollars are tied up
in positions that are far more precarious than their owners
think. Coming in 2001 - big bankruptcies. Expect major
surprises from major players.
*** Bankruptcies and deflation will reawaken the inner child
in gold - the golden boy of monetary stability. Gold will
rise in price as investors become concerned about the
dollar, financial institutions, derivatives and debt. More
about this tomorrow.
*** Recession will begin before the end of the year and be
worse than expected and more widespread. Along with Bush and
Greenspan, globalization, deregulation, securitization,
derivatization and laissez faire economics will be blamed. |
