Closing the Books

Been away on a much-needed vacation, and so haven’t had a chance to weigh in on any number of current topics. Hope to catch up this week, as well as to post predictions for 2009. But before that, let me revisit my ill-fated predictions for 2008. I marked my book at the end of Q1, and Q2 (I missed Q3 somehow) so I’ll stick to those items that were still unresolved as-of the last re-mark.

1. Domestic politics.

Got the top of both tickets right, bottoms both wrong.
Got all my Senate predictions right, but was too conservative.
All the other predictions long since closed.

2. Oscars.

Long-since closed.

3. Economy and Markets:

i. The major domestic equity indices will be down on the year. They will still outperform the Asian indices, which will be weighed down by the unravelling of the Chinese bubble. But they will underperform the major European indices in local currency and dollar terms.

S&P-500: down 37% in USD

Asian Indices:

Topix-500 (Japan): down 40.74% in JPY, 26.00% in USD
Hang Seng (Hong Kong): down 45.52% in HKD, 45.15% in USD
CSI-300 (China): down 65.52% in local, down 63.11% in USD

Pretty good! Better, considering that I didn’t intend to predict the USD would do well against JPY (nor, indeed, predict anything about Japan).

European Indices:

FTSE-100 (Britain): down 27.99% in GBP, 47.06% in USD
DAX-30 (Germany): down 39.49% in EUR, 42.03% in USD
CAC-40 (France): down 39.65% in EUR, 42.18% in USD

Not so good! As was clear from early on in the year, I was too optimistic about Europe in general for 2008.

ii. The dollar will spend the year debating whether to weaken or strengthen, having a volatile but ultimately inconclusive year.

The dollar was, indeed, extraordinarily volatile ranging between 1.23 and 1.60 USD/EUR, and between 87.14 and 112.68 JPY/USD, with many record intraday and intraweek moves. And, versus the Euro, it was pretty inconclusive, beginning the year at just over 1.47 and ending the year at just under 1.40 USD/EUR. But JPY/USD was not inconclusive at all, as we opened the year at 111.64 and ended the year at 90.64, a 23% appreciation of the Yen. So, part credit on this one.

iii. The housing market nationally will trough out in the third quarter, but will flatline from there for quite a while, so that won’t be the end of mortgage defaults.

No comment.

iv. None of the major monoline insurers (MBIA, Ambac, FSA, FGIC, Security Capital) will go out of business, though most if not all will have to raise new capital. Nonetheless, at least one new monoline will be launched (presumably by Berkshire).

Amazingly enough, I believe this is still correct, as FGIC and SCA are still technically operating. Lucky break on my part, as they are basically dead firms walking. But I’ll take it!

v. Brazil will be one of the few emerging markets to have a good 2007 and a good 2008.

The Bovespa was down 41.22% in BRL, 55.33% in USD. Relative performance is really irrelevant at that point, but for what it’s worth Brazil underperformed Mexico, but outperformed Russia, China and India in both local and USD terms. I’ll give myself an honorable mention for saying that “few” emerging markets will have a good 2007 and 2008 – in fact, the right answer was: “none.”

vi. Slowing growth in Asia and the United States will keep oil prices generally below $100/barrel, but geopolitical factors and refining capacity tightness will keep it above $75/barrel.

No comment.

4. Foreign affairs:

i. Neither the United States nor Israel will bomb Iran. The Iranian regime will not fall. There will be no “grand bargain” between the United States and Iran. Iran’s nuclear power plant will not open on schedule.


ii. Pakistan will postpone its elections. Musharraf will be out of power by the end of the year, pushed out by the army. There will be no civil war. Nawaz Sharif will be the next Prime Minister of Pakistan. Not that it will do any good.

Got the PM prediction wrong.

iii. Ehud Olmert will, emulating his nemesis, Bibi Netanyahu, shift focus from the Palestinian “track” to the Syrian “track” in 2008, with some initially promising talks, but there will be no signed peace between Israel and Syria in 2008.

I’m going to give myself full marks for this one.

iv. The United States will withdraw all troops in 2008 from . . . Saudi Arabia.


v. There will be no international intervention to save Darfur.


vi. The bigger, stronger, more united German far-left will do something to blur the distinction between far-left and far-right.

If this happened, I didn’t hear about it.

vii. The “Blues” (KMT) will win a decisive victory in the Taiwanese elections. This will be received extremely favorably by Beijing in the run-up to the Olympics. The Olympics will proceed without incident.

All correct.

viii. Most of the world will continue to forget that North Korea is still out there, doing whatever it is it does.

Giving myself full marks for this one as well.

5. Other.

i. The Kindle won’t do well enough to make a profit, but will do well enough to convince Apple to invest in a competing product.

I’ve really stopped following this – I assume I’m wrong on all counts?

ii. Some kind of social-networking-based pyramid scheme will be a big enough story to prompt public debate.

Not that I heard.

iii. Gregory Cochran will publish something impressive and controversial.

I was early: his book comes out later this month

iv. Grand New Party will do really, really well.

Can you confirm I get full marks for this, Reihan?