I like this list from CNBC. It goes to show that making outrageous outlier based predictions is a bad way to think about markets and the economy. My comments are added below each….
1. The Facebook Hype
Why was it wrong? Who knows. Herd mentality and market mythology? Everyone wants to get in on the “next big thing”. What most people don’t realize is that by the time a company is planning its IPO the “next big thing” has likely already happened for the company and the insiders are looking for an exit strategy. When you buy something on a secondary market (like a stock exchange) you’re allocating your savings. Not buying a lottery ticket….
2. China Hard Landing
Why was it wrong? Everyone wants to predict the next big financial crisis. Clearly, China’s centrally planned economy appears ripe for the picking. Let’s also keep things in perspective though. While China may not be collapsing, things certainly aren’t great as reflected in the 60%+ decline in the Shanghai index since 2007….
Why was it wrong? Everyone thinks Europe will collapse when the reality is that the Euro has been long in the making and Europe (as a region) is only becoming smaller and more interdependent. Greece might leave, but the heads of Europe’s core countries know that might prove catastrophic. This is like a marriage gone bad, but being held together because the parents know it’s in the best interest of the kids.
4. Gold Rush
Why was it wrong? The better question might be – was this actually wrong? With a few days left in the year gold is likely to post its TWELFTH consecutive year of price gains. Hard to say this was a bad prediction. CNBC might have this one wrong….
5. US Bond Bubble
Why was it wrong? As I’ve explained a million times here – the US is designed as a currency issuer in that it can always procure funds from its banking system. The US government has no solvency constraint and good fixed income traders know it. The real constraint is inflation. The bond bubble is a myth.
6. Double-Dip US Recession
Why was it wrong? I think most prognosticators misinterpreted the balance sheet recession and the fact that the USA is not in the middle of a typical business cycle. That meant all the old models were inapplicable and new thinking was required.
7. Euro Parity Against Dollar
Why was it wrong? Again, many expected the collapse of the Euro at a time when policymakers were making it crystal clear that the Euro would not be allowed to collapse. The Euro crisis certainly isn’t over, but if this were to turn into a major economic collapse similar to 2008 it would have to be one of the biggest policy blunders of all-time. Recession is likely to continue, but again, extremist predictions are rarely right.
8. Japan Debt Crisis
Why was it wrong? Like the USA, Japan is designed as an issuer of its own currency. It has no solvency constraint as in “running out of Yen”. Those who have long predicted the debt crisis in Japan have failed to understand the design of these monetary systems and how they differ from Europe’s.
9. End of the World
Why was it wrong? If Mayan predictions could be trusted I think they’d still be around….
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.