There's something humorous and amusing about finding old newspaper or magazine articles that make predictions of what was for them the coming year, then compare it with reality to see how inaccurate most of those educated guesses were.
I found an article written in CNN/Money on January 2, 2008 entitled 2008 Outlook: Fasten Your Seatbelts.
This is a long post but as all long posts tend to be- important to read... Excerpts from the article will be in blue font and any comments from myself will be in normal black font:
"Wall Street's top forecasters have some good news and bad news for 2008. Many think stocks will head higher but that unemployment will rise and the overall economy will slow. In other words, 2008 is going to look an awful lot like 2007. Despite falling housing prices and the subprime mortgage meltdown igniting fears about a broader economic slowdown, stocks pulled off a winning year in 2007."
~ The stock market at the end of 2007 did what it always does- ignore problems to focus on profits. It is interesting to see someone in Jan, 2008- nine months before Lehman's collapse refer to the mortgage situation as a "meltdown", which shows that the collapsing home values began over four years ago, rather than three.
For 2008, experts said investors need to be prepared for more woes in the slumping housing market and a slight rise in unemployment. "2008 will be a sluggish year," Abby Joseph Cohen, Goldman Sachs' chief U.S. investment strategist, told CNNMoney.com.
She said many investors are concerned about what could be weak earnings growth in 2008. "Portfolio managers sense that 2008 will be a very difficult year for corporate profits," she said. But Cohen believes that stocks could finish 2008 in the plus column as investors anticipate better news in the latter part of the year. "We believe that the worst time is right now. The worst numbers will be at the end of 2007 and in the first half 2008. We expect an improvement in the second half," she said."
~ Interesting stuff here- First, Cohen works for Goldman Sachs who not only was a chief contributor of the collapse of Lehman and the near collapse of AIG (if not for massive financial intervention by the government), but what Goldman would do often is advise their clients to invest a certain way or buy certain instruments, then go the opposite way and invest against their advice to maximize their profits while leaving the investor who retained Goldman's services high & dry.
She admits 2008 will be a sluggish year but inaccurately or intentionally so, she states the worst will be behind us by mid 2008 and the latter part of the year will show improvement. Lehman fell in September and that triggered the market crash, bailouts, etc..
"Cohen expects the Dow Jones industrial average to end the new year around 14,750, a gain of more than 10 percent from current levels, and that the S&P 500 will close at 1,675, up nearly 14 percent. Analysts at Thomson Financial are predicting a more modest rise for the market, however. The firm believes the S&P 500 will end at 1,580, a gain of 7 percent."
~ On January 2, the first trading day of 2008, the Dow closed at 13,043. This was the High for 2008. From there, the market dropped progressively slow into the 12k range, then the 11k range by summertime. On October 6th, it dropped below 10k for the first time and finished the year at 8776.39. The S&P 500 ended 2008 at around 940.
So Cohen was only of by 6000 points, give or take a couple.. and Thomson Financial was only off by a mere Forty Percent..
As the saying goes: "Aye, Dem's da breaks..'
"Cohen thinks the economy will not slip into a recession. And one big reason for her optimism is that she thinks the Federal Reserve is likely to keep lowering interest rates in order to make sure the economy doesn't grind to a halt. Investors like interest rate cuts since they tend to lead to more borrowing by consumers and businesses, which in turn helps to boost economic activity and corporate profits."
~ Cohen also made the same inaccurate, ignorant prediction in October, 2007. Also, re-read that last sentence to understand why current Fed Chair Ben Bernanke is keeping interest rates artificially low (at near zero) and killing savers in the process-- it leads to more borrowing i.e. acquiring Debt by individuals and companies which help to expand corporate profits (even if it adversely affects and harms the greater societal good).
"Though the economy is expected to begin to rebound later in the year, economists believe that the slumping housing markets and credit crunch will continue throughout at least the first half of 2008. Standard and Poor's predicts that the housing market will not finally bottom until October. Home prices are expected to fall 11 percent over the course of 2008"
~ The slumping housing market is still slumping and will continue for quite a while. As it is, the drop in home prices is the most sustained and continual since the Great Depression. When a home is lost in foreclosure, it is estimate the home's value drops by on average 27%. Currently the housing market is in a double-dip which really come to no surprise to anyone who did not drink the government and media provided "Recovery" kool-aid.
At the end of 2008, however, Lehman Brothers predicts 1.8 percent overall growth, and Merrill Lynch believes that GDP growth in 2008 economy will be only 1.4 percent. Thomson Financial more optimistically expects GDP to grow between 2 percent and 2.5 percent over 2008.
~ GDP in the 3rd quarter of 2008 decreased by 0.5% and in the fourth quarter, it decreased by 6.5% So all the 'experts' were Wrong again...
"But other economists warn that there is still a high risk of recession. "We are at the brink of a recession," Standard and Poor's senior economist Beth Ann Bovino told CNNMoney.com. "We are certainly concerned about the 2008 economy." Standard and Poor's thinks there is a 40 percent chance of a recession in 2008. And as the economy slides in 2008, unemployment is expected to increase as well. Standard & Poor's is predicting an unemployment rate of 5.2 percent by the end of 2008, up from the current rate of 4.7 percent. Goldman Sachs expects the unemployment rate to be between 5.5 percent and 5.8 percent."
~ By the end of 2008, official unemployment jumped up to 7.2% By mid-late 2009, it rose to close to 10% where it hovered for over a year before now being around 9%. And this is 'official'- currently when taking all factors into account that the Bureau of Labor Statistics ignores like those who work part time, those who've given up finding a job, etc.. the unofficial rate currently is around 17%
So the experts were wrong... Again.
"So even though the financial headlines for 2008, particularly the ones about the housing market, may be as scary as the ones from 2007, many investors and consumers could do reasonably well. Just like in 2007."
~ The truth is no matter the education and experience, no one can accurately predict anything. It doesn't matter if its football betting, the weather or the economy- there are too many variables and unforeseen events which can make smug forecasters look like impotent nothings.
And in finance and markets, predictions are not unbiased-- if its in the interest of a person or entity to pump up a specific stock, sector or national economy on the whole, they will do it. Case in point-- the Relentless, Non-Stop push to have you believe we're in a recovery when we're not.
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