Financial markets
Buttonwood's notebook
Assessing the forecasts
Nostrodamus?
Dec 15th 2010, 14:32 by Buttonwood
WHEN I can, I try to save forecasts for the coming year as they provide an instructive read with hindsight. Morgan Stanley put out its forecasts for 2010 in December last year and they read fairly well. The bank said it was overweight equities but
We expect only single digit returns for global developed equities for the full year.
After a recent rally, the MSCI World index is up 8.5% in dollar terms. Morgan Stanley was enthusiastic about non-Japan Asia which was also the right call (with the exception of Hong Kong) and it was correctly underweight Europe and the UK. But it was overweight Japan; that market is still down this year in local currency terms, although foreign investors will have benefited from the strength of the yen.
Where Morgan Stanley was wrong was in expecting long bond yields to rise to 5.5% by the end of the year. Even the recent sell-off has only taken the 10-year to 3.5%.
Bank of America Merrill Lynch released a bunch of forecasts at around the same time last December. Again there were some good calls such as a 4.4% forecast for global growth and a bullish call on equities while the strategists predicted
The muted recovery will likely lead to low core inflation, continued soft monetary policy and further quantitative easing,
But the emerging market strategist was wrong to expect the baton of growth to pass from Asia to Mexico and eastern Europe.
How did your humble blogger's forecasts compare? Well, my end-year piece cunningly avoided any numerical predictions, a luxury denied the investment bank strategists. But at least the general tone of the article was right in forecasting that volatility would spread to the currency and the government bond markets, particularly in Europe. In all honesty, however, I only deserve a C grade; my consistent pessimism about equities has looked right on a couple of occasions in the year (notably May) but looks wrong on a 12-month view. While central banks hold rates at zero, equities probably can't fall very far.
Later on, I will look at investment bank forecasts for 2011 before venturing my own dubious opinions.
About Buttonwood's notebook
In this blog, our Buttonwood columnist grapples with the ever-changing financial markets and the motley crew who earn their living by attempting to master them.
Advertisement
Economist blogs
- Americas view
- Asia view
- Babbage
- Bagehot's notebook
- Banyan's notebook
- Baobab
- Blighty
- Buttonwood's notebook
- Charlemagne's notebook
- Daily chart
- Democracy in America
- Eastern approaches
- Free exchange
- Gulliver
- Johnson
- Lexington's notebook
- Multimedia
- Newsbook
- Prospero
- Schumpeter's notebook
- The World in 2011: Cassandra
- Which MBA?
Most commented
- Banyan: Great disorder under heaven
- China and the Nobel peace prize: The empty chair
- Save the date: Save the date
- Belarus's election: Lukashenka uncovered
- The future of English: English as she was spoke
- Hungarian politics: Hungry for power
- India and China: Pushing back
- India's languishing countryside: A village in a million
- Doctoral degrees: The disposable academic
- Germany and the euro: We don't want no transfer union
Over the past five days
Most recommended
- Save the date: Save the date
- Doctoral degrees: The disposable academic
- Globalisation: The redistribution of hope
- China and the Nobel peace prize: The empty chair
- Hungarian politics: Hungry for power
- The future of English: English as she was spoke
- Age and happiness: The U-bend of life
- Belarus's election: Lukashenka uncovered
- Chinese tourists: A new Grand Tour
- Science: The lonely 6%
Over the past seven days
Advertisement
Subscribe to The Economist's free e-mail newsletters and alerts.
Subscribe to The Economist's latest article postings on Twitter
See a selection of The Economist's articles, events, topical videos and debates on Facebook.
Advertisement
Readers' comments
The Economist welcomes your views. Please stay on topic and be respectful of other readers. Review our comments policy.
Sort:
In 2011, many things will stay the same, but we can expect many changes, as well. Some changes will be expected, but some will not. All in all, it will be a year that exemplifies that stage of the business cycle that we will be passing through over the next 12 months.
I look forward to the upcoming prophesy.
"We expect only single digit returns for global developed equities for the full year."
Where do I get paid to give this type of prediction? Moreover, where do I get paid to be on an entire team of people (we) that get paid to create such a prediction?
When in doubt, I always consult Camper Van Beethoven's "Ambiguity Song", it's never let me down:
"Everything seems to be
up in the air at this time
One day soon
It'll all settle down
...
Some people are gonna benefit
and others gotta sacrifice
Everything seems to be
up in the air at this time..."
While I still believe the stock market represents an inflated, manipulated FED value, it did not fall back to 9,600 that I projected. Either I'm a poor stock market forecaster or it's coming.
Warmest,
Richard Michael Abraham, Founder
The REDI Foundation
http://www.redii.org
Hey Buttonwood it's okay.
One smart thing to remember is that when currencies get issued in great number, currency relying on services itself gets cheaper. Those with the most currency want to divest into hard commodities or direct investment into safer areas. The dollar as a Fiat currency is about as stretched as a currency can be including printing and replenishing Wall ST so they can once again go into the CDS Global Casino and recover their losses. Even Bernanke is printing and spending on buying Bonds by our own Federal Reserve. All currencies, other than low population, high natural resource currencies, are suspect. Look where the weak monies are really going. Large Corporations with export capabilities aided by weak dollars, high return as in CDS where the Hedge Funds and wall St. play or commodities based currencies like Canada, Russia, Australia. You did okay.