The folly of predictions
12 December 2014
One of the obssessions of investors is predictions. Where will the markets head? Will I make money? What should be my strategy? It is a fool's errand. No-one predicted last year, for example, that the oil price would fall as sharply as it has. It is a great shift in the markets that, once again, no-one saw coming.
If anyone really knew the answers, they would not be telling. They would be setting their investments to get great returns. What investors should rather do is position themselves based on the assumption that they cannot know.
But for those who like crystal ball gazing, here are a few from UBS:
- UK housing prices fall as much as 25 per cent, following the impending Bank of England rate rise as momentum leaves the housing market.
- Japanese inflation hits 5 per cent as the Bank of Japan’s incessant money printing crushes confidence in the yen – a sign of Japan losing control of its currency.
- China devalues the yuan by 20 per cent as deflationary risks loom, joining Japan in its fight to import inflation and demand.
- Mario Draghi quits as president of the European Central Bank to allow for full quantitative easing to continue under the hand of new president Jens Weidmann of the Bundesbank. Draghi sets his sights on Italy, where President Giorgio Napolitano requests that he succeed him.
- Large Russian companies or the government default on foreign debt as a result of plunging oil prices and a cold financial shoulder from Russia’s geopolitical antagonists.
- Amazon.com suffers a decline of 50 per cent due to overvaluation and the widespread fallout to the e-commerce industry.
- The already active Icelandic volcano Bardarbunga erupts, leading to a huge release of gases that cloud the skies over Europe. Despite a more modest fallout than expected, grain prices double amid fears of a weak harvest across Europe.
- Demand for chocolate continues to rise and the world consumes far more cocoa than it is producing, leading to record high prices of more than $US5000 a tonne.
- UK Independence Party (UKIP) wins 25 per cent of the national vote in Britain’s general election in May and joins David Cameron’s Conservatives in a coalition government. It calls for the planned referendum on Britain’s membership of the EU in 2017 as UK government debt suffers a sharp rise in yields.
- High-yield corporate bond spread doubles and shock waves shake Europe’s weak economy. The Market iTraxx Europe Crossover doubles to 700 basis points.
Chocolate investment is looking especially tantalising ...
The predictions for China and Japan are especially interesting. Asia has really been the stabilizer fo the world economy, and if change starts to occur there, expect volatile times. But please don't consider that a prediction.