Predictions Gone Wrong – 2012

We don’t put much stock in economic forecasts or predictions.  Frankly, it amazes us that an entire industry has been built upon the idea that some people have the ability to see into the future, especially since the long-term track record of economists and market strategists is pretty dismal.  Perhaps it is for the same reason that palm readers are still in business.


As the books close on 2012, we thought it might be interesting to look back on some of the major predictions that didn’t quite go according to plan:


  • Facebook  –  With a global subscriber base of over $1 billion people (or 40% of the world’s Internet population), an investment in the social media company was supposed to be a sure thing.  After going public at $38 per share, the stock began to lose admirers pretty quickly and fell below $18 in September.  Since then, it has shown some signs of renewed life and is currently trading around $26 per share.  Lesson:  Fast growing companies do not always turn into good investments.  Don’t overpay for growth.


  • Europe  –  At several points during the past year, it seemed to be a foregone conclusion that the financial problems of Greece were going to sink all of Europe and probably send the U.S. back into recession, as well.  Not saying it can’t still happen, but massive intervention by the European central bank and the International Monetary Fund has provided a way for Greece to remain a member of the euro zone (at least for now).  Lesson:  Even the bleakest situations do not guarantee failure.


  • United States  –  In October 2011, Nouriel Roubini, who became famous for his warnings prior to the 2008 financial crisis, predicted that the U.S. would fall into recession territory during the first or second quarter of 2012.  In June, former President Bill Clinton stated that we were already in recession.  Neither of those statements turned out to be true.  Despite a weak labor market, our economy has continued to grow (probably about 2% this year).  Lesson:  Do not assume that previous success is due to skill (or that it is repeatable in the future).  There is something called luck.


  • China  –  In December 2011, Jim Chanos and Marc Faber, two famous hedge fund managers, predicted that growth in China would fall dramatically and have a negative impact on the global economy.  While economic growth in China has come down from double-digits, they are still growing quite rapidly (7.7% at last check).  In November, Wall Street rhetoric on China has turned positive again and the consensus estimate is that growth in 2012 will be over 8%.  Lesson:  Do not follow the wealthy and famous blindly.  Reggie Jackson was once the most famous baseball player on the planet.  Interestingly, he is still the all-time leader in one dubious category—strike-outs.


  • Gold  –  Proponents of the precious metal were sure that 2012 would be the year that gold crossed over $2,000 per once.  Instead, gold closed the year at 1,664 (up about 6% for the year).  As reason for buying more, the gold bulls like to point to the fact that their tangible asset has delivered a positive return for nine years in a row.  Lesson:  Risk and return are always related.  Do not assume that any investment can provide a safe haven forever.


Bell Wealth Management would like to say “thanks” to all those who visited our blog in 2012.  We wish you and your family good health, good times, and good fortune in the New Year!