Predictions For 2013

[Peak2Trough]

I'll go with:

VTI: -9%
LTT: +12%
Gold: +8% 
Tbills:  +3%

HBPP:  4%-ish

The third time I revised this post I realized I was just pulling numbers out of my... ahem.

[Reub]

It certainly does seem like the predictions for 2013 are more of a crap shoot than ever.

[Pointedstick]

It certainly does seem like the predictions for 2013 are more of a crap shoot than ever.

Yeah, for serious. We don't have inflation, deflation, prosperity or recession, and it's hard to tell which will emerge.

[Xan]

Good thing my portfolio is highly diversified and ready for whatever may happen!

[clacy]

It certainly does seem like the predictions for 2013 are more of a crap shoot than ever.

Yeah, for serious. We don't have inflation, deflation, prosperity or recession, and it's hard to tell which will emerge.

Yes, I believe this is a very interesting time due to extraordinary measures enacted by central banks around the world.

We are in uncharted territory, although that is maybe always the case with economics.

[Pointedstick]

I have proven in the past to be the worst prophet of all, so be aware
VTI: +32 %
TLT: - 8 %
GLD  -12 %
SHY  + 4 %
makes + 4 % portfolio

This looks like the most accurate guess in a thread full of terrible predictions.   I bet a lot of people predicting sharply higher gold prices were disappointed. Poor Kshartle thought gold would rise 42%!

[Benko]

I have a stupid question.  Forget making future predictions, can anyone explain to me why stocks did so well this past year?  The economy is not eactly booming (though perhaps less bad).

[Pointedstick]

I have a stupid question.  Forget making future predictions, can anyone explain to me why stocks did so well this past year?  The economy is not eactly booming (though perhaps less bad).

My guess? QE + better economic news. The economy has actually started to do okay while nobody was watching. Q3 2013 GDP was revised up to 4.1% today.

[Libertarian666]

I have a stupid question.  Forget making future predictions, can anyone explain to me why stocks did so well this past year?  The economy is not eactly booming (though perhaps less bad).

Money printing, which both suppressed bond yields and flooded the world with cash that had to go somewhere.

[Lowe]

Corporate profits are high, as is laborer productivity.  In that respect it is booming.  Unemployment is the only persistent problem, for reasons unclear.

Maybe it's that, as the economy becomes more technical, there aren't many with the skills to be productive.  Or perhaps it's the growth in federal regulations over the last several decades, which make hiring slower and riskier... when it needs to be the opposite.

[iwealth]

What sort of economic statistics do people need to hear before they would call this economy "booming"? Unemployment rate is steadily dropping, corporate profits high, inflation low, interest rates extremely favorable for continued growth, Congress just agreed on a budget...

Or is it just the nature of those of us that hold defensive portfolios that we almost hate to admit things look pretty good right now.

[flyingpylon]

What sort of economic statistics do people need to hear before they would call this economy "booming"? Unemployment rate is steadily dropping, corporate profits high, inflation low, interest rates extremely favorable for continued growth, Congress just agreed on a budget...

Or is it just the nature of those of us that hold defensive portfolios that we almost hate to admit things look pretty good right now.

Isn't the unemployment rate dropping because people have been unemployed for so long they are losing their eligibility?  The actual employment rate of the population has not been increasing.

[Libertarian666]

What sort of economic statistics do people need to hear before they would call this economy "booming"? Unemployment rate is steadily dropping, corporate profits high, inflation low, interest rates extremely favorable for continued growth, Congress just agreed on a budget...

Or is it just the nature of those of us that hold defensive portfolios that we almost hate to admit things look pretty good right now.

Isn't the unemployment rate dropping because people have been unemployed for so long they are losing their eligibility?  The actual employment rate of the population has not been increasing.

The overall labor force participation rate has been dropping since 2008:

http://data.bls.gov/timeseries/LNS11300000

So whatever the reason for the lower "unemployment rate", it isn't because more people are working as a proportion of the population.

[flyingpylon]

The overall labor force participation rate has been dropping since 2008:

http://data.bls.gov/timeseries/LNS11300000

So whatever the reason for the lower "unemployment rate", it isn't because more people are working as a proportion of the population.

Yeah, that's what I was saying.  Kind of an interesting pattern if you change the chart to go back to the mid 60's or earlier... perhaps we're reverting to a mean of some kind.

[Lowe]

Reverting to a mean would make sense, if it were only women leaving the labor force.  I don't think that's the case.

[Pointedstick]

Reverting to a mean would make sense, if it were only women leaving the labor force.  I don't think that's the case.

In fact, it's men who are leaving the labor force, and have been for some time:

[flyingpylon]

I agree that it's not just women leaving the labor force.  But we could revert to a mean for participation rate, even if the composition of the labor force is different than it used to be.

Just thinking out loud... not sure it makes any real difference.

[iwealth]

The financial crisis hit at the right time to force a lot of baby boomers into retirement. So how much has this demographic effect had on the labor participation rate? Maybe the drop in participation rate happened a bit quicker than it would have minus the crisis, but I also wonder if it would have happened eventually anyway.

[Gumby]

I have a stupid question.  Forget making future predictions, can anyone explain to me why stocks did so well this past year?  The economy is not eactly booming (though perhaps less bad).

Money printing, which both suppressed bond yields and flooded the world with cash that had to go somewhere.

But, in August you said "money printing" was supposed to increase bond yields, and push up the price of gold as people piled out of stocks...

http://gyroscopicinvesting.com/forum/st ... /#msg75272

No. Treasury yields are going up already and will continue up. The zero-rate game is coming apart.

So you will definitely be surprised if yields are lower on December 31 than they are today?

How is money going to be going into cash if yields are rising?  Don't rising yields suggest that money is leaving the treasury market?

Yes, I will be surprised in that case. The long rates are the ones I was talking about; I expect T-Bill yields to stay near zero.

But that's not what happened. Rates are pretty much unchanged, gold is down, and the stock market is way up!

[Lowe]

QE does suppress rates, though, or at least that's what you'd suppose.  If that's what what is meant by money printing.

It's also inflated equity, or at least that's what you'd suppose.  Though it's not the printed money that's being used to buy the equity.  It's whatever money the investment banks have.  Come to think of it, where do they get their money?  Borrow it from bigger banks?  Or just pull it out of their invisible pile, if they're big enough themselves.

[Gumby]

Come to think of it, where do they get their money?  Borrow it from bigger banks?  Or just pull it out of their invisible pile, if they're big enough themselves.

Primary Dealers have lots of reserves. As PD excess reserves swell from Congressional spending (Treasury payments/spending creating deposits) the PDs drain their excess reserves into Treasuries to earn interest and they are required to do so as their role as PDs. During POMO/QE the Fed swaps those excess reserves for cash that earn a measly IOR/FFR — essentially swapping one form of debt for another form of debt. The bankers at the PDs will naturally want find a way to earn a bit more than IOR/FFR with that liquidity — since they have annual quotas that they have to meet to get their Christmas bonuses. So, they tend to buy financial assets with those excess reserves. This bids up a lot of financial assets and the market tries to anticipate all this and front-runs it.

[Kshartle]

I have proven in the past to be the worst prophet of all, so be aware
VTI: +32 %
TLT: - 8 %
GLD  -12 %
SHY  + 4 %
makes + 4 % portfolio

This looks like the most accurate guess in a thread full of terrible predictions.   I bet a lot of people predicting sharply higher gold prices were disappointed. Poor Kshartle thought gold would rise 42%!

  I did predict a bad year for the PP in nominal and real terms. I got the direction right on LTBs and stocks. I said the economic data would continue to be bad and I think that's been the case (I look at labor participation and the direction we head in every month is closer to zero).

My bonus prediction was the highest average annual gas prices and the media would give up pretending there is a housing recovery. I think we just barely hit the former and they are just on the verge of giving up the housing ghost. I expected long-term rates to be 4.5% or higher by now which will totally kill the housing fantasy.

No dollar crisis on Bernanke's watch and Gold got beasted. Ok, it will be up 65% in 2014 to make up for it.

Predicting what will happen to the economy looks like child's play compared to predicting investment prices.

[Kshartle]

I have a stupid question.  Forget making future predictions, can anyone explain to me why stocks did so well this past year?  The economy is not eactly booming (though perhaps less bad).

Money printing, which both suppressed bond yields and flooded the world with cash that had to go somewhere.

But, in August you said "money printing" was supposed to increase bond yields, and push up the price of gold as people piled out of stocks...

http://gyroscopicinvesting.com/forum/st ... /#msg75272

What he's saying is the money printing suppresses yields immediately, but ensures they will go up in the long-run. And the longer the money-printing pedal is to the metal, the higher they will eventually go as more buyers leave the market to protect against inflation.

The point is the FED can keep the game going only for so long. Now there is another possibility and what I think is happening. The declining economy and Americans getting poorer has decreased inflationary pressure so instead of getting poorer by losing the value of their money they are mainly getting poorer by losing employment, keeping inflation down and the pressure for higher rates.

Of course Tech is free to disagree if I've missunderstood.  I expected higher rates and higher gold prices by now though because I expected the declining labor participation rate to stabalize at some point. It isn't.

[Pointedstick]

My bonus prediction was the highest average annual gas prices and the media would give up pretending there is a housing recovery. I think we just barely hit the former and they are just on the verge of giving up the housing ghost. I expected long-term rates to be 4.5% or higher by now which will totally kill the housing fantasy.

Huh? Maybe Everything's Local™, but where I live, gas is $2.78 a gallon and housing prices are rising more rapidly than they have in years.

[Kshartle]

My bonus prediction was the highest average annual gas prices and the media would give up pretending there is a housing recovery. I think we just barely hit the former and they are just on the verge of giving up the housing ghost. I expected long-term rates to be 4.5% or higher by now which will totally kill the housing fantasy.

Huh? Maybe Everything's Local™, but where I live, gas is $2.78 a gallon and housing prices are rising more rapidly than they have in years.

$2.78?!?!?!

Where do you live....Oman?!?!?!

Yeah I'm talking about national for both.  Here's the AAA report from 100k gas stations: http://www.fuelgaugereport.aaa.com/

The national average is $3.25 but the annual average this year is higher and I think the highest ever by a couple pennies over 2011.

Home prices and purchases are still going up in your area? Where are you? Maybe I am biased by the local environment. I've had several friends decide on foerclosure including the woman I rent my house from.

Housing starts are up but of course they were gangbusters at the peak. Higher rates will cause buying to dry up.

Here's Reuters from last week saying home purchases just hit a 12-month low and third straight monthly decline:

http://www.reuters.com/article/2013/12/ ... OP20131219

The only reason they aren't lower is because of artificially low rates which I expected to be .5 - 1.0% higher by now. 5% on the 30 year and forget about the housing market. There is way too much supply.