The Worst Predictions of 2012

I like this list from CNBC.  It goes to show that making outrageous outlier based predictions is a bad way to think about markets and the economy.  My comments are added below each….

1.  The Facebook Hype

Why was it wrong?   Who knows.  Herd mentality and market mythology?  Everyone wants to get in on the “next big thing”.  What most people don’t realize is that by the time a company is planning its IPO the “next big thing” has likely already happened for the company and the insiders are looking for an exit strategy.   When you buy something on a secondary market (like a stock exchange) you’re allocating your savings.  Not buying a lottery ticket….

2.  China Hard Landing

Why was it wrong?   Everyone wants to predict the next big financial crisis.  Clearly, China’s centrally planned economy appears ripe for the picking.  Let’s also keep things in perspective though.  While China may not be collapsing, things certainly aren’t great as reflected in the 60%+ decline in the Shanghai index since 2007….

3.  “Grexit”

Why was it wrong?  Everyone thinks Europe will collapse when the reality is that the Euro has been long in the making and Europe (as a region) is only becoming smaller and more interdependent.  Greece might leave, but the heads of Europe’s core countries know that might prove catastrophic.  This is like a marriage gone bad, but being held together because the parents know it’s in the best interest of the kids.

4.  Gold Rush

Why was it wrong?  The better question might be – was this actually wrong?  With a few days left in the year gold is likely to post its TWELFTH consecutive year of price gains.  Hard to say this was a bad prediction.  CNBC might have this one wrong….

5. US Bond Bubble

Why was it wrong?  As I’ve explained a million times here – the US is designed as a currency issuer in that it can always procure funds from its banking system.  The US government has no solvency constraint and good fixed income traders know it.  The real constraint is inflation.  The bond bubble is a myth.  

6.  Double-Dip US Recession

Why was it wrong?  I think most prognosticators misinterpreted the balance sheet recession and the fact that the USA is not in the middle of a typical business cycle.  That meant all the old models were inapplicable and new thinking was required.

7.  Euro Parity Against Dollar

Why was it wrong?  Again, many expected the collapse of the Euro at a time when policymakers were making it crystal clear that the Euro would not be allowed to collapse.  The Euro crisis certainly isn’t over, but if this were to turn into a major economic collapse similar to 2008 it would have to be one of the biggest policy blunders of all-time.  Recession is likely to continue, but again, extremist predictions are rarely right.

8.  Japan Debt Crisis

Why was it wrong?  Like the USA, Japan is designed as an issuer of its own currency.  It has no solvency constraint as in “running out of Yen”.  Those who have long predicted the debt crisis in Japan have failed to understand the design of these monetary systems and how they differ from Europe’s.

9.  End of the World

Why was it wrong?  If Mayan predictions could be trusted I think they’d still be around….




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Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  • Cullen Roche

    Obviously, I am using hindsight in the “analysis” of these calls….well, except the ones I said would be wrong in advance. :-)

  • ejackson

    So, my big question is: Does kicking the can down the road actually work?

    Everyone was saying the stop gap measures that the US and Europe were making were just temporarily delaying the inevitable, and solving debt problems with more debt won’t work. But it appears to be working.

    Thus, is kicking the can down the road a viable strategy that should be used from now on?

  • Octavio Richetta

    Very good take on the predictions!

  • Joshua Wojnilower

    “Greece might leave, but the heads of Europe’s core countries know that might prove catastrophic. This is like a marriage gone bad, but being held together because the parents know it’s in the best interest of the kids.”

    Each party is also waiting for the other to cheat first, so that its exit looks honorable. Taking the analogy even one step further, the kids eventually do grow up and move out. It may take years but divorce still seems the likely endgame.

  • Mr. Market

    “Science progresses one funeral at a time”. Max Planck.

    One Cullen Roche still doesn’t understand the meaning of the terms “Solvency” & “Liquidity”.

    The US has a “printing press” and therefore doesn’t have a liquidity problem, it can print as much money/banknotes as it wants.

    And yes, “printing money” is ALWAYS Inflationary. Any government fears Deflation. Because it limits the ability to issue debt.

  • Cowpoke

    MR Market, you say that “And yes, “printing money” is ALWAYS Inflationary.”

    I use to think this also, However, when I was challenged by others to think about productive “Capacity Utilization” that was also a piece to the overall economic picture, i had to honest with myself and say.. well Yep..
    Think about it. If the Govt could run a printing press and print at x rate of speed max. Then inventor who invents a popcorn machine that makes sweet tasting treats faster that Govt machine can print, who wins?
    If the Popcorn maker can spit out just as much fresh buttered popcorn to supply peoples appetite as long as they can present the dollars to him, how can there be inflation?

    It just can’t happen provided there is no systemic shock.

  • barak

    Cullen, I think its early on both greece and the chinese hard landing. the chinese might have bought more time with more malivestment, and europe bought more time for greece by throwing more money down the drain, but as you know nothing was fixed in europe and china’s consumption as part of GDP is not rising, so basically they doubled down hoping something would change in their favor. I just don’t see that happening.

  • Mr. Market

    Yes, it’s inflationary because that freshly printed money will go to the banks (=e.g. Wall Street) and with that money Wall Street will bid up whatever the hot play of the month/quarter/year is. But Wall Street needs rising asset prices to put that money to work.

    But the popcorn maker needs credit from the banks and when the banks don’t see profits in making pop corn machines they won’t lend that money to the pop corn machine maker.

    (Price) Inflation is currently actually DEFLATIONARY, because when the price of living (taxation, food, gasoline, etc.) goes up then that makes it harder for a family to service their debts when they’re unable/unwilling to take on more debt. And that will lead, somewhere in the future, to the destruction of debt/credit. And the destruction of debt/credit is called DEFLATION.

  • Mr. Market

    I NEVER believed #9 (the end of the world).

  • Mr. Market

    Do the folks at CNBC think that people in the Eurozone pay with british pounds (sterling) ?

  • Cowpoke

    The popcorn maker does not need money from the Bank because he is getting it from his customers.

  • Mr. Market

    Nope, because the pop corn maker needs (to borrow) money to set up his business, before he can start to sell that popcorn.

  • Cowpoke

    Ever see the movie “Cloudy With A Chance Of Meatballs”?
    Flint’s machine was so productive that you could never have inflation in food prices. Just like there is no inflation in common rocks or beach sand.

    Regardless of how much money is printed, Flint’s machine could still keep food prices in check.

  • Greg

    Kicking the can is surviving. Surviving always works.

    In fact surviving is all we are trying to do, because its all we can do……… until we dont. Then the next can kicker comes along to see how long they can do it.

  • dctodd27

    It’s too early to say #6 is wrong. NBER could easily come out next year and say US recession started in 2012.