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| Mon Aug 16 22:19:31 2010 Prediction Checkpoint 1 |
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| Thu Aug 5 21:05:04 2010 More Platitudes |
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| Mon Aug 2 22:53:03 2010 Deflation and Stagflation |
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| Mon Aug 16 22:19:31 2010 Prediction Checkpoint 1 How am I doing after over 2 years of predictions? |
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| I've been making a lot of predictions over the past two years! I thought I
would look back and see how I did. I force myself to make predictions because,
even if wrong, I'll usually figure out why I was wrong. In fact, the
predictions I got wrong are probably the most interesting.
There were a lot of predictions, so this is part 1. In The Great Stagflation of 2008 (March 2008), I predicted a few years of stagflation (weak or no economic growth even with low interest rates), and I was right. I was also right about gas prices: I made the bold prediction that we'd see gas for over $4.50 a gallon by 2010, when in fact we saw those prices later in 2008! However, then in Gas Prices (June 2008), I predicted gas prices of $6 per gallon in 2008 (!). Obviously I got that one wrong. Why did I get it wrong? Because the economic downturn started kicking in, and gas consumption dropped. And according to the supply and demand curve, when demand drops given constant supply, prices will drop. What did I learn from this wrong prediction? Spikes in gas prices will usually be followed by economic contraction, which in turn result in lower demand. Don't get me wrong, I still think gas prices will rise. But it will probably be a series of spikes and recessions, rather than an unbroken upward climb. In The S-Word (July 2008), I predicted that the Federal Reserve would flounder along with low interest rates rather than slowly raising rates to protect the dollar. This was a mixed result. I was right about the Federal Reserve: it has kept rates low. But I was wrong about the dollar: we haven't see huge inflation or a weakening of the dollar against other currencies. Why was I wrong about the dollar weakening? Lending has slowed so much that even with low interest rates, we haven't seen the extravagant spending that can cause inflation. And other countries are also having economic problems, so the dollar has remained stable (although see below for more predictions about the dollar vs. other currencies). In one of my worst predictions ever, I said that Congress wouldn't support a big bailout of investment banks ( Just say No). But that was just the first vote. On the next day, Congress approved TARP. Ooops. And I also said: the FDIC will continue to take possession of troubled banks (right), the Federal Reserve will keep open its line of cheap credit for financial institutions (right), a few more financial institutions will collapse (right), and the economy would stay flat until March 2009 (spectacularly wrong!). Why was I wrong about TARP? I don't know. Congress chose to give lots of money to failed investment bankers, when that money could have been used in other ways. I still don't get that. Why was I wrong about the depth of the recession? I underestimated the impact of the housing and investment banking collapse on spending. Next time, I'll do more research on spending data before making predictions like that! In The Healthcare Debate (September 2009), I predicted that Congress would eventually pass a watered-down version of healthcare reform that increased coverage, at higher expense, but wouldn't actually fix the underlying economic problems. I was right! In The 2009-2010 Winter Forecast (October 2009), I predicted less than 450 inches of snow at Mt Baker for the 2009-2010 ski season. The result? WRONG. Baker got 634 inches. And that was a bad year. What did I learn about a bad snow prediction for Mt. Baker? Mt. Baker rocks. So those were the predictions I've made so far that I could measure. The tally so far? 7 right and 5 wrong. I'm happy with a better-than-50-percent hit rate! There were a few predictions that we won't know for a while. In Peak Oil, I predicted gas at $10 a gallon by 2018, and nationwide gasoline rationing by 2023. You heard it here first. Also, in TV Shows are Dead, I made several predictions about what will happen to television. But again, those are farther out (maybe by 2014 or 2015). Comments |
Related: predictions lists Unrelated: books economics energy environment geopolitics mathematics science |
| Thu Aug 5 21:05:04 2010 More Platitudes A few more great rules of thumb for personal finance... |
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| Way back in December I gave my list of
Personal Finance Platitudes. Today,
Yahoo! Finance had
their own list of rules, which I thought was pretty good.
I had often noticed what I called the "Rule of Threes", whereby I would prefer to buy cars that cost at most 1/3 of my yearly income, and houses at most 3 times my income. It is a handy rule to keep in mind when shopping for cars or houses! But I wasn't sure why those particular numbers worked. The Yahoo! article gives the math behind the numbers. That article also mentions the high cost of kids (at least $220K per child up to age 18, not counting private education or college!). And it has a good rule of thumb for education loans: don't take on more college debt than you expect to earn per year when you get out. Again, a simple rule, and they break down why. And finally, they had a rule for retirement: target a total retirement savings of 25 times what you make now (!). Here is their list in short:
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Related: economics lists Unrelated: books energy environment geopolitics mathematics predictions science |
| Mon Aug 2 22:53:03 2010 Deflation and Stagflation I think we're turning Japanese... |
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| Today, the
Wall Street Journal had a story about
renewed deflation fears. Given that the US ecnomy has been slow to recover, there is now real fear
that prices will continue to decline. That in turn can cause a
deflationary spiral.
Any talk of deflation immediately turns to Japan, which experienced a "lost decade" as growth came to a standstill in the 1990s. As bad as that was, deflation is usually better than stagflation, which is what I predicted in 2008 (see The S-Word). However, the massive inflation I feared didn't happen. The economy cooled fast enough (people stopped spending) so that lower interest rates didn't cause inflation. People think deflation may be on the horizon in the US because prices are flat or down, and unemployment is still high. However, I think a deflationary spiral is unlikely. Prices may drop slightly for the next few months, but I think we'll be fighting inflation in a year's time, not deflation. Why? Mainly because a majority of companies expect to expand in the next 12 months. With the combination of increased hiring and equipment expenditures, I think things will heat up again. Probably in 2011 or 2012 the economy will be running hot enough that we'll run out of oil again (see High Oil and Gas Prices). But we'll run into problems with inflation first. Comments |
Related: economics predictions Unrelated: books energy environment geopolitics lists mathematics science |
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