Glad to Be Wrong: 2012 Election Edition

As something of a pessimist when it comes to predictions, I'm always glad to be wrong.  Last week, I predicted a narrow win for Obama.  But the President won the Electoral College handily, 332-206, verses my prediction of 290-248.  And I was two seats too negative about the Senate, which I predicted to be split 53-47.  I was about right with the popular vote, which Obama won 50.3% to 48.1% to 2.6% (mainly for Gary Johnson), verses my prediction of 50% to 49% to 1%.

Unfortunately, I was several seats too positive about the House, as the Democrats only picked up seven seats in the House of Representatives.  I predicted a 230-208 split, but the final result looks like it will be 235 to 200 (barring any flips during a recount, which is unlikely).  The Republicans appear to have done a very good job of protecting their candidates during the 2011-2012 redistricting process.  This will make actually governing the country even harder than I expected, because the remaining Republicans will have even less reason to fear the displeasure of their constituents.  Another reason Republicans won't worry about reelection in 2014 is that there is a historical pattern of the president's party losing House seats in mid-term elections.  I haven't looked at the details yet, but I am fairly sure that none of the Republican freshman are moderates, so the caucus will be even more radical.  All this points to gridlock no matter how many generous offers of compromise Obama makes.

I'll be happy to be wrong about my prediction of gridlock, though it will take a bit longer than a week to see the outcome.

Predictions About the Future: 2012 Edition

This year I'm being a little more specific, so I'll probably do worse than last year.

1. The unemployment rate will end between 8.0% and 8.5%. The employment situation will continue to improve, though not fast enough to lift large numbers of people out of misery and poverty.  The employment-to-population ratio will once again do very little, staying between 58.5% and 59%.
2. Housing prices will continue to fall slowly.  We'll see another 3-6% decline in existing home prices.
3. New homes and autos will not provide a major boost.  Some people have been predicting a rebound in the two sectors, but I think we are going through some long-lasting changes in behavior that will keep both from being major drivers of growth in 2012. 
4. The effective Fed Funds Rate will stay below 1%.  There's no inflation and growth is still weak, so the Fed won't move much, if at all. 
5. The US dollar will strengthen mildly.  The US will be the strongest major developed economy this year, as the Eurozone (collectively) will not grow, the UK will contract, and Japan will grow only slightly.  Thus the dollar will strengthen about 5% in the broad trade-weighted index.  China will continue to try to export as many problems as possible, so the dollar will be essentially unchanged against the yuan again.  Update 2012.03.17 - I mis-read the data for the previous year, which saw the dollar weaken by about 4.5%.  I think we'll see roughly the same change this year, or 5%.
6. Oil will end the year at $95/bbl +/- $5.  Increased US supply, changing driving habits, and slowing growth in Europe (on average) will balance out growing demand from the developing world.  All bets are off if Iran or Israel does something stupid, however. 
7. The Euro will survive.  It will be horrible for people living in the GIPS (ex-Ireland, where everyone will just emigrate), but the Eurozone will muddle through for yet another year.
8. Mitt Romney will be the Republican nominee.  Since the only other candidate with a competent national organization is a kook, Romney will win by default.
9. President Barack Obama will be re-elected.  See above.
10. Placeholder for House and Senate.  I'm not up on the Congressional races, so I'll fill this in later.  Update 2012.03.17 - The Senate will remain in Democratic hands, at 50-50 or 51-49.
11. The beginning of the end in Afghanistan will be downplayed.  There will be some troop reductions, but for political reasons the administration will try to downplay it, and the media will be too busy calling the political horse race to cover it.

Some off-the-cuff speculations: North Korea will act crazy but the hot peace on the peninsula will continue; the Occupy movement will mostly fizzle, but the national debate will still be better for its efforts; the Arab Spring will be taken over by Islamic parties everywhere dictators have been overthrown, but no new tyrants will go down; reactionary developments on the eastern side of the EU will largely be ignored by western countries focused on their economies; the coalition government in the UK will continue to survive despite the recession because the LibDems would be clobbered in an election; Putin will win the presidency in Russia in a highly fraudulent election; the news about Global Warming will continue to be horrible; the drug war in Mexico will continue to be horrible, but will improve slightly; South America outside of Venezuela will continue to improve both economically and politically; and Generalissimo Francisco Franco will remain dead.

Predictions About the Future: 2011 Report Card

So how did I do?

1. Close, but no banana. The final report in 2011 was for November, when the rate fell to 8.6%.  I could try to wiggle out by pointing to a larger-than-average movement in the denominator for November, but the truth is that the employment situation is getting better, albeit very slowly.  The E2P ratio did stay close to what I predicted, with 58.7% being reported in November.
2. Correct.  There was a small blip upwards in the middle of the year, but prices fell overall.
3. Correct.  Effective rates started the year at 0.13% and ended the year at 0.07%.
4. Correct.  I didn't specify a range, but the 2.5% increase seen over the year isn't that significant.  The change in the yuan dollar rate was about 1%, so I was right about that, too. Update 2012.03.17 - I wasn't right about the yuan.  It increased by 4.5% vs. the dollar, not 1%.  That's not insignificant, but in all likelihood a freely-floating yuan would be 4 or 5 to the dollar.  So it has a way to go.
   
5. Close, but no banana.  I forget which benchmark I was thinking of, but both the WTI Cushing and spot prices ended up below $100/bbl.  Brent, which is for a light sweet crude, ended at $107, but it always commands a premium to WTI.
6. Correct.  The euro still exists, and no country has left yet.
7. Wrong, wrong, wrong.  US-Cuba relations are about the same as they've been since the end of the Cold War.  No surprise, really, as I threw this prediction out just for the heck of it.
8. Correct.  There really hasn't been much of a change in Afghanistan AFAIK, except that relations with Pakistan have gotten a lot worse.
9. Depends on your perspective.  The Republicans relented, but they did extract some concessions.  The most prominent of them, the "Super Committee" was a complete bust, but there are automatic spending cuts scheduled in the 2013 budget.  They may very well not survive the budget process.  I was hoping for a completely clean victory by the Democrats, but the Republicans were even crazier than I expected.

Final tally: 5/9 right, 2/9 close but wrong, and 2/9 completely wrong.  Overall I'd rate my performance as a "meh" because I didn't tackle much that was hard to predict.

Let's Hope This One Doesn't Come True

As all good liberals know, The Onion has a proven record of being the best source of future news on the planet.  So we should all hope this little article doesn't come true.

Predictions About the Future

My last foray into predicting was something of failure, but why not try again?

1. Unemployment will stay above 9%.  The economy is growing, but not at a rate fast enough to reduce the unemployment rate.  The somewhat more reliable employment-to-population ratio will also remain about the same, at 58.5 +/- 0.5%.
2. Housing prices will fall slowly.  The various incentive programs put the brakes on the freefall in prices starting back in 2009Q2, but those have run out.  The issues of shadow inventory and mortgage resets still have to be resolved.
3. Fed Funds Rate will stay below 1%.  Since the economy isn't growing very fast, the Fed will hold steady on this particular policy.
4. The US dollar will go nowhere in particular.  There is still enough uncertainty in the global economy (mainly due to the Eurozone's problems) that flight to quality plus the carry trade will balance the Fed's monetary expansion.  I have no idea where any particular currency will go other than the yuan, which I'm confident will stay essentially unchanged.
5. Oil will end the year at $110/bbl +/- $5.  Global growth will continue to drive the price up.
6. The Euro will survive.  So far the Europeans have done a good job at kicking the can down the road, and I think that will continue for another 12 months.  That doesn't mean a country won't leave, however.
7. Cuba-US relations will improve radically.  Obama will write off Florida because it's already un-winable for him in 2012, and instead fix this festering farce.  Fidel won't die, but Franco will remain dead.
8. Counterinsurgency will remain the US strategy in Afghanistan.  The troop reductions will be minimal.  The political class is in complete denial about the damage being done to the US (not to mention Afghanistan) by the current policy.
9. The Republicans will blink on the debt limit.  There's no way the people who own the Republican Party will allow the US to go into default.  The some of the newly elected teabagger types don't know that yet, but they will soon.  The outstanding question is how much Obama will concede before the Republicans back down. (added 2011/1/2)

Mid-term Report

So how am I doing so far with my predictions?

1. We're still in recession, yammering about green shoots not withstanding.
2. We're on pace to reach 10% for U-3 soon. I was optimistic about U-6; it's already at 16% and will top out around 20-21% next year. Update 2009/07/07: I think U-3 will top out around 12%.
3. Oil never got as low as I predicted, so the petro-states aren't suffering as much as I thought they would.
4. The dollar has weakened slightly, but I expected most of the decline to come in the second half.
5. No signs of a country leaving the Euro yet. I'll almost certainly be wrong here.
6. China's economy has weakened some, as has the renminbi, but so far the country has held up better than I expected. But the strength could be illusory as some of the economic indicators are contradictory, and investors apparently are doubling down in the export sector.
7. Germany and Japan have suffered significantly. I haven't checked on the smaller European exporters or the smaller Asian ones.
8. Both Chrysler and GM filed for bankruptcy, though later than I expected. I did not expect Fiat to come to the rescue, but it still remains to be seen if Chrysler can hold on with the market at ~9.7M units SAAR.
9. The banksters still roam free, sucking blood out of helpless taxpayers. The Fed has not had to inflate its balance sheet further, however.
10. CRE prices are getting hammered, but GGP is the only major property company that has filed for bankruptcy so far. Not as many major retailers have folded as I expected.
11. Housing prices continue to fall, and the decline in volume has slowed. I am surprised that more major builders haven't taken a dirt nap, but maybe I missed the announcements.

So far the economy is performing better than I predicted. Is that because of my tendency to be pessimistic, or because of my tendency to be early? Check back in December.

Ever Since, I Have Distrusted Myself and Avoided All Predictions

Everybody is doing it, so why not join in. Not sure if I can think of ten off the top of my head.

1. The recession will last until 2010Q3. Nominal GDP growth will become positive in 2009Q4, but by NEBR scoring the downturn will last a lot longer.
2. Unemployment will hit 10% in 2009Q3. The job market will be brutal in 2009, and robust job growth won't start until 2011. And 10% is the U3 number; U6 will reach 16%.
3. Oil will fall to $25-30.. After bottoming in that range crude will rise substantially as the dollar weakens in the second half of the year. Against the euro and other currencies the change won't be as great. But the price in any currency will be low enough to seriously damage the petro-states.
4. The dollar will lose strength. The dollar will stay flat for the first half of the year as money continues to flee emerging markets, then fall to 80¥ and 0.55€ as people start realizing that the Fed is printing. The greenback could go to 0.45£, or to 0.80£ depending on how bad things get in "The City".
5. A country will leave the Euro. I've been predicting Italy will leave for some time now; this may be the year I'm finally right. The dark horses for the dubious distinction are Spain, Greece, and Ireland
6. China will blow a gasket. The current leadership seems unprepared for the current crisis, and has spent too much money propping up state industries instead of investing in desperately needed basic infrastructure inland. The pain will be widespread even if the renminbi is devalued. There is a good chance the devaluation will be excessive and prompt a reaction from the US.
7. The mercantilists will crash. Both Japan and Germany failed to address structural problems while times were good, depending instead on a positive balance of trade to paper over the problems. The decline of trade in general, and with the US specifically, will cause these problems to re-assert themselves. Other significant European exporters - Norway, Finland, Sweden, Netherlands, Switzerland, and Austria - will suffer as European importing countries - Spain, United Kingdom, Italy, Greece, Portugal, most of Eastern Europe - find their public and private budgets severely pinched. However, the pain won't be as great as that of the big exporters because of better fundamentals. The smaller East Asian exporters - Thailand, Indonesia, Malaysia, Singapore, Hong Kong, Taiwan, and Korea - will suffer as is usual during a US downturn.

   That's all for now.

   Update: This list goes to 11.

8. GM and Chrysler will both file for bankruptcy. GM will seek Chapter 11 protection in March, and will re-emerge in a few quarters. Chrysler will file at the same time, and then be dumped on the UAW and various creditors by Cerberus. However, the company will be too far gone to save, and liquidation will start in early 2010.
9. The banking system will evade nationalization. Between Obama's deep-seated cautiousness and the wall-to-wall appointment of economic insiders, the banking system will not be subjected to the "Swedish model". The Fed will continue to be the primary source of relief, and its balance sheet will expand by another $2T.
10. Retail and commercial real estate will get crushed. CRE is wildly over-built and over-leveraged after years of cheap credit. Personal consumption will fall almost 8% from 2007 levels, and thus many store chains will file for CH7, leading to massive loan defaults by property holding companies.
11. Housing will decline for the entire year. Aggregate prices will continue to fall until 2010Q2, though as usual local markets will vary widely. Homebuilders will finally go bankrupt due to continuing declines of spec starts after unexpectedly clinging to life in 2008. Sales volumes of existing housing will decline through 2009Q2 then flatten for the rest of the year.

Well, that's what I've got at the macro level. Predicting the markets is not one of my talents, so I'll forgo the embarrassment on that front.