In every year's final column I usually offer up a mea culpa for my errors, while pointing shyly at my lucky forecasts. How did my picks and forecasts do in 2009?
- 1. On Feb. 14, the column noted that the huge amount of U.S. stimulus would mean history would likely repeat: We should have wars escalating and gold rising. Both happened. Conflicts certainly expanded - Afghanistan is mostly in Taliban hands, the U.S. may be going into Pakistan on the sly, Iran is effectively at war with Saudi Arabia via Yemenite Houthi surrogates, and Iran may be within months of nuclear capabilities. So gold, which was then at $958 (U.S.), is now at $1,111.50, or 16 per cent higher. The forecast was good. One point.
- 2. On Feb. 28, the column said plainly that with the economy at a low, commodities plunging and real interest rates at a high (rates compared with the then-negative inflation rate), my old California forecasting model, which saw that several variables were at extremes, was showing the market was likely at a bottom. This was correct. The Dow was then at 6,759, and is today at 10,328, or up 53 per cent. One point.
- 3. On March 14, I said that oil should rise because of escalating conflicts, and that defence and military stocks would also do well. Oil was at $48 (U.S.), and it is now at $73.36, up 53 per cent. Defence stocks did well also, but so did most stocks. So give it only 3/4 of a point.
- 4. The April 11 column compared this period with 1938-39. The argument was: the 1937 50-per-cent echo mini-crash was equivalent to the 2008 50-per-cent echo mini-crash, so 2009 should be equivalent to the 50-per-cent echo boom of 1938-39. This, supported by huge U.S. stimulus, could bring a 50-per-cent or more rise in the Dow - from 6,600 to at least 9,900 by year end. So far, the Dow target has been exceeded. Give this forecast one point.
- 5. On May 9, I repeated the forecast that the Dow would reach 9,900, then suffer a decline. Half a point: We are above 9,900, but not declining yet.
- 6. On May 23, the column said armed conflict should help Boeing, General Dynamics and oil to rise - and Canadian real estate to rise, too, as more money and people would pour into safe Canada. The first three picks were a repeat. But the real-estate forecast was new, and a lucky one. Canadian real estate, flat on its back in 2008, is again flying. One point.
- 7. On July 18, I warned about the danger of piggybacking on China. This may be true in the long term: I don't like to invest where you can't run down the street with a placard saying the ruler is a so-and-so, because in such places property rights are often shaky. However, in the recent time-frame I was wrong. The Chinese market is flying, with China putting forth its own stimulus. Zero points here, and a mea culpa.
- 8. The Aug. 15 column said that Google Voice and more wireless competition would be good for Google, but not for Rogers, Telus and Bell. Partly right. Google has risen 30 per cent since; Rogers went sideways, up 2.5 per cent, Telus is flat, and Bell is up nearly 8 per cent. During the same period, telecom and tech stocks rose about 13 per cent. I'd say the call was mostly right, but since the stocks I was negative on merely went sideways, I'd give this only half a point.
- 9. On Aug. 29, the column said the market was flying too high, and recommended to take some profits. Evidently this was premature. Yes, Bernard Baruch said he made his money by selling too soon. But not too-too soon. So this call gets zero points, and a mea culpa.
- 10. On Sept. 12, I recommended avoiding double and triple exchange-traded funds, since all were likely to lose. Right on. For example, the Direx triple financial bull ETF (FAS-N) has gone down nearly 7 per cent. However, the Direx triple financial bear ETF (FAZ-N) has also gone down, by nearly 13 per cent. How can both the bull and the bear ETFs go down at the same time? Well, as I told you, the volatility works against you. You may ask: Why can't you short both the FAS and the FAZ, thus taking out the market risk, and get the volatility for free? I used to do that, until the inanity of being long power ETFs was discovered, and the short-borrowing cost went too high (it's now about 18 per cent). So, one point here too.
- 11. On Oct. 10, the column recommended going long Amazon (betting it will rise), and short on Barnes & Noble (betting it will decline). Again, right on. The price ratio of Amazon to Barnes & Noble went to 7, from 4. However, the game is probably over: Barnes & Noble short-borrowing cost is now 21 per cent, and for a short time was higher than 80 per cent - which means that everyone wants to short it. So my contrarian instinct is to look at the stock more favourably. (No, it's not a recommendation; just a rumination.) Anyway, one point also.
All in all, 6 3/4 points out of 11. Not bad.
Next time, I'll go over a specific sleuthing that changed my mind - the kind I like best. Meantime, happy holidays, and a happy New Year to one and all.
Special to The Globe and Mail
Avner Mandelman is a director of Venator Capital Management and author of The Sleuth Investor. Amandelman@venator.ca