Checking My Scorecard

Every now and then, I make predictions in this blog. Today seemed as good a day as any to take a look at my prior predictions and see how they faired. As a life long Cassandra, I can’t really say that I hate to say I told you so. Honestly, I love saying I told you so.

Specifically, I told you:

  • In November I told my readers that the bonds of Genworth Financial seemed like a good buy. I took my own advice and bought some. They paid over the weekend, realizing me an annualized 20% or so.
  • In January, and many times since, I have repeatedly warned that Dr. Lacy Hunt’s advice to plow money into long term US Treasury obligations was a recipe for disaster. So far this year, the 30-year US Treasury bond is down 20.9%. Ouch!
  • That Barrick Gold was a screaming buy in October of 2008. I loaded up on Barrick at $20.85 a share in November. Last week I sold my Barrick stock for $35.50 a share and took the money and put it straight into GLD. Extra credit: Since that date, GLD (gold bullion) has appreciated and ABX has fallen. Sometimes I just get lucky!
    • That we had witnessed the end of deflation and that this year would see the start of a rampant inflation that would last for years.

    Now, for the longterm prediction that’s the real clincher. I predicted on January 2nd, that this year would see the deflation scare put to bed as rampant inflation made a huge, multi-year comeback. My logic is that central banks and world governments would respond to this economic crisis by creating more debt money into the economy. I got into a debate with one reader who argued that the size of the collapse of our financial system would dwarf whatever “stimulus” the Fed and Congress attempt to use to counteract it. My response to this was simply the common sense notion that the world has had its fill of the dollar and that, as we continued to run up record deficits and ask them for ever increasing amounts of even more money at negative real interest, that the other nations would eventually tell us “no.” When that happened, we would have to start monetizing our own debt (which we have since done) and, eventually, this would trigger a global run on the dollar.

    I don’t have a crystal ball, so I can’t give you an exact date. Though, as an avid poker player, I do have some knowledge of how human nature works. Put it this way, I can observe someone’s play at the table and tell you that, eventually, this person will go broke. Similarly, I’m telling you that eventually, the US is going to run out of credit on the world markets. Just as I can’t give you an exact date on when a given poker player is going to go broke, I can’t give you an exact date on when the US is going to go broke. I can just tell you that, eventually, it will. This year seems as good a year as any.

    In the short term, there are still plenty of deflationary forces at work in the market. That’s why I sold my Barrick stock. It was trading at $35.50 a share and I estimated it earnings to be around $1.60 or so this year. That’s a PE of 21.5, which just seems high to me. Yes, gold is going to go up. In comparison to the nominal value of the dollar, it is going to go up rather a lot. But, in the short term, with the value of stocks under incredible pressure, I don’t feel good at holding a stock that has a PE that could easily be but in half before this things over with. I’d rather just hold the bullion.

    In terms of how well that prediction works, well, that’ll be the subject of a later post. Till then.

    can’t claim victory on this .

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