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January 24, 2013

2012 scorecard review: Some hits, some misses

By Nick Massey The Norman Transcript

NORMAN — Regarding economic forecasting, economist John Kenneth Galbraith once said, “There are only two kinds of forecasters — those who don’t know and those who don’t know they don’t know.” Depending on the year, some may suggest that I’m in the second camp.

I take some comfort in what former Dallas Fed President Bob McTeer once told me. He said that most economists aren’t very good at forecasting, but it is expected of them. “So if you’re going to forecast,” he said, “do it often and do it late.”

While a humorous comment, there is certainly an element of truth in it as I take my annual look back at what happened in 2012 and what I think might happen this year. You might call it my annual victory lap or slow crawl to the locker room, depending on how I did.

Last year was another strange year, to say the least. Ironically, it was not as volatile as 2011, with the DJIA trading in a 1,630-point range versus 2,450 points in 2011. From a portfolio management standpoint, less volatility is actually more challenging in terms of getting excess performance. As far as the U.S and global economies are concerned, I don’t think we fixed anything and have mostly sown the seeds for what will eventually be another crisis. Things seem stable now, but there is a lot of unfinished business.

Here is what I said in January 2012 and what actually happened:

1. “The European debt crisis continues in and out of the headlines as Europe goes into a recession. Nothing is resolved but they do manage to kick the can down the road a little longer.” True and accurate.

2. “The U.S. economy does not go into recession in 2012 but continues to limp along at a weak 1 to 2 percent GDP growth rate. Global GDP will be the same.” True.

3. “Interest rates on the 10-year U.S. Treasury bond decline to historic lows of 1.5 percent on the next risk-off event and then head slightly higher by year end.” Mostly true. Rates went as low as 1.3 percent and finished the year at 1.9 percent.

4. “The U.S. dollar continues up and the euro down, with the euro going as low as $1.19 exchange rate. Gold rises at first to $1,750 and then falls into summer. Wait to buy gold at $1,250.” Pretty close on the euro but partly missed on gold. The euro went as low as $1.20 and then recovered to $1.32 by year end. Gold traded between $1,801 and $1,538, closing around $1,650.

5. “Oil and commodity prices peak sometime this year and start to decline by late in the year, if not sooner, as the global economy slows and demand falls. Oil is at $100 now and could see a spike to $120 at some point. However, the next risk-off trade or a slowing global economy could take it down to $75 by year end.” In between. Oil traded between $109 in March to a low of $80 in June, closing around $95 at year end.

6. “The U.S. government runs another $1.3 trillion deficit.” True.

So how did I do? I guess I would give myself a B minus on this one.

Next up, I’ll stick my neck out once again with my predictions for 2013. Maybe I should just heed the words of Mark Twain when he said, “It ain’t what you don’t know that gets you into trouble. It’s what you know for certain that just ain’t true.” Maybe I should, but I just can’t help myself.

Nick Massey is a financial columnist for The Edmond Sun.

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