Swedroe: ‘Sure Things’ That Didn’t Pan Out

April 08, 2015

Each January, I put together a list of predictions that financial “gurus” have made for the upcoming year—sort of a consensus of “sure things.” I then keep track of whether or not these “sure thing” predictions have actually come to pass.


The turn of the calendar into April means that it’s time for our first quarterly review. As is our practice, we’ll give a score of +1 to a forecast that came true, a score of -1 to a forecast that was wrong, and a score of 0 to one that was basically a tie.


Interest Rates Fail To Rise

Our first sure thing was that, with the announced end in 2014 of the Federal Reserve’s quantitative easing program, interest rates would rise. Fear of rising rates often leads to the recommendation that investors limit their bond holdings to only the shortest maturities.


But in the first quarter of this year, Vanguard’s Short-Term Bond ETF (BSV | B-69) returned 0.98 percent, the firm’s Intermediate-Term Bond ETF (BIV | B-52) returned 2.43 percent, and its Long-Term Bond ETF (BLV | C-99) returned 3.35 percent. That’s one sure thing that hasn’t happened—at least so far. Score: -1.


The second sure thing was that the nation’s economic growth, while remaining relatively tepid, would still improve. The Federal Reserve Bank of Philadelphia’s Survey of Professional Forecasters predicted GDP growth of 3.0 percent in 2015.


Unfortunately, almost all the economic news so far has reflected a weaker, not a stronger, economy. That has led most forecasters to lower their estimates for first-quarter GDP growth to between about 1 and 1.5 percent. Score: -1.


Our third sure thing was that, with the Fed tightening monetary policy and the economy improving, the dollar would strengthen. The dollar index ended 2014 at 90.64. While the Fed has not yet begun to tighten, and economic growth actually slowed, the dollar index ended the first quarter of this year at 98.66. Score: +1.


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