Swedroe: Scoring 2015’s ‘Sure Things’

January 11, 2016

At the start of 2015, I put together a list of predictions that financial “gurus” had made for the upcoming year, especially the ones that gained consensus as “sure things.” I then kept track, through a series of periodic updates, of whether these “sure thing” forecasts actually came to pass.

Well, the inevitable turn of the calendar into 2016 means that the most recent data is in, and it’s now time for our final review of the “sure thing” forecasts made back at the beginning of last year. As is our practice, we’ll give a score of +1 for a prediction that came true, a score of -1 for one that was wrong, and a score of 0 for one that’s basically a tie.

At the end of the first quarter, our score was +1/-7. These “sure thing” predictions fared a bit better by the end of the second quarter, with a score of +2/-6. But by the end of the third quarter, there were more “sure things” in the plus/true column (five) than in the minus/wrong column (three). We’ll now look at how they finished for the full year.

Rising Rates?

Our first sure thing was that, with the announced end in 2014 of the Federal Reserve’s program of quantitative easing, interest rates would rise. The fear surrounding rising rates often leads to the recommendation that investors limit their bond holdings to only the shortest maturities. In 2015, Vanguard’s Short-Term Bond Index Fund (VBISX) returned 0.9%. The firm’s Intermediate-Term Bond Index Fund (VBIIX) returned 1.2%. Score: -1.

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

Unfortunately, a lot of the economic news to date has reflected a weaker, not a stronger, economy. First-quarter growth was small—0.6%. Second-quarter growth came in stronger, at 3.9%. However, growth decelerated in the third quarter as GDP grew just 2.0%. The current (fourth-quarter) forecast for full-year growth in 2015 from the Federal Reserve Bank of Philadelphia’s survey is just 2.4%. Score: -1.

The third sure thing was that, with the expected rise in interest rates and ongoing economic improvement, the dollar would strengthen. The dollar index closed out 2014 at 90.64. While the Fed just began to tighten monetary policy on Dec. 16, when it raised the target federal funds rate from a range of 0.00-0.25 to a new range of 0.25-0.50, and even though economic growth has remained tepid, the dollar index rose to end 2015 at 98.69. Score: +1.

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