How does anyone make predictions for a new year after one like 2008? Imagine that last December Iíd predicted a little known senator from Illinois would edge out Hillary Clinton for the Democratic nomination and go on to become the first black president.
You might have said: Thatís quite a stretch, isnít it?
What if Iíd said the Dow would fall from 13,000 to 7,500 this year, with most of that fall taking place in September and October of 08?
Are you on LSD or what?
Or I may have said that 40 ships, some of them giant ocean liners and tankers, would be taken by pirates off the coast of Somalia and held for ransom. And, by the way, General Motors will go bankrupt in 2008 unless they get help from the U.S. government.
Now thatís just crazy talk!
Yes. But all those things and a lot more actually happened. So I know going in that making predictions about anything in the coming year is a foolís game. Still, thereís something about trying thatís hard to resist.
A good economist would start by making up three scenarios, best case, worst case and most likely. Itís a smart way to approach it. Economists know that being Human, weíll make our Best Case scenario more of a wish list than an objective projection. And Worst Case will just be a verbalization of our fears. So, Iíll get those two out of my system and then take my most Spock-like shot at a good prediction.
My Best Case scenario is wonderful. The new national public works program will inspire a monster rally on Wall Street that goes on and on. Weíll end the year at 15,000 on the Dow. Things go so well that news commentators start to call it the Miracle Year. The phrase becomes so prevalent that millions of senior citizens perk up whenever the evening news is on, thinking itís a commercial for Miracle Ear.
Worst Case has a nuclear war breaking out between India and Pakistan. The war causes untold ecological damage and a world-wide famine. In my personal life Worst Case is just as bad. Iím completely broke; and Iím shot to death mopping the floor on midnight shift at a 7/11. But donít worry about me. Best Case has me making a killing in the market, bench pressing 250 pounds and dating Madonna.
OK, sit up straight. Take a deep breath. Let it out slowly. Hereís Most Likely.
∑ The world: Emphasis in Iraq turns to formulating the best exit strategy and in Afghanistan to turning the war over to the Afghan army. Vladimir Putin will try several military stunts in an effort to intimidate Obama. Most of the world ignores Putin, making him look like a fool. The governments of China, India and the U.S begin to work closely together to solve the global economic crisis.
∑ The Economy: There will be a monster rally on Wall Street, maybe as early as mid February. The Dow will go up maybe 2000 points in a week. But it wonít last. Weíll lapse into a trading range of 8000 to 9500 for the rest of the year. Oil will stabilize and stay at around $50 a barrel.
∑ Buzz words: Throughout the year we will constantly hear phrases like Hunker down, Live within our means and Maintain, Maintain, Maintain.
∑ Personal: Like the rest of the world, I do my best to hang on to the status quo. Iíll maintain. Next December Iíll still be driving my 2000 Mitsubishi. I work hard on my second novel and get the rough draft completed. I do my best to stay healthy; and I watch MTV videos as I ride the stationary bike at the club (sometimes Madonna is in the video). Next December Iíll be in this same chair, coming up with predictions for 2010.
Hereís hoping that all of your Best Case scenarios become reality in the coming year.
The sincerity of that wish is one of the few things you really can count on in 2009.