Monday, January 03, 2011

My 2011 Predictions: A View Inside a Cloudy Crystal Ball

By Eric Jackson
RealMoney Contributor

12/30/2010 1:00 PM EST
Click here for more stories by Eric Jackson

This time of year requires anyone who has market views to predict what will happen in the year ahead. The cynics typically deride such attempts as destined for failure.

Earlier this week, RealMoney guru Doug Kass came out with his "15 Surprises for 2011." Doug has been making these predictions for eight years now, and one of the brave things he did in this year's edition is review his success rate for each of the eight past years. (The cynics say the market prognosticators never go back and hold themselves accountable.)

In all his years of making these guesses, Doug's best result was getting 50% right. That number might seem low, but as a hedge-fund manager friend once told me, "In this business, if you're consistently right 51% of the time, you're a genius."

But if 50% right in a given year is the best year, it's clear that looking into your personal glass ball is tough. Yet, let's try.

Doug's article also correctly points out how often conventional wisdom is wrong. Remember this year when the euro was at $1.19 and everyone was convinced it was heading to parity? Remember when it went back over $1.41 and everyone was convinced that the dollar was going to be debased?

The biggest wrong piece of conventional wisdom this year was that QE2 would fail. David Tepper was clearly on the winning side of that trade. (I think I just heard him say "Everything!" like he did on CNBC in September.)

At the moment, the conventional wisdom is that everything is great. Stocks will keep moving up. Europe will be contained (if people even remember there are problems in Europe). Reflation will work. All currencies will be fine. Unemployment will start coming down, because ... after all, it's been four years now. Commodities will keep going up. It's all good.


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