Wednesday, December 10, 2014

Predictions For 2015 From The Readership (80% Confidence Edition)

New update: "Gotham"
The readership is hereby asked for five predictions for 2015, each with an 80% confidence level (or interval). The predictions can be about anything: bond yields, oil price, number of corporate bankruptcies, foreign exchange, number of hurricanes in GOM, favorite long/short, etc. With five predictions, you are well-calibrated if you get four right.

From reader "Panda":

  • There will be at least one mega CPG deal by 3G/Buffett similar to HNZ. [Note: I'd like to modify my first prediction from CPG to "consumer". Could be YUM.]
  • There will be at least one Big Oil mega-merger 
  • The IBB index loses over 30% for the year 
  • Fast casual chain LOCO trades down to $12 (from $24 now)
  • Personal products company NUS "comes clean" about what went on in China
  • The activist hedge fund index underperforms the SPY
From reader "Blue Devil":
  • Spot oil trades above $90 by middle of next year. (OPEC shows willingness to cut capacity and does so by the middle of next year; as soon as enough major long-term projects are cancelled. Shale was never the target and this was never meant to be a long-term campaign. The back half of the year. Once the damage is done, OPEC has no reason to try to keep the price down. You can't hurt shale. You need to get big long-term projects cancelled and raise everyone's costs of capital, but after that, if you can cut 10% of production to get a 30% price rise, you do it.)
  • Housing starts are higher than in 2014 as [INSERT STUPID NAME FOR OUR GENERATION] get into their 30s, find career stability after the great recession, get married, have kids, etc.
  • Obama becomes the lamest of "lame duck" presidents, who the Democrats only trot out (frequently) to veto things. A record will be set for international travel by a sitting president as he moves to solidify his legacy as statesman of the world.  
  • There is a lot of consolidation in the mining space, which will start to look like the banking space (a few huge players with massive funding advantages and everyone else).
  • There will be a lot of pressure to export crude oil from the US, repeal the Jones Act, and permit a lot of LNG export facilities (all of which will cause huge problems down the road if they are passed by the republican house and senate).
From reader "Admiral":
  • Between 8 and 16 publicly traded commodities companies will go through reorganization in 2015.
  • It will be the hottest (climate) year on record for continental US.
  • The National Bank of Greece preferred either starts paying or gets tender offer.
  • Sadly, Hugh Hefner's time in corporeal form will expire;, and between 3 and 17 blonde ex-lovers will appear as part of probate proceedings.
  • On 12/31/15 the BBB corporate yield will be 6.5%.
From reader "Memphis":
  • Iron ore prices will fall in 2015.
  • Chinese growth will undershoot consensus estimates.
  • Canadian housing prices show signs of peaking: lower transaction volumes, if not lower prices.
  • There will be increasing recognition that many foreign countries have housing mega-bubbles 
  • Interest rates won't rise significantly in the US.
From reader "Zoolander":
  • China GDP growth rates each quarter will be lower than in 2014
  • Australia will have a recession
  • Natural gas storage levels below 5 year average by end of this winter
  • Uranium price rises
  • Oil prices do not increase
From reader "Rothko":
  • Oil goes below 60 and stays there (cartel kaput).
  • No increase in short term interest rates.
  • Goldbugs continue crying - gold goes below 1000
  • Early issues in EMs, but the Venezuela collapse didn't trigger anything as it was expected. But prepare for 2016.
  • Strength in financials and momo stocks propels the S&P to 2400.
From reader "Boston":
  • Gold breaks $1000 downside
  • Rates go lower
  • SHLD liquidates
  • Down year for S&P and HF's somehow underperform regardless
  • Bye $WLT
Your host's answers:
  • Quicksilver Resources, RadioShack, Walter Energy, and Molycorp will all restructure (dilutive out of court exchanges count).
  • U.S. ten year note yield will not exceed three percent.
  • Silver goes below $15/oz.
  • Spot WTI does not exceed $90/bbl
  • U.S. thirty year yield hits 2.5%.
Finally, reader "Texas" who does not think in terms of bullet point lists!:
I have a prediction that most readers of will find outrageous.

I believe that over the next 5 to 10 years the small cap Russian stocks will be one of the best growth assets on the planet (barring nuclear war breaking out). The ETF is the RSXJ.

First the fundamentals. Russia has very low welfare costs, and a very low tax rates on individuals and corporations. Russia has the lowest sovereign debt to GDP ratio (13.41% for 2013) of any of the BRICS. Thus, the economy has vastly much more room to grow than the economy of the U.S. or the EU.

Perhaps more important, the current economic sanctions are teaching the Russian political power structure some very valuable and obvious lessons for the future. Lesson number one is that an economy built upon the wealth and loyalty of a couple hundred oligarchs is a very fragile and vulnerable economy. Oligarchs loot a society and move the money out of the country. They do not reinvest their profits in the economy of Russia as would thousands and thousands of small business owners and successful entrepreneurs.

Finally, we hear much about the corruption and cronyism of the oligarch based economy, all of which is true for the time being. But the truth is that legal systems of England and Europe were equally based on personal status and power relationships up until about 300 years ago when a rising middle class began to force reform and force a uniform system of law to apply to all. Corruption will disappear as soon as the population of small business owners and new entrepreneurs grows to the point where dealing with strangers demands uniform and enforceable rules of contract and business conduct.

In my view the RSX is largely an energy play, and is indistinguishable from U.S. and Canadian plays except for specific Ruble currency volatility. I prefer the Canadian tar sands plays because of their long life reserves and their sensitivity to crude prices which produce bargain opportunities when crude prices plunge.

I view an investment in RSXJ as a bet on the fat right tail of the IQ distribution of the Russian population – a right tail that is very successful in the nationalized Russian arms industry largely because lean budgets force scientists to strive for major innovative breakthroughs as opposed to the very expensive bureaucratic incrementalism pursued in the leviathans of the U.S. defense industry. Through social contacts and family relations, this culture of innovation is certain to spread into the private sector of the Russian economy.

As for timing, the bottom for Russian stocks might be a year off. Watch for climactic volume on a sell off accompanied by a higher low in the MACD before taking the plunge.
Stragglers, send in your predictions!

UPDATE: Reader "Hollywood" predicts:
  • Multifamily housing completions set a 25 year high.
  • The SAAR for US light vehicle purchases averages above 17.5MM units, and exits the year above 18.0MM units.
  • The United States runs a balanced budget in at least one month of 2015.
  • Elon Musk completes a controlled vertical landing of a Falcon rocket on land.
  • Hussman underperforms.
Reader Stagflationary Mark predicts:
  • The Fed Funds rate will not increase in 2015.
  • The 30-year treasury will remain below 3%.
  • Full year exports of goods to China will not increase from 2014 to 2015.
  • Full year department store sales will fall from 2014 to 2015.
  • Although continuing to claim that hyperinflation is imminent, ShadowStats will remain unwilling to raise its annual subscription price of $175. ;)
Reader "bjdubbs", with six predictions for some reason:
  • Brent tops $85.
  • Russia is strongest performing market.
  • Dollar closes at least 5c below 2014 close.
  • BBRY trades over $20.
  • Gold closes more than $100 above 2014 close.
  • XPO trades at least 40% below 2014 close.
Reader "jHurt",
  • Oil goes below $50
  • Government Motors hits $50
  • Sears hits $50 (adjusted for any REIT spinoff)
  • Yen trades to 140 (at 120 today)
  • Euro trades down to $1.15 ($1.24 today)
Reader "whydibuy",
  • The S&P will be up 10%+
  • Bank stocks will continue to be solid with good dividends
  • Hussman underperforms ( 100% confidence on this one )
  • Housing continues to do well
  • Earnings of S&P companies increase 10%
From reader Louisiana:
  • We will see increasing predictions of AI and robotics revolutions (Google queries for both terms will rise YOY). Long term prediction: AI will never happen, only more sophisticated simulations of intelligence. The Singularity is the Scientology of Silicon Valley. What is it with California and cults?
  • Gasoline and oil prices will be lower, on average, than 2014, by at least 15%. The marginal demand for large vehicles will be much diminished by less confident Millenials, who will opt for minivans and station wagons instead of SUV's. They can't get a promotion because Baby Boomers can't afford to retire. The question for oil demand is whether demand from the growing Third World can overcome slacking demand from higher fuel efficiency, smaller vehicles, mandatory federal MPG increases and, at some point, economic availability of plug-in hybrids, which for the average debt-addled consumer needs to be about a 20%+ gross ROI to make sense. Forget about all-electrics - toys for environmental cultists to compete for social status.
  • A breakout populist candidate will emerge in the Republican primary. To quantify: not currently polling above 5%, for whom immigration and jobs will be a centerpiece issue.
  • Long term bond rates, nor inflation, will not exceed 2014 average levels.
  • The major stock indices will be negative for the year.
From reader "Allegheny":
  • Interest rates won't increase as much as predicted.
  • Europe will continue trudge along.
  • Japan won't blow up
  • But Kyle Bass will find a way to make another extreme prediction that gets him airtime on TV.
  • High ROE stocks will still be en-vogue regardless of purchase price.
From reader Gotham:
  • Elizabeth Warren challenges Hillary Clinton for the Democratic nomination
  • Venezuela defaults on its debt
  • IBM trades through $120 in the wake of a restatement of earnings due to fraudulent accounting, joining USAir and Salomon Brothers on the list of Buffett’s most grievous unforced errors.
  • The Canadian dollar trades below $.72 during the year
  • At least half of the following names will go bankrupt or experience highly dilutive debt restructurings: $REN, $MPO, $WRES, $NKA, $NES, $GDP


Stagflationary Mark said...

* The Fed Funds rate will not increase in 2015.

* The 30-year treasury will remain below 3%.

* Full year exports of goods to China will not increase from 2014 to 2015.

* Full year department store sales will fall from 2014 to 2015.

* Although continuing to claim that hyperinflation is imminent, ShadowStats will remain unwilling to raise its annual subscription price of $175. ;)

CP said...

With links to the FRED data. Thank you!

CP said...

Hyperinflation: Still Doubtful Based on Market Implied Probabilities

ShadowStats quote:
"I assess the chances of a U.S. hyperinflation being underway by the end of 2014 at more than 90%, by the end of 2013 at more than 40%."

Wouldn't have done well in the CBS prediction calibration poll!

My comment two years ago:
So it's interesting that the market thinks hyperinflation is twice as likely as deflation, but that the probability that neither one will happen by January 2015 is 89.5%.

Looks like the 90 percent chance won out!

James said...

I like the nicknames you gave everyone (I live at the other end of Tennessee, though!). I'm pretty sure I know who "Rothko," "Panda," and "Boston" are, but I'm drawing a blank on the others.

CP said...

We can now offer a bottle of scotch to the winner!

Anonymous said...

Wait, you forgot to mention there was a bottle of Scotch on the line...

CP said...

That's called "Upping the Ante".

We did accept a slightly modified prediction #1 from Panda.

CP said...

*** Three more updates: "bjdubbs", "jHurt", and "whydibuy"

CP said...

"louisiana" update

Nate Tobik said...

I like that many of the predictions are extrapolations of current trends. Part of me thinks that's foolish because we're not creative to think about a future that's different than now.

On the other hand for a contest like this it has the potential to be genius. Momentum can help the predictor a lot in winning this. Pick a giant trend that's unlikely to stop and jump on the bandwagon.

Stagflationary Mark said...

Nate Tobik,

Nice summary!

Part of me thinks that's foolish because we're not creative to think about a future that's different than now.

Part of me thinks our love affair with "cheap" money makes us think we don't have to think.

Pick a giant trend that's unlikely to stop and jump on the bandwagon.

The movie Idiocracy isn't funny because we think it couldn't possibly happen, but rather because it could. Sigh.

In all seriousness, can you imagine the carnage if this country's electrical grid failed for 18 months? We just seem to get more and more dependent on tiny risks not occuring.

U.S. Risks National Blackout From Small-Scale Attack

"Destroy nine interconnection substations and a transformer manufacturer and the entire United States grid would be down for at least 18 months, probably longer," said the memo, which was reviewed by the Journal. That lengthy outage is possible for several reasons, including that only a handful of U.S. factories build transformers.

This is totally unacceptable, and yet I clearly would not predict it for 2015. Not with 80% confidence anyway. 1% though? Once in a hundred years? Now that the Wall Street Journal told the world the risk? Maybe. Sigh.

CP said...

Up to 17 predictions!

CP said...

Some people did six and one person did only one. There should be close to 85 total that you would expect for 17 participants.

It will be interesting to see whether there are the expected 68 correct answers.

One wrinkle is going to be that so many of the predictions are similar that it will actually be hard for exactly 80% of them to be correct.

Of course, we could condense the 85 down into a core set of distinguishable predictions, and then see if 80% of those are correct.

All fun activities we should be having a year from now. Godspeed!

Anonymous said...

'Zoolander' is closing his oil prediction and changing to spot gold outperforming spot copper for the rest of 2015$GOLD:$COPPER&p=D&yr=1&mn=0&dy=0&id=p22468850123

CP said...

Looks like Blue Devil's $90 mid year oil prediction is wrong!

CP said...

Anonymous said...

If each prediction has an 80% confidence level, then aren't the odds of getting 4/5 right about 41%? (.8*.8*.8*.8*.2)*5

Anonymous said...

If you're 80% confident in a prediction, you should get it right 80% of the time.

If you make N predictions of 80% confidence, you should get N*0.8 of them correct.

Anonymous said...

Imagine you flip a fair coin 5 times. How many times do you expect it to come up heads?


CP said...

If you take a multiple choice test with four possible outcomes and you know nothing about the answers and guess at random, you have a 25% confidence in each question. And you'll get 25% of them right.

CP said...

Phase One of new contest!

CP said...