With hindsight everyone can be clever. To predict the future with any degree of accuracy is an altogether trickier undertaking.
This leaves economists between a rock and a hard place. They can foresee possible scenarios with varying orders of probability, yet without any certainty. The known harmfulness of smoking and its life-shortening effects must not be confused with predicting someone’s lifespan. (My chain-smoking granny died at the age of 97, and would have perhaps lived much longer without smoking, wouldn’t she?)
If economic projections are too vague, they are useless. If they are too certain they are foolish. Investment decisions make meaningful prognosis necessary. Yet retrospectively, most forecasts will have been annoyingly, comically, wrong.
Let’s look back then at how far off the mark some of my own predictions were throughout 2017. I wish you a rewarding 2018, regardless!
April 9, 2017. Pondering upon the metaphysics of investing into gold I wondered whether a price hovering around $1.250 was a reason to sell or a reason to hold on. I for myself, decided to hold on, as a hedge against bad times or inflation or both. The price of gold did not change much throughout the year.
April 23. As investment bankers and stock exchanges throughout 2017 vied for a piece of business in the planned two-trillion-dollar-floatation of Saudi Arabia’s oil company Aramco, I warned among other possible downsides about the unpredictable, rash arbitrariness of the regime. Since then more than 100 Saudi businessmen and politicians of renown have been put under arrest and only released against handing over the larger part of their wealth to the ruling Crown Prince Mohammed bin Salman, who bought for himself incognito a Leonardo painting for $450 million and a chateau in France for a few hundred million, continued bombing plague-stricken Yemen and placed Lebanese Prime Minister Saad Hariri under house arrest, forcing him to resign (which he did and then renounced as soon as he was out of the country). The flotation of Aramco might not take place, after all. If it does, I think we should give others the right of way.
My gardener asked me about bitcoin, and so did my bookish brother-in-law, my GP and two taxi drivers: ‘I think it is time to invest’
May 7. Congratulating Amazon on its 20th birthday, I was wondering if a share price of $950 for a company generating only little income might have seen its high water mark. It has risen to $1,171 since, a gain of more than 23 per cent. Against my own advice I bought at the time, strongly believing in its business case and doubting the case for anti-monopoly measures aiming at a break-up any time soon. Will I have the strength to sell before things can turn sour? Will I sell too soon?
August 8. Warning against “alternative” investments, I doubted the rationale of investing in fine wine, instead of drinking it. Since then the ‘Fine Wine 100 Liv-ex’ index has beaten all major stock indices and kept rising. Investors ignoring my advice could have made gains of 12 per cent or more, dependent on currency fluctuations.
September 10. Contemplating the impact of wars on investment portfolios, I warned about the growing tensions in the Middle East and North Korea. Since then Trump tweets have reached fever pitch (“little rocket-man”) and his National Security Adviser is drumming up support for ever more crippling embargo measures against the rogue regime, urging China to stop supplying fuel. Kim Jong-un has improved the range of his inter-ballistic missiles considerably, is preparing the detonation of a hydrogen bomb and fears to negotiate with the US, while the US and China are having first meetings for military contingency planning and coordination in case of war on the Korean peninsula. The risk of major conflicts has not abated, but risen considerably.
October 8. “It can be liberating, thrillingly adventurous to participate in the bitcoin craze, never mind the looming losses,” I joked when bitcoin traded at $5,000 – only two months ago – explaining that it takes a lunatic to invest in something which has no intrinsic value and cannot be put under the mattress. At the time of writing my New Year wishes to you, bitcoin is trading on two futures exchanges and is priced at $14,630, down from a high of nearly $20,000. Not heeding my warnings, you, my cherished reader, would have still pocketed a 180 per cent gain. This frenzy is not to end any time soon, I guess. My gardener asked me about bitcoin, and so did my bookish brother-in-law, my GP and two taxi drivers: “I think it is time to invest.” Like any classic bubble it will burst when there is nobody left who wouldn’t be an investor yet. Almost half of all worldwide retail holders of cryptocurrency are Japanese, who are forced by their inland revenue to hold, as realised gains have to be declared in their tax return. So everybody is holding on, nobody sells, until one day everyone will sell at once. Despite my abysmal predictive abilities, I wish to reiterate my warning: bitcoin is not an investment, it’s a gamble.
October 22. Despite cheap valuations I advised against investing in Russian shares, arguing that they are cheap not without reason. Since then the US Congress has sharpened its embargo resolve, punishing Vladimir Putin and Donald Trump in equal measure. Expect further disruptive punishment for Russian businesses and Putin’s men. I still think it best to keep a distance from Russia shares, no matter how cheap they will get. And yes, Putin will be Russia’s next President, no matter what. While shunning shares, look for buying opportunities in government and quasi-government (euro) bonds. Russia has little debt to service and direct access to its citizens’ wallets.
For 2018, I expect moderately rising inflation, moderately rising interest rates, and now, after the US tax reform is finally through Congress, not much further gains for US multinationals. All asset classes are prone to major price swings. With a growing chance for large disruptions, keep some cash for rare buying opportunities.
I very much hope that 2018 will be more tranquil than it looks at the end of December. I wish you not so much a Happy, but an incredibly lucky New Year.
Andreas Weitzer is an independent journalist based in Malta. He reports on the economy, politics and finance. The purpose of his column is to broaden readers’ general financial knowledge. It should not be interpreted as presenting investment advice or advice on the buying and selling of financial products.
Please send in any suggestions for discussion in this column to: editor@timesofmalta.com – Subject: Sunday Times Personal Finance.