Taking Stock / Forecasts for 2008. Oh Well

We got a lot of it right, at least for a while. The danger of hubris has passed.

Never has there been a more humbling year, a harder year, a more embarrassing year than 2008 for people who engage in forecasting economic developments.

Not only was 2008 rife with drama. Developments seemed to conspire to being the exact opposite of expectations. Worse, the banking industry that kept most of these forecasters in clover, or at least in hay, collapsed (which, ahem, most of them hadn't foreseen).

Mathematician Nassim Nicholas Taleb was one who did predict the crisis. Last week, talking with TheMarker, he compared economic forecasters with astrologers. Many of the success stories in investment circles are simply people who got lucky during the boom, he argues in his book, "The Black Swan."

A year ago Taleb's views wouldn't have left much of an impression. But after the great global banks' implosion and the utter collapse of the local tycoons' stocks, his words resound.

We, too, suspect that reading economic forecasts is about as useful as consulting tea leaves. Yet last year we went ahead and issued 13 economic forecasts, chiefly because we felt we had to warn our readers that a crisis was coming like a freight train, and the business environment was turning black after five years of flourishing. Well, how did we do?

We had it pretty much right, for a while. We were in danger of joining that herd of the lucky, whose forecasts proved correct and who start thinking they can actually peer into the future.

Then came Black September and Even Blacker October and it turned out Taleb had been right. When something dramatic happens at the tail-end of statistical probability, nobody sees it coming.

So here we are, it's the start of 2009 and what are we doing? Revisiting our old forecasts. (Excuses at the end of each.)

1. We predicted: The subprime crisis would worsen, spreading throughout the U.S. capital market, hitting new sectors and industries that had relied too much on borrowing rather than working. The credit crunch would spread from the U.S. to other markets.We had that right. It just never occurred to us that the biggest gobblers of subprime debt would be the cynical greed-heads of Wall Street, who cooked up the reeking stew in the first place, and that not only their customers but they themselves would be poisoned.

2. We predicted: The long run of the global real estate market would stop, possibly with squealing brakes. Real-estate stocks that had turned red-hot in Tel Aviv during 2007 would cool just as fast in 2008, mainly the international, leveraged companies.Yes. Too bad we hedged with "possibly" before "squealing."

3. We predicted: Abu Dhabi and the oil barons of the Middle East would sop up the world?s assets.Yes, until a few months ago, when even the sheikhs went home to lick their wounds.

4. We predicted: A fifth year of sky-high oil coupled with a recession in the U.S. would weaken America?s hegemony in the global village and strengthen Russia and China ?(which had almost no economic influence five years ago?). Protected by his vast reserves of oil, gas and commodities, Vladimir Putin will continue to mock western values of democracy.We've been saying for three years that Russia's economy is rotten and will ultimately collapse, but we hadn't foreseen how fast that would happen. Until September, we had it right, but the subsequent tumble of oil prices paralyzed Russia.

5. We predicted: Rising commodity prices will drive inflationary pressures in the U.S. and in Israel. The Fed will be caught between trying to stimulate the economy and the inflationary pressures. But here, the Bank of Israel won?t hesitate to raise interest rates, we predicted. Higher local interest rates combined with the worldwide credit crunch will make it harder for companies to borrow.The credit crunch arrived, far surpassing our expectations. But commodity prices dropped.

6. We predicted: Israeli GDP will continue to expand in 2008, but growth will slow in the second half because of weakness in the capital market, slowdown in America and crisis in one of the big emerging markets.Oops. Make that ?crisis in all the emerging markets.?

7. We predicted: Israeli companies will continue breaking through to world markets but the crisis in the capital market, mainly the slowing real estate market, will show the ugly side of leverage.Yes. We just didn?t think the entire capital market would shut its doors before them.

8. We predicted: sraeli property prices will remain relatively resilient, having not attained bubble proportions.Yes, but prices began to fall two months ago.

9. We predicted: Israeli investors who had become accustomed to double-digit annual returns will be disappointed in 2008. Some will suffer heavy losses.Yes, but a?) we just didn?t think ?heavy? would be ?elephantine? and b?) Change ?some? to ?everybody invested in anything other than government bonds.?

10. We predicted: The ?Israeli oligarchs?? power over government, politicians and the press will grow.Their fortunes have been hit in the last few months, but their influence over the politicians and press hasn?t abated. Now they?re angling to get pensioners and taxpayers to rescue them.

11. We predicted: Despite a whole new team of young turks, we won?t see any economic reforms in 2008.Got that right.

12. We predicted: Google will remain the fastest growth story in Internet, with the greatest influence over consumers. Microsoft will fail again in its efforts to compete with Google. Yahoo! will be sold. eBay will stumble. Apple will redefine the worlds of computing, electronics and music.The only thing we missed is that Yahoo?s takeover tarries and will only happen in 2009.

13. We predicted: At year-end we?ll realize that the biggest event of 2008 was one we couldn?t expect.

'Nuff said.