2018 Predictions – Second Quarter Review

“You want a prediction about the weather, you’re asking the wrong Phil. I’ll give you a weather prediction: It’s gonna be cold, it’s gonna be grey, and it’s gonna last for the rest of your life.” – Groundhog Day

Yeah, I guess this might have been wrong, since I now bathe in gasoline since it’s cheaper than bottled water or milk.

Okay, in an experiment in economic forecasting, I decided to do some financial predictions for 2018 (2018 Predictions – Wealth).  Why?  It seems like it’s what bloggers do:  they predict things poorly, and I decided I could do that poorly.  Even more poorly than television forecasters, but that’s hard – they don’t put what they say into print, so they change it every week.

I also promised a quarterly report card, and this is the second one.  So how are my predictions matching with reality?

Mixed bag.  One real stinker, the rest are still possible, at least in several games of Fallout™ that Pugsley has played.  Fallout© is just like real life, right?

But please note that when I explain what I think happened, I’m not trying some sort of argument to the effect of:  “I would have been right, but . . .” followed by some lame excuse.  No.  If I was wrong, I was wrong (to date, the year isn’t done, remember?) but much like a goldfish, I do have the ability to learn.

Oh, what were we talking about?  Fish flakes?  No.  Bitcoin.  Which might be worth less than fish flakes.

Bitcoin

Bitcoin is on life support, and a lawsuit has been filed in district court to let this prediction die, but this was overruled by the 9^th Circuit Court of Appeals (which also recently ruled that Kim Jong Un *must* restart his nuclear program, and, in general do stuff to prove Democrats Were Right All Along).  It is by far my worst prediction.  It has all of the risks shown below:

• It (may) be vulnerable to hacking since it’s based on an NSA product – there may be hidden back doors. Or, the NSA might just hack your computer and steal all your Bitcoin that way.  It’s like doing taxes, but you don’t have to file.
• Wal-Mart® doesn’t take it.   How many Bitcoin for that Chinese made grill?  Nobody knows.
• It’s as volatile as a bi-polar ex-wife on meth. It looks more promising than Johnny Depp’s career.
• The IRS has categorized each Bitcoin transaction as a taxable event.   Nobody keeps those kinds of records, and that is an absolute block for people wanting to use it like you’d use a dollar bill.  That moves it from a currency to an investment vehicle.  Use as a currency inherently raises the value of Bitcoin, but this moves it away from that.

My prediction in December:

“I think it might have more to fall before it becomes stabilized, maybe to $10,000.  But I predict it would be higher than $20,000 next December.” (June 2018 John Wilder says:  “December John Wilder was not stoned.  But that at least would have been a good excuse for this stupid prediction.”)

Second Quarter Scorecard:

How’s that working so far?  In the first quarter, it was bouncing around my $10,000 prediction for the stabilization number.  Now?  $6,000.  Ugly.  And there’s no reason it can’t drop more.

Is $20,000 still possible?  Yes.  And Katy Perry© might win the Nobel® Prize in physics.

The Stock Market

In December I said:  “The biggest risks are North Korea, Iran, and Saudi Arabia, with anything that created higher oil prices being the biggest risk.  Chances of impeachment this year?  Nearly zero.”  To show you how much the world has moved on, I struck out all of the things that didn’t go wrong this year.  Things are, generally, going very well indeed.

New Risks Since December Prediction

• Democrats taking the House of Representatives in November – this is a risk because it greatly increases political uncertainty. That’s a huge risk the market has not priced in.  October will be the most volatile month this year, if the Republicans keep the House.  If they lose the house – November will be a very difficult month in the Market.  But if Pelosi keeps talking Trump keeps Trumping – the Republicans have nothing to fear.
• How much will the Fed increase interest rates (see below)?
• Is Facebook® in trouble for data? Facebookâ„¢ might be the spark that melts the market down . . . or not.

2018 Prediction on the S&P 500:

“Up.  Not 24%.  But up, say, 10%.  2019?  We’ll see.”

Second Quarter Scorecard:

So far, year to date, it’s now down 1.8%.  No real problem there – it can still easily hit my 10% mark.  And if the Republicans win bigly in November?  10% is an easy achievement.  This tale will be told in October and November, I think.

Interest Rates:

We’re recovering from the longest period of low interest rates in history.  All of history.  It really won’t make a difference, but the Federal Reserve simply must increase rates so that we can pretend that the money isn’t all made up.  Eventually if there’s a credible alternative (Bitcoin? Swiss Francs?) the Federal Reserve will have to raise interest rates . . . a lot.

If it’s too much this year, we’ll enter a recession – maybe right away.  I don’t think that’s likely in 2018.  Trump’s Fed chair will want to raise the rates – after this election.  Maybe right after, so the economic pain is over and done with by the 2020 election.

2018 Prediction on the Federal Reserve Rate:

“Up slightly.  Eventually (2019, 2020?) up a lot.”

Second Quarter Scorecard:

The Fed funds rate has gone up, 0.25% and will likely go up more.  If that doesn’t sound like much, you’re wrong – it went up from 1.75% to 2.0%.  That’s increasing rates by 14%, and it’s nearly certain the Fed will increase rates two or three more times this year.

Mortgage rates have gone up from 3.95% to 4.52%.  Not a lot, but there will be more to come . . .   Seems in line with my prediction (so far).

Gold/Silver:

2018 Prediction on the Gold/Silver:

“Meh.  Wanders back and forth.  Probably ends the year +/-10% of where it started.  2019 or 2020 might be different stories, and longer term it will still experience huge upward swings during times of uncertainty.  It appears we’re currently at the “no crisis” pricing, which would probably be a good time to stock up.”

Second Quarter Scorecard:

Gold is down 0.4% for the year.  Silver is up 2%.  It’s wandering (for now), so it’s in line with predictions.

Please note that when a stock market crisis hits (not if, but when) ALL asset classes will drop in price (except for food and ammo).  That’s generally a great time to buy gold.  If it’s an inflationary spike?  Yeah, you’ll be too late for the party – people will dump dollars to buy commodities like gold.

Disclaimer:  I haven’t started any positions in anything above the last three days and don’t expect to start any in the next three.  So there, neener, neenter.  Also, I’m not a decent financial advisor, and this set of “predictions” is probably as good as Katy Perry’s kitchen whiteboard for predicting the future and probably worse than flipping a coin.