14
First the Bubblequake, Next the Aftershock
What Did the “Experts” Say? We enjoyed an article in the January 12, 2009 issue of BusinessWeek magazine so much that we thought we’d include some of it for you here. What follows are observations and predictions about the economy in 2008 by well-known and highly trained financial professionals, writers, investors and economists. It is interesting to note that, in the course of our research for this book, we keep a file of predictions and observations that well-known analysts, investors and economists make. In reviewing the file for this section of the book, we noticed that it is very hard to find anyone who will predict economic movements beyond a year. Hence, it limits just how wrong they can be. It also makes it very hard to compare our long-term predictions that were made in October 2006 with anyone else since so few people in 2006 made predictions for 2008 or 2009. That we can show the accuracy of our predictions against much easier short-term predictions that other people make shows the power of our financial and economic analyses in understanding our economy. For most investors, long-term predictions are really the most important because most investors are investing for the long term, whether it be for capital appreciation, capital preservation, or for retirement. Financial analysis has to be accurate long-term to really be valuable. Stock Market “A very powerful and durable rally is in the works. But it may need another couple of days to lift off. Hold the fort and keep the faith!” A quote from Richard Band, editor, Profitable Investing Letter, Mar. 27, 2008. What Actually Happened: At the time of Band’s comment, the Dow Jones industrial average was at 12,300. By December, 2008 it was at 8,500. AIG AIG “could have huge gains in the second quarter.” A quote from Bijan Moazami, distinguished analyst, Friedman, Billings, Ramsey, May 9, 2008. What Actually Happened: AIG lost $5 billion in the second quarter 2008 and $25 billion in the next. It was taken over