Prediction Results

By on July 27, 2008

Periodically I go back and look at some of the predictions made the pundits about the economy, stock market and individual securities. It adds a little accountability because anyone can made a prediction, but rarely does anyone go back and look at how accurate they were.

Pat Dorsey of Morningstar made the following comment about Countrywide Financial on August 11, 2007, “Countrywide Financial (CFC; 27.86) is a buy”, “trading at 4 times earnings power”, and, “will do great over the next year or two.” Most of us know that Countrywide nearly collapsed before Bank of America agreed to take it over in what amounted to an offer of around $7 a share at the time the deal was announced. A decline in BofA stock made the deal worth substantially less to CFC shareholders by the time it closed.

On August 21, 2007, Doug Kass, Seabreeze Partners, said a 25% drop for the market was not, “out of the question.” The Dow was at 13,090 when he made this comment and a 25% drop would put it at 9,817. The DJIA has since dropped as much as 16% from the 13K level to 10.9K on July 15, 2008. A continued drop below 10,000 does not appear to be that much of a stretch from here.

On August 22, 2007, with the Dow at 13,236, Richard Russell reportedly said the following, “What did I think of today’s action? Here’s what I thought of it…I bought DIAMONDS Trust (DIA: 133.12) which is an ETF for the Dow. That should answer your question.” Mr. Russell has flip-flopped a few times since then and I believe he is now bearish.

Gary Shilling made the following comments on August 22, 2007, “I think a recession could hit before the end of the year…30 year treasuries will eventually go to 3%.” “a combination of the weak economy, a Fed ease, and deflation.” Mr. Shilling may have been pre-mature in predicting a recession as we have not technically achieved negative two quarters of negative growth, however, there has been definite weakness in the overall economy. A 3% yield on the 30 year treasuries seems to be a stretch from here since they are still priced for a return of more than 4%.

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