GRADING OUR OUTLOOK 2014 FORECASTS
The proliferation of social media, blogs and others forms of self-publishing has swamped consumers with information. Most can’t remember where they read the last piece of data, and as new information floods in, old things are quickly forgotten. This works in favour of those who make predictions. If the predictions come true, that fact can be shouted from the roof-tops. If the predictions (like most) turn out to be wrong, well, probably no one remembers them anyway, and if they do, they don’t remember who predicted what.
Every year for the past decade Baskin Financial has stuck its neck out at its annual Outlook event. We make predictions, and we make them in writing. What is more, a year later we take a look at our forecast and review how we did. Here is the scorecard for our Outlook 2014. What we predicted is in bold; what actually happened is not.
- Canada and US short term rates will stay below 1.5%. Correct. Rates remain at rock bottom.
- Longer term rates will rise as tapering takes place in the US. Wrong. Tapering took place but 10 year bonds are little changed year over year.
- Lower rated corporate bonds will continue to do well for durations above two years. Correct, the hunger for yield brought lower spreads for BBB bonds over the year.
- Preferred shares will be a good alternative to bonds, offering yields of 3% to 4%. Correct. A huge amount of new prefs hit the market with 5 year yields in the 3.75% to 4.25% range.
- Low inflation will produce mildly positive real returns for bonds. Correct. Inflation has averaged well under 2% in Canada and the US, producing a small positive yield for 10 year and longer bonds. Bonds under 3 years had zero to negative real returns.
- The CDN$ will average above US$.96 for the year. The direction was right but the magnitude of the drop was Wrong. The CDN$ averaged about US$.935.
- The EURO will average about CDN$1.45 for the year. Correct. The actual was about CDN$1.47.
- The Yen will strengthen somewhat during the year. Correct. The Yen was up about 5% against the US$.
- REITs will have a strong recovery. Half right. REITs did well, but trailed the market somewhat.
- Banks will continue to be a great success story. Correct. Canadian banks soared to record highs and increased profits and dividends. National Bank, for example, rose 30%.
- Retailers are in for a tough time. Half right. Grocery stores and department stores did much worse than the market but specialty retailers like Tim Hortons and Canadian Tire did better.
- We will be zero weight precious metals. Correct. Gold and silver were down sharply over the period, and shares of miners were poor performers.
- Iron, coal and potash are in oversupply. Correct. Prices for all three commodities fell.
- Energy producers will be range-bound. Wrong. In fact Canadian energy producers performed in line with the market or better for some juniors as oil prices held over $100.
- Utilities, Pipelines and Telco’s will continue to hold value due to yield. Correct, with pipelines doing better than utilities. Telco’s were rocked by Government policy changes but all held their value or appreciated.
- Consumer Products should be average to above average performers. Correct. Companies like HighLiner Foods, Tim Hortons and Molson Coors had strong years.
- Fair value for the S&P 500 will between 1,850 and 1,900. Mostly Correct, although it has now overshot to the 2,000 level, or 6% higher than our forecast.
- Market-leading technology companies remain our focus. Correct. Apple and Microsoft were each up about 50% during the period.
- Multi-national brand leaders should benefit from recovery in Europe. Half right. The recovery in Europe has been extremely slow, and it has hurt brands such as McDonalds, while other global companies have done better.
- Manufacturers such as auto markets offer good value. Correct. Car part maker Magna is up more than 50%, for example.
- Health Care companies will do well. Correct. Our investments in this sector rose more than 20% as drug maker Teva and device maker Zimmer both beat the market.
- Banks will make good profits. Correct. Our US bank stocks are up about 15% from a year earlier.
Out of twenty-two calls, I would say we had fifteen right, three wrong and four somewhere in between. That’s not a bad batting average.
We are preparing our Outlook 2015 forecasts right now, and the publication will be available on our website in late October or early November. Stay tuned.