The Kiplinger Letter's Best and Worst Forecasts of 2009
The year began with the economy in a tailspin, but The Kiplinger Letter saw better days by midsummer -- and was right. Plenty of other good forecasts, too -- some, not so…
Like most Kiplinger readers, you’re probably curious about how often our forecasts hit -- or miss -- the mark. Questions about our “batting average” come up frequently, and while we don’t keep a scorecard per se, the end of the year strikes us as an apt time for an annual assessment. Moreover, lists seem to be all the fashion this time of the year, anyway.
Our rundown isn’t a complete accounting, of course. Our team of fearless forecasters tackles hundreds of topics each year in an effort to help management decision makers navigate their way through treacherous economic, business and political waters. But what follows is a compilation of some of our toughest calls on some of the biggest puzzles of 2009.
Clearly, the economy and war in Afghanistan are uppermost on many readers’ minds. On both topics, Kiplinger provided sound early guidance to what lay ahead.
With the economy still spiraling downward, The Kiplinger Letter began the year by asking: “Will 2009 bring a U.S. economic recovery?” Our answer in the Jan. 2 issue was: “Yes, possibly starting around midyear.” Though such an optimistic outlook raised more than a few eyebrows and was scoffed at by pessimists, the forecast was on the money.
It’s not official yet, but by all accounts the recession ended in the third quarter as the nation’s gross domestic product increased 2.2% after six straight quarters of contraction. The Cambridge, Mass.-based Business Cycle Dating Committee of the National Bureau of Economic Research, which officially determines the start and end of recessions, typically takes its time, but it will likely rule that the recession ended in July or August.
Further, on Feb. 6 we advised readers of the coming jobless recovery. “Odds are employment won’t bounce back quickly after the economy starts to grow, as it did following recessions in the 1970s and 1980s. Instead,” we wrote, expect “another jobless recovery, more akin to the aftermath of the 2001 downturn, only starting from a much higher unemployment rate. The high was just 6.3% then.”
A jobless recovery is indeed under way. The unemployment rate rose to 10.2% in October, and the tally of payroll jobs remains in negative territory, with 11,000 net jobs lost in November. Look for the unemployment rate -- now 10% -- to continue to increase to around 10.5% in early 2010. And with employers continuing to exercise restraint in hiring, the rate could still be above 10% by the end of the year.
On Afghanistan, as President Barack Obama mulled new strategy and pundits debated what course he would take, The Kiplinger Letter, on Oct. 2, forecast that after all the intramural fights and nail biting, Obama would go “hard on Afghanistan” because there was really no other choice. The Letter’s front page also highlighted Obama’s need and determination to insist on success in an 18-month period, saying “Obama will give the new approach a year to 18 months to show results.” And we noted that he would need Republican support for the move.
Obama unveiled his Afghanistan strategy Dec. 1 in a speech at West Point.With the exception of the exact figure for the troop deployment -- we forecast 40,000, as U.S. Army General Stanley A. McChrystal called for, rather than the 30,000 Obama named -- the president’s new strategy was almost exactly what we predicted. That included an emphasis on accelerating the training of Afghan security forces, leaning harder on the Karzai government to fight corruption, increasing civilian aid to improve the lives of ordinary Afghans and, the kicker, stating the intent to begin drawing down forces in July 2011. Liberal Democrats, particularly Speaker Nancy Pelosi (D-CA), have expressed varying degrees of opposition, while Republicans have largely supported the plan (apart from the July 2011 date).
Among our many other correct calls that benefited clients:
Climate change. On May 8, as House and Senate leaders were insisting they would have climate change legislation passed by Memorial Day, we advised our readers otherwise. The first line of our page one story said flatly: “Climate change rules won’t come this year.” House Energy and Commerce Committee Chairman Henry Waxman (D-CA) finally got his bill approved on June 26. But the intentions of Senate Majority Leader Harry Reid (D-NV) and Senate Environment & Public Works Chairman Barbara Boxer (D-CA) proved far too optimistic.
Detroit automakers’ woes. We wrote April 17th that “neither Chrysler nor GM can escape bankruptcy -- in our judgment. They simply can’t shed enough weight on their own. By early May, Chrysler will be forced to seek protection from its creditors. GM will follow within weeks.” Chrysler filed a Chapter 11 bankruptcy in May; GM did the same in June. As for Ford, we wrote July 17th that it looked as if “Ford’s negotiation of its recent financial shoals is paying off” and that its share of U.S. auto sales was climbing and would likely “top 16% this year and next.” When December data are released in early January, look for Ford’s market share to read -- 16%.
Auto emissions and mileage standards. On Jan. 30, we correctly forecast that California would not receive a federal OK to increase auto emission standards for vehicles sold in the state. We said that the White House instead would use federal fuel standards to achieve the same goal, pushing carmakers to increase fuel efficiency much faster than now required. We said it was a good bet that federal regulations would require a fleet average of 35 miles per gallon by 2016 or so. The Obama administration validated our forecast a few months later.
Housing. In the Sept. 18th Kiplinger Letter, we told readers to expect more government aid for the distressed housing market, writing that “incentives to encourage short sales can’t hurt and might provide some lift in areas where many homeowners owe more on mortgages than their homes are worth.” On Dec. 1, the U.S. Treasury Department issued streamlined guidelines to lenders on short sales, helping to pave the way toward clearing the large inventory of distressed properties.
Organized labor. As Obama took office in January, many prognosticators concluded that with Democrats in charge of the White House and Congress, organized labor would finally attain its No. 1 priority: Card check (or majority sign-up) legislation that would make it easier to unionize workplaces. Not so fast, we said, writing on Jan. 9 that labor would not get the bill it wants and that only a compromise deal could make it through, which we expect in 2010.
Airline fees. As air travelers started coping with checked bag and other various charges, we told readers early this year that not only would such fees become permanent, but that they would proliferate. They have -- big time.
Financial reform. In April, we first laid out the framework for financial reform legislation and turned out to be on track. The piece said that within a year there would be new financial regulations that wouldn’t set rates or bar commercial banks from selling stock, but would force more transparency. We said hedge funds would be forced to register and more derivatives would be traded on exchanges. The House passed its version of the bill, containing these measures. The Senate will do the same by summer 2010.
Politics. On June 19th, we forecast that “two gubernatorial contests offer a bit of GOP cheer,” writing that while both New Jersey and Virginia went for Obama in 2008, Republicans stood a good chance at capturing both states. That’s what happened in November, with Chris Christie defeating Gov. Jon Corzine, the Democratic incumbent in New Jersey, and Bob McDonnell emerging victorious in Virginia.
Taxes. In May, we forecast in our Kiplinger Tax Letter that the tax break for donating required minimum payouts from IRAs to charity, set to expire after Dec. 31, 2009, would be extended, but that passage could slip to 2010, and it has. We also warned that the waiver of required minimum distributions from IRAs and plans for 2009 would not be repeated for 2010, and that was also correct.
In October, we saw that economic stimulus measures were taking shape, and we said that the following things would pass, and they all did before the end of the year: an extension and expansion of the five-year net operating loss carryback provision; another extension of bonus depreciation, this time through 2010; and an extension of the COBRA continuing coverage subsidy.
Alternative fuels. U.S. biodiesel producers reading the Feb. 4 issue of Kiplinger’s Biofuels Market Alert received a heads-up that the European Union would slap stiff countervailing and possibly antidumping duties on biodiesel imported from the U.S. The EU did so one month later. The move hit U.S. producers hard -- they supplied about 20% of all biodiesel consumed in the European Union in 2008.
Agriculture. The Kiplinger Agriculture Letter’s keen insight into the workings of Congress led us to write on Aug. 28 that Sen. Blanche Lincoln (D-AR) would take the helm of the Senate ag committee from Sen. Tom Harkin (D-IA), following the death of Sen. Edward Kennedy (D-MA). The forecast was based on our analysis that Sen. Christopher Dodd (D-CT) would choose not to succeed Kennedy as chairman of the health committee, freeing up the post for Harkin, who gave up the ag panel chair to make the move.
Now for a few prominent misses:
Food safety. Amid mounting concerns about foodborne illness from salmonella and tainted Chinese imports, we predicted in June that Congress would approve a major overhaul of food safety regulations by year-end. The legislation made headway in the House and in a Senate committee but got sidetracked in the Senate by the contentious debate on health care reform. Look for the food safety legislation to clear Congress in 2010.
Stocks. Though we noted June 12 that the bear market in stocks was over, we also said that little gain from that point to year-end was likely. Clearly, bullish investors decided on a different outcome.
Estate tax. Several times this year we said that Congress wouldn’t allow the estate tax to disappear as scheduled on Jan. 1, 2010. In 2011 the tax is scheduled to return with an exemption amount of only $1 million and an effective top rate of 60%. We thought Congress would extend 2009 levels -- a $3.5 million exemption amount and 45% rate -- at least through 2010, but while the House passed estate tax legislation, the Senate failed to take it up.
Defense spending. On July 2, we forecast that Congress would prevail in a showdown with Obama over building about 12 more F-22 fighter jets. We said Obama and the Pentagon wanted to stop with 186 planes, but that there was broad bipartisan support on Capitol Hill for building more. Work on the jet extends to hundreds of contractors and suppliers in 44 states. But the administration won out, scoring a rare victory in terminating a huge defense program such as the F-22.
Well, so much for the old year -- bring on the new! We’re up to analyzing and forecasting all of the developments in the year ahead. We hope 2010 is a prosperous and happy one for all.