Welcome back – I hope you had a good Christmas and New Year.
It’s about this time of year that pundits and forecasters rake over the bones of past predictions. It’s incredible to imagine now, but at this time last year, some people were still seriously debating whether or not there would be a recession in the UK, and even the US (which was in fact, already in recession at this time last year).
Now the only debate is about how long the recession will last, and how big it will be. As you might expect, we’re not too optimistic on that one. But first let’s take a quick look at how we did during 2008…
A quick review of 2008
Many people would have been glad to have seen the back of 2008 – if it wasn’t for the fear that 2009 might end up being even worse. But although it was a tough year, full of nasty little surprises, I think MoneyWeek acquitted itself pretty well.
There were of course, the things that we’ve been bearish on for ages – house prices, retailers, banking, consumer-facing stocks in general – all of which, unsurprisingly, continued to fall as credit became tighter and the economy worsened.
After being bullish on commodities and oil prices for years, we warned readers early in the year that 2008 would be tougher as the global downturn hit demand, and suggested taking profits in mining stocks, thus avoiding the big commodity price slump. We also suggested shorting oil in early August, though the price fell even further than our initial forecast of $60-$70 a barrel (which was very bearish at the time).
Our regular columnist, James Ferguson, warned readers to avoid putting their savings into Icelandic banks well before the country went bust. Meanwhile, when the fears over British banking safety were at their peak, our editor-in-chief Merryn Somerset Webb was recommending locking in savings rates of 7% at the Government-owned Northern Rock – which looks very nice now that interest rates are plunging across the world.
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We also warned in July that the pound would fall sharply as the British economy weakened. With the pound now near enough at parity to the euro, and genuine forecasts that it could head the same way against the dollar, escaping the gloomy weather for warmer climes has rarely looked less affordable and it seems likely to stay that way.
So what weren’t we bearish about? We stayed bullish, as ever, on Japan. That wasn’t a great call – the absence of a boom didn’t save the Japanese market from tanking last year. However, by comparison to other markets, sterling investors would have done less badly than they might have thought. Even though the Nikkei 225 fell by more than 40% in yen terms, in British pounds, the index – incredibly – ended the year barely changed, as the yen soared and the pound collapsed.
It was a similar story for gold. Although it has yet to reclaim the $1,000 an ounce mark it hit in March, for sterling investors, gold continued to hit new highs all year, hitting £600 an ounce for the first time in December.
How to protect your wealth in 2009
So what about the year ahead? For the time being, it looks like more of the same. Tighter credit means there’ll be further falls in house prices, not to mention the problems that companies will have rolling over their debt this year. The rally in the stock markets will probably continue for now – but I suspect it will be derailed later in the year as investors realise that this recession is going to be a lot worse than they think. If I was going to attempt to trade the rally, I’d back Japan to do it – all stock markets are likely to rally in tandem, so you might as well back the one which has the best economic fundamentals behind it.
So how should you protect your wealth – and hopefully turn a profit – this year? In our first issue of the New Year, out on Friday, our RoundTable experts give their views on what they think you should buy – and where the big pitfalls will be. If you’re not already a subscriber, subscribe to MoneyWeek magazine.
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