Tuesday, January 06, 2009

Compilations of Worst Predictions For 2008

Top 10 Worst Predictions For 2008 by BusinessWeek:

1. "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!" —Richard Band,

editor, Profitable Investing Letter, Mar. 27, 2008. At the time of the prediction,

the Dow Jones industrial average was at 12,300. By late December it was

at 8,500.

2. AIG (AIG) "could have huge gains in the second quarter." — Bijan Moazami,

analyst, Friedman, Billings, Ramsey, May 9, 2008. AIG wound up losing

$5 billion in that quarter and $25 billion in the next. It was taken over in

September by the U.S. government, which will spend or lend $150 billion to

keep it afloat.

3. "I think this is a case where Freddie Mac (FRE) and Fannie Mae (FNM) are

fundamentally sound. They're not in danger of going under…I think they are in

good shape going forward." — Barney Frank (D-Mass.), House Financial Services

Committee chairman, July 14, 2008. Two months later, the government forced

the mortgage giants into conservatorships and pledged to invest up to

$100 billion in each.

4. "I'm not an economist but I do believe that we're growing."

President George W. Bush, in a July 15, 2008 press conference

Nope. Gross domestic product shrank at a 0.5% annual rate in the July-

September quarter. On Dec. 1, the National Bureau of Economic Research

declared that a recession had begun in December 2007.

5. "I think Bob Steel's the one guy I trust to turn this bank around, which is

why I've told you on weakness to buy Wachovia." — Jim Cramer, CNBC

commentator, Mar. 11, 2008. Two weeks later, Wachovia came within hours

of failure as depositors fled. Steel eventually agreed to a takeover by Wells

Fargo. Wachovia shares lost half their value from Sept. 15 to Dec. 29.

6. "Existing-Home Sales to Trend Up in 2008" — Headline of a

National Association of Realtors press release, Dec. 9, 2007. On Dec. 23,

2008, the group said November sales were running at an annual rate of 4.5

million—down 11% from a year earlier—in the worst housing slump since the


7. "I think you'll see [oil prices at] $150 a barrel by the end of the year"

T. Boone Pickens, June 20, 2008. Oil was then around $135 a barrel.

By late December it was below $40.

8. "I expect there will be some failures. … I don't anticipate any serious

problems of that sort among the large internationally active banks that make

up a very substantial part of our banking system." — Ben Bernanke,

Federal Reserve chairman, Feb. 28, 2008. In September, Washington Mutual

became the largest financial institution in U.S. history to fail. Citigroup

needed an even bigger rescue in November.

9. "In today's regulatory environment, it's virtually impossible to violate rules."

Bernard Madoff, money manager, Oct. 20, 2007. About a year later,

Madoff—who once headed the Nasdaq Stock Market—told investigators he had

cost his investors $50 billion in an alleged Ponzi scheme.

10. "There's growing evidence that parts of the debt markets…are coming

back to life." — Peter Coy and Mara Der Hovanesian, BusinessWeek, Oct. 1,


As compiled by New York Magazine:

Jon Birger, senior writer, Fortune’s Investors Guide 2008
What he said then: “Question: What do you call it when an $8 billion asset

write-down translates into a $30 billion loss in market cap?

Answer: an overreaction … Smart investors should buy [Merrill Lynch] stock

before everyone else comes to their senses.”

What we know now: Merrill agreed to sell itself Bank of America to avoid a

Lehman-like flameout in a deal closing in January. Meanwhile, Merrill's shares

plummeted 77 percent.

Elaine Garzarelli, president of Garzarelli Capital, in Business Week's

Investment Outlook 2008
What she said then: “Garzarelli is advising investors to buy some of the most

beaten-down stocks, including those of giant financial institutions such as

Lehman Brothers, Bear Stearns, and Merrill Lynch. What would cause her to

turn bearish? Not much. ‘Our indicators are extremely bullish.’”

What we know now: As of January 1, none of these firms will still exist.

Lehman went bankrupt. JPMorgan and Chase bought Bear Stearns in a fire sale.

We all know Merrill’s fate.

Sarah Ketterer, CEO of Causeway Capital Management in Fortune’s

Investors Guide 2008
What she said then: Q: “Sarah, where to you see value?” A: “There are

[financial firms] that have been tainted by this huge credit problem …

Fannie Mae and Freddie Mac have been pummeled. Our stress-test analysis

indicates those stocks are at bargain basement prices.”

What we know now: The federal government placed these two lenders under

“conservatorship” in September. By then, shares of Fannie and Freddie had lost

90 percent of their value.

Jon Birger, senior writer, in Fortune’s Investors Guide 2008
What he said then: “CEO Jeffrey Immelt has been leading a successful

makeover at General Electric, though you wouldn't know it from GE’s flaccid

stock price. Our bet is that in a stormy market investors will gravitate toward

the ultimate blue chip.”
What we know now: GE’s stock price has tumbled 55 percent percent this

year and it’s on the verge of losing its triple-A credit rating. Analysts are

nervous about its financial-services division, which provides about half of GE’s


Archie MacAllaster, chairman of MacAllaster Pitfield MacKay in Barron’s

2008 Roundtable

What he said then:“A lot of people think Bank of America will cut its dividend,

but I don't think there's a chance in the world. I think they'll raise it this year;

they have raised it a little in each of the past 20 to 25 years. My target price

for the stock is $55.”

What we know now: BofA may not have gone the way of Lehman. But

investors who sold when MacAllaster told them to buy were shrewd. The bank’s

share price now hovers around $14, and it has slashed its dividend in half.

James J. Cramer, contributing editor, in his "Future of Business" column

in New York Magazine

What he said then: "Goldman Sachs makes more money than every other

brokerage firm in New York combined and finishes the year at $300 a share.

Not a prediction — an inevitability.”

What we know now: In mid-December, Goldman Sachs’ share price was $78.

The firm also announced a $2.2 billion quarterly loss, its first since going

public nine years ago.

Compilation by CNBC:

"We had $17 billion of cash" at the end of last year, and "that liquidity cushion

has been virtually unchanged." — Bear Stearns CEO Alan Schwartz telling

CNBC in a March 12, 2008, interview that he is not aware of any liquidity

problems at the firm. Two days later, Bear Stearns, the fifth largest U.S.

investment bank, was forced to seek emergency funds from the Federal

Reserve and JPMorgan Chase. The firm was taken over by JPMorgan that

weekend for $2 a share, which was later raised to $10.

"Categorically no." — Lehman Brothers CFO Erin Callan responding on

March 18, 2008, to the question as to whether the firm would be the next to

go out of business. Callan was ousted from her job in June. In September,

Lehman Brothers filed for Chapter 11 bankruptcy protection.

"I expect there will be some failures” of smaller banks. “Among the largest

banks, the capital ratios remain good and I don't anticipate any serious

problems of that sort among the large, internationally active banks that make

up a very substantial part of our banking system.'' — Federal Reserve

Chairman Ben Bernanke in February 2008. IndyMac Bank failed in July 2008,

with $32 billion in assets. Washington Mutual failed in September 2008, the

largest bank failure in history with $307 billion in assets. Wachovia was sold

to Wells Fargo in October 2008, amid concerns about its financial health, and

Citigroup still scrambles to raise cash from both the government and private


"If you put it in a baseball analogy, and you look at the subprime problem in

the U.S., you would say we're in the eighth inning or maybe the top of the

ninth." —Morgan Stanley CEO John Mack in April 2008 on whether the

subprime crisis was coming to an end. "We're probably in the third or fourth

quarter." — Goldman Sachs CEO Lloyd Blankfein, in the same month on the same topic.

In September, AIG and Lehman Brothers collapsed under the weight of

subprime debt, escalating the financial crisis and triggering a massive selloff

in global stock markets. The government agreed to set up a $700 billion

bailout fund for toxic debt. That same month, Morgan Stanley and Goldman

Sachs applied to become bank-holding companies in order to help raise


"Lehman is a takeover target…I upgrade to buy". — Dick Bove, banking analyst
at Ladenburg Thalmann on Aug. 21, 2008. Within three weeks, Lehman
Brothers filed for bankruptcy. The stock went from $14 a share to $0.

"Fannie and Freddie are very solid institutions. They have more-than-adequate
capital. They have access to capital markets." Chris Dodd, chairman of the
Senate Banking Committee, July 14, 2008.
In September, the U.S. government
seized control of both Fannie Mae and Freddie Mac, concerned about their
mounting losses.

Jim Cramer, television personality and author

What he said: "The market will not revisit the

panicked lows it hit on July 15. . . Bye-bye,

bear market. Say hello to the bull, and don't let

the door hit you on the way out." -

- July 30 on CNBC's "Mad Money".

What happened next: The Dow fell another 3,400

points from July 15 to its low on Nov. 20.

Allan Sloan, Forbes Magazine

What he said:
"Lehman won't fail." -- July 7, Fortune
What happened next:
The investment bank filed for bankruptcy Sept. 15.
What he's saying now: "I got it wrong."

Bill Kristol, "Fox News Sunday" -- Dec. 17, 2006

"If [Hillary Clinton] gets a race against John Edwards and Barack Obama,

she's going to be the nominee. Gore is the only threat to her ... Barack Obama

is not going to beat Hillary Clinton in a single democratic primary. I'll predict

that right now."

Karl Rove, "Fox News Sunday" -- Aug. 19, 2007

On Hillary Clinton: "The Democrats are going to choose a nominee. I believe

it's going to be her. That's their business…But I think she's going to be the


p/s photos; Wang Xi Wei

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