2008 Predictions

*****Oil  

Two more days and we’ll put 2008 behind us. 2008 set a number of stock market records, none of them good. I came across a Business Week article highlighting some of the worst predictions for 2008. Among the gems: 

*****"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 

Helicopter Ben missed that one by a mile. But it may not be so simple. Wall Street’s investment banks depended on faith. Once investors and account holders started pulling their money out, they were doomed. Aside from the now-obvious problems at Lehman, it wasn’t until rumors of bad debt prompted investors to pull out of certain investments that the bank’s asset ratio forced it into bankruptcy. 

We can certainly excuse Ben’s optimism in that he didn’t want to start a bank run. And after-the-fact reporting has showed that the Fed was in constant contact with Wall Street’s investment banks as their leveraged businesses started unraveling. 

*****"I think you’ll see (oil prices at) $150 a barrel by the end of the year" — T. Boone Pickens, June 20, 2008 

By all accounts, Pickens’ whiff on his prediction of $150 a barrel oil prices cost him a billion dollars personally. Come to think of it, I haven’t heard much about the Pickens Plan for wind farms lately, either. 

*****AIG (NYSE:AIG – News) "could have huge gains in the second quarter." — Bijan Moazami, analyst, Friedman, Billings, Ramsey, May 9, 2008. 

The article goes on to note that AIG lost $5 billion in the 2nd quarter and another $25 billion in the 3rd quarter. 

This prediction makes the analyst seem pretty out of touch. But it should go to illustrate that many analysts were completely surprised by the depths of the problems Wall Street investment banks had created. It’s probably not fair to pick on the analysts who made the wrong call, but it sure feels kind of good. 

*****This one has to be my favorite, from TheStreet.com’s Jim Cramer: "No! No! No! Bear Stearns is not in trouble." — Jim Cramer, CNBC commentator, Mar. 11, 2008  

5 days after Cramer said this, JP Morgan (NYSE:JPM) acquired Bear Stearns with the help of the Fed. As an aside, the fact that the Fed was involved makes me think the earlier quote I provided really was an attempt by Bernanke to calm the financial markets. 

*****In the December 18th issue of Daily Profit, I advised adding stop losses for the remaining stock positions I’ve recommended here. You should have been stopped out of Questcor Pharmaceuticals (NASDAQ:QCOR) at $8.80 on December 12. The stock’s nearly back to that point, but I want to see what it does at $9. There should be a huge amount of resistance at that point. 

Emergent Biosciences (NYSE:EBS) was recommended in Daily Profit on October 28 ($15) and again on November 21st ($17.50). The stop loss for is at $22. The stock was pounded for $2 a share yesterday, and there seems to be stiff resistance at $26. The next time the stock gets that high, I’ll recommend taking profits. 

Graham Corp (AMEX:GHM) was officially recommended on November 21st ($7.50). The stop is currently at $10. But I think there’s a lot of upside for Graham so I’m not going to put a target on it like I did with Emergent. 

According to the entry prices I have, the Graham position is up 45% and Emergent’s up between 33% and 58%. If you’ve got gains on these stocks, I’d love to hear about it. 

*****Israeli Defense Minister Ehud Barak says it’s "all-out war" with Hamas militants in Palestine. Prime Minister Olmert says the Israeli offensive in Gaza in the "first stage of the operation…" Israel is calling up 2,000 military reserves to join the air raids against Hamas that have already claimed 375 lives in Palestine. 

With accusations that Iran is supporting Hamas starting to fly, this situation has the potential to get ugly. It would seem reasonable for Hamas to back down. After all, Israel probably won’t, at least not without a lot of international pressure. 

The conflict has sent oil prices a bit higher, but few analysts think it will last. This is how bad it’s gotten for oil prices. Even the threat of war in the Middle East can’t get prices higher. As TradeMaster strategist Benson George pointed out to me, oil prices will move temporarily on supply issues, like this conflict between Israel and Hamas. But it will take a rise in demand, or at least an end to demand destruction, to get oil prices trending higher.