Finance blog


2021 Prediction Review

December 14, 2021

Well, you would think after telling people not to try to predict the future that I would have learned my lesson…but you would be wrong. I wrote a post at the beginning of 2021 trying to guess some of the big events of the coming year and all I can say is that this has been a humbling exercise. I thought I should at least review my guesses and give some context and explanations on what actually happened. Stay tuned for a post in January where I will be offering up my 2022 predictions…until then—let's review. Here are the predictions I made, and what really happened:

1. China will continue to increase its dominance of the South China Sea.

True. As I said at the beginning of the year, the U.S. and the European Union have neither the political will nor the real military ability to stop the Chinese from dominating the South China Sea. If anything, they have increased their pressure by developing new weapons, continuing island building, and ramping up diplomatic pressure on everybody with respect to Taiwan. As I mentioned last year, in the past decade or so, China has built roughly 250 standalone islands that can be used as military bases. They look like this.

No one lives there. This has caused incredible stress in the region and we (the United States) have been essentially unable to stop it. While you may think this was an easy one, at least it was correct.

2. There will be a major hack into a top five bank in the Unites States.

True. According to reporting on the latest hack at JPMorgan (11/29/21):

"Hackers have exposed the personal information of 110 million Americans -- roughly half of the nation's adults -- in the last 12 months alone, according to Ponemon Institute researchers. That translates to some 432 million hacked accounts. The exact number of exposed accounts is said to be elusive, because some companies -- such as AOL and eBay -- aren't fully transparent about the details of their cyber breaches. But that's the best estimate available with the data tracked by the Identity Theft Resource Center. The losses included personal information, such as your name, debit or credit card, email, phone number, birthday, password, security questions and physical address.

The rest of the article pointed out that this is almost a daily occurrence. It really makes you wonder what's really going on. It seems like the "really smart" hacker's goal is to stay under the radar and try to steal 1-2 cents off as many transactions as possible. This one was also probably an easy one to predict, but hey -I'll take it.

3. M x V = P x Q adjustments

True. Here is what I wrote a year ago:

"Those of you who follow my blog know that I obsess over this formula. It is often referred to as the Quantity Theory of Money, and most economists regard it as the baseline of economic theory: M = the money supply, V = the velocity of money, P = Prices/inflation, and Q = output (or GDP). This formula is in serious flux right now. The money supply (M) has absolutely ballooned.

And at the same time, the velocity of money (V) has absolutely cratered.

So, we know that the M x V portion of the equation is—at best—unsettled. The question is what will happen to the other side of the equation. Will both P and Q remain unchanged, or will they fluctuate wildly? I believe the most vulnerable part of the equation is the P. Never in modern history has a country borrowed such an incredible amount of money as the U.S. government has this year. Inflation must be a worry. My prediction: we will see an uptick in inflation in 2021."

I think I nailed this one. All the trends we discussed a year ago seem to be relentlessly continuing. The velocity of money is touching all-time lows. Money Supply is at its highs and GDP is faltering. Inflation is the only possible outcome—if the formula is correct—especially if you look at the last 2-3 months of data with the latest release last week putting an exclamation point on it. We are registering the highest inflation numbers since the early 80's. So far, so good (for my predictions, if not for the economy).

4. The return of slope.

False. Here is a synapsis what I wrote a year ago:

"As the market begins to anticipate some inflation, we will see some slope return to the yield curve. The 10-year U.S. Treasury closed out the year at roughly 0.91% and the 2-year was at around 0.12% which gives us a slope of 79 basis points… My prediction is a slope between 2s and 10s of at least 200 bps, which means the 10-year would have to go higher."

There was more to it than that, but all I can say is that I missed the mark on this one. Today we find the 2-year at 0.64% and the 10-year at 1.42, so the slope between 2s and 10s is 78 basis points, essentially where we ended last year. I'm kind of mad about this one, because given all the inflation noted above, I should have been right! However, the numbers don't lie. Given all that happened over the last year with governmental spending and the money supply I would have made a big bet that we would have more slope…but I would have lost that bet.

5. Brexit will be a minor bump in the road.

True. Unless you are a British fisherman, I think this one has largely played out. There has been so much focus on pandemic-related and related issues that I don't think much of the world has really noticed Brexit. Last year I compared the hype of Brexit to the Y2K phenomena some of you remember from the end of 1999. My memory isn't as sharp as it once was, but back then we were all on high alert for massive computer failures and incredible interruptions. The world yawned on the morning of January 1st, 2000, and today much of the world has yawned at Brexit. I'm sure if I were an Englishman working the Channel or involved in specific shipping issues and taxation I would have some headaches, but by-and-large…it's a yawn.

6. There will be a binary event in Bitcoin.

True. Bitcoin is a tricky one for me. I feel like I have missed the trade, but still follow it every day. Here is what I said about Bitcoin a year ago:

"If you hold my feet to the fire, I would say bitcoin will be much higher in five years…but next year? I just don't know. It will be very volatile, so I guess that's my prediction: extreme bitcoin volatility in 2021."

Bitcoin closed out 2020 at $12,888. It is now at $47,100 and has been as high as $69,950. The volatility is jaw dropping. One of the things that has always worried me about bitcoin is the lack of a two-sided market; in other words, there need to be both buyers and sellers to make a legitimate market. That was lacking prior to 2021 (in my opinion). The market has matured, and you can now trade both the long and short side of the market on many platforms (as well as options). There was, however, incredible volatility in it in 2021…so I think I got this one right.

7. One of the top five airlines will fail.

False. I missed this one, plain and simple. Government intervention, as well as the scope of vaccines and COVID-19 treatments have, for the time being, saved the airlines. I have travelled for business domestically and overseas, and the planes have been packed. The super cheap fares that existed early in the year have ceased. I based my prediction on this graphic from last year and the landscape briefly changed. We will see what happens over the next 12 months, but for the time being, I really missed this one.

For the record, many airlines did fail…just not one of the top five. Here is a list:

  • Air Namibia
  • Sky Regional Airlines (Canada)
  • Czech Airlines
  • Mango Airlines
  • Interjet
  • Ethiopian Airlines
  • Air Iceland
  • Air Antwerp
  • Fly My Sky
  • Orange2Fly
  • Great Dane Airlines
  • Alitalia

8. The vaccine will work.

True. I'm going to give myself the check mark on this. The numbers are clear that if you get vaccinated the chances are high that you will not get seriously ill. There are exceptions, of course, as there always will be with any medical treatment. This is not a commentary on the vaccine mandates or rules—I never even thought of those when I wrote my article a year ago. Those are real considerations which I did not and cannot comment on here. All I reiterate from my prediction is that it was—and is—an amazing feat of science to get out several effective vaccines so quickly. Once again, whether you like them or not, it's hard to argue with the numbers.

Source: CDC,

9. Numerous colleges will (start to) fail.

False. I have been generous to my guesses so far, but I think I must give myself a thumbs down on this one. I think I am right in the longer term, and colleges are/will be failing, but I used the term "numerous" and government largess kind of stopped that from happening. Here are the stats from Inside Higher Ed:

"The number of public four-year universities declined by 2.3 percent from 2019-20 to 2020-21, and the number of community colleges dropped by 2.7 percent in that year."

I can't quite call that numerous, but I still think it is a significant development that we need to be watching over the next several years. Some kids do not consider college as a learning experience as much as a social experience. Restrain the social aspect, and something will have to give.

10. The Cubs are going to be bad, but not terrible.

False. I was wrong. Plain and simple. They were terrible. They finished 20 games below .500 with a record of 71-91. Terrible, horrible, and not very good. I did correctly predict that their pitching would be bad…I just underestimated how bad. It was an emotional prediction…what can I say? Of course, I secretly hoped to get this one wrong, but in the opposite direction!

So, I guessed six out of ten correctly. It is humbling, but at the same time, instructional. I look at this stuff all day, every day, and I was still only 60% successful! We can't and don't know the future, which should remind us that we need to examine multiple potential outcomes. If you think about it, one of my misses was on interest rates! I literally teach people all year not to guess rates. My underlying driver assumptions were all correct: inflation, money supply, velocity, etc. I had that all right, and yet the yield curve slope did not steepen a bit year over year.

I will be coming out with my 2022 predictions in January. I won't blame you if you delete them unread! But hopefully, they will at least be interesting…and I will not be predicting the Cubs outcome again.

Final, final thought: I think beef tenderloin is the best bet/prediction for Christmas, but I would love some new suggestions! I'm only a 60% forecaster, after all!

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The information, analysis, guidance and opinions expressed herein are for general and educational purposes only and are not intended to constitute legal, tax, securities or investment advice or a recommended course of action in any given situation. Information obtained from third party resources are believed to be reliable but not guaranteed. All opinions and views constitute our judgments as of the date of writing and are subject to change at any time without notice.