A year ago, we made ten key predictions for 2001. It's time to revisit them, test them, and to cast our gaze onto the year to come.
1. American stocks:
For 2001 we wrote: "Watch out for bargains and horse-traders urging you to come back to the markets. When storms are raging outside, it's better to stay out of stocks. Stocks in a lot of sectors have taken a terrible beating in the last few months, but the worst is yet to come."
In practice: The storm continued to rage. The Nasdaq lost another 20% and the S&P 500 shrank by 12%.
Our prediction for 2002: Nasdaq is still expensive. The Federal Reserve's sharp rate cuts could sustain stock prices for a few months. But eventually the discrepancy between the companies' financials and their share prices will come into play.
For 2001 we wrote: "Things may get much worse. Over 2001 most Internet companies will be sold, at best, or more probably ¿ collapse outright."
In practice: The year 2001 surprised for the better, slightly. Many Internet companies really did go broke, but some of the giants such as Amazon and Yahoo continue to trade at handsome prices. The market has not lost its optimism regarding Internet.
Our prediction for 2002: Which doesn't mean 2002 will bring a turnaround. What hot air is left in that bubble will escape. Once it's all gone, we may see Internet rally and become a real economic sector.
For 2001 we wrote: "The managers of most of the world's telecommunications companies will come to their senses, and slash back their aggrandized investment plans. The process will be very painful for equipment and infrastructure suppliers."
In practice: Hit the bulls'-eye with that prediction. The demolition of the dot.coms was merely an appetizer for the terrific collapse of the telecoms industry. Hundreds of billions in investment spiraled down the drain. Maybe the figure is really trillions, when factoring in all the lost ventures of everyone from giants like AT&T to the smallest Israeli optical-communications startup.
Our prediction for 2002: The telecommunications industry is still plagued by overcapacity. Demand hasn't reached supply yet. Most of the startups in this area will finally founder in 2002. Israel's biggest telecommunications companies will continue to bleed money or see their profits shrink. Telcos are colossi for whom a change of direction takes time. The upswing won't come for another year.
For 2001 we wrote: "As is true for all new technologies, here too market penetration will be slower than expected. At best 5% of Israel's households will hook up to fast Internet, but a more realistic prediction is probably 2% to 3%."
In practice: We shot for pessimism and proved over-optimistic. Less than 80,000 Israeli households signed up for fast Internet.
Our prediction for 2002: The entrance of Israel's cable TV companies to fast Internet will spark a broadband revolution, but the real jump will only be made in 2003.
5. The Tel Aviv Stock Exchange:
For 2001 we wrote: "After two years of Wall Street setting the trend, our domestic stock exchange may show some independence this year. Wall Street investors will be busy licking their wounds, but there is more room for optimism in Tel Aviv. During 2001, Israeli interest will drop to American levels."
In practice: The TASE really did behave more like it had a mind of its own. It did not faithfully dog Wall Street's every move. The Maof-25 index lost only 10% compared with Nasdaq's 20%. Interest really did drop drastically, but American rates fell even faster.
Our prediction for 2002: Our economy won't escape the mire of recession in 2002, but the TASE may generate positive returns, mainly thanks to the low interest rates.
6. Real estate:
For 2001 we wrote: "Don't expect real estate prices to pick up. Returns on property will continue to rise in 2001, as rental prices increase while asset prices hover or erode."
In practice: Right. According to the Association of Contractors and Builders, rental returns rose 12% from the beginning of 2000.
Our prediction for 2002: Asset prices will stop dropping, but so will the climb in rent. The lower interest rates increase the allure of real estate, but much investment money will continue to leave Israel.
7. The deficit:
For 2001 we wrote: "The treasury forecasts tend to miss every time the economy takes a turn. If it has failed to factor in the dramatic changes of the last couple of months, the 2001 deficit will exceed its target."
In practice: Sadly, all too true. The treasury failed to grasp the extent of the downturn. We are ending 2001 with a deficit of 4% of GDP, compared with the target of 1.75%.
Our prediction for 2002: The treasury raised the deficit target from 1.5% of GDP to 2.4%, and then to 3%. But unless it cuts the budget even more, we'll probably miss that target too.
For 2001 we wrote: "2001 won't be the year of The Startup."
In practice: It wasn't.
Our prediction for 2002: It will be even worse.
For 2001 we wrote: "It's time to get it: Hyperinflation in Israel is dead. Gone. At worst inflation in 2002 may hit 4%, at best 1% or 2%."
In practice: The year 2001 is ending with average inflation of 1.5%.
Our prediction for 2002: The Bank of Israel decided to loose the reins. Inflation will rise to 2% or 3%.
10. As we said last year, we reserve the right to change our forecasts as the year 2002 unfolds. In practice, we didn't have to last year.