Twenty years of unrivalled forecasting accuracy in UK and international economic trends.

2009

We called in August (against consensus) that the BoE would expand its quantitative easing programme

Consensus said: Quantitative easing to be put 'on hold'

We said: Bank of England to expand gilt purchases (UK Bulletin 4th August 2009)

Outcome: The following day BoE announced £50bn of further asset purchases

We predicted the equity rally that has dominated markets during 2009

Consensus said: Merrill Lynch survey of portfolio managers revealed pessimism at 'near record highs'

We said: Markets unlikely to get much cheaper, upside huge...With short-run interest rates at negligible levels, monetary reflation should drive investors into the stock market quite soon (Daily Note 3rd March 2009)

Outcome: S&P rallies 58% from March to December, developed stock markets all grow strongly

We predicted that the UK commercial property market would bottom out in mid 2009

Consensus said: IPF consensus predicted -5.3% returns in 2009

We said: The second half of this year could already be a good time to look for bargains...by mid 2009 it [commercial property] should be out of the doldrums (Property Economics, 18th January 2008)

Outcome: IPD Total Return Index bottomed out in June 2009

2007

The sub-prime crisis

Consensus said: The fallout from the US sub-prime problems to be contained

We said: The US sub-prime debacle to cause global liquidity to drain and asset prices to correct (Monthly Review 213 March 2007)

Outcome: Global liquidity was squeezed and equity prices fell sharply

UK economy

Consensus said: UK growth at trend (2.5%) in 2007; Bank Rate up to 5% by year-end

We said: UK growth to be above trend (2.8%) in 2007. Bank Rate up to 5.5% by year-end (UK Quarterly Forecast, January 2007)

Outcome: UK growth was above-trend (3.1%) in 2007 and Bank Rate was 5.5% at year-end

US banks

Consensus said: In April investors still valued US banks close to the peak reached in February 2007

We said: US banks in trouble as credit crunch ensues (Daily Note April 17th 2007)

Outcome: Between April 2007 and January 2008 US banks were down by 25%

2006

UK house prices

Consensus said: UK house prices overvalued and liable to fall

We said: House price inflation could reach 10% by the year-end (Monthly Economic Review 200 February 2006)

Outcome: House price inflation ended the year just short of 10%

UK interest rates

Consensus said: The rate cut in August 2005 was the beginning of the easing cycle

We said: A return to trend rates of growth - or higher - and the impact on inflation may be worse that the MPC expects. The next move will be up (UK Bulletin 4th August 2005)

Outcome: The next move in rates was up in August 2006

US economy

Consensus said: Housing slump to deal economy a knock-out blow

We said: Strong income growth and weak gasoline prices to restore trend growth temporarily

Outcome: US growth returns to trend in Q4

US rates

Consensus said: Fed funds to peak at 4% in 2006

We said: Rates to rise to at least 5% (Monthly International Review 152)

Outcome: Rates continue upward to 5 1/4 %

Indian stocks

Consensus said: May's bloodbath in the stock market was the start of a big correction

We said: India's Sensex would bounce back post May-June as the economy's fundamentals are strong

Outcome: Sensex gained 56% and reached an all-time high by early December

2005

UK inflation

Consensus said: (including the Bank of England Monetary Policy Committee) : "Risks to the CPI inflation target are on the downside."

We said: "Goods price deflation to stop mid-2005. Do not be surprised if the inflation target is reached much earlier". Daily Note 16th November 2004

Outcome: CPI inflation now at 2.3% (July), a rate not anticipated by the MPC until late 2007.

US Bond Market - long term market call

Consensus said: Sell US bonds

We said: Buy US bonds - "The long bond yield could easily be below 4% in 12-18 months." Monthly International Review Nov 2004

Outcome: The 30-year Treasury yield has been on a clear downward trend since November last year, coming down by 70bps to 4.3% year to date (September).

US Bond Market - short term market call

Consensus said: Buy bonds, as shorts rushed to cover in a crescendo of pain

We said: Market overbought - "Bull phase temporarily over" May 6, Daily Note

Outcome: The 10-year Treasury yield backed up over 40bps.

China

Consensus said: China's economy will continue to power ahead

We said: "China seems set up for a hard landing in 2005/06." Monthly International Review October 2004

Outcome: Chinese domestic demand slowed sharply due to overheating and policy tightening. However, experts continued to power ahead, keeping overall growth at trend. This caused the Chinese current account surplus to explode.

Asian Tigers

Consensus said: strong growth for Asian tigers in 2004 and 2005

We said: Once export growth cools in H2 2004 and following quarters, output growth will slow down abruptly. Indonesiaâ??s performance will remain countercyclical to the rest of Asia

Outcome: Q1 GDP growth yoy halved in Singapore, Taiwan and Korea and slowed in Thailand. Indonesian growth accelerated from late 2004.

Korea

Consensus said: Korean household spending to recover strongly in 2004.

We said: Korean growth remains dependent on exports performance. Domestic demand, in particular household spending growth will not recover until 2005 and is unlikely to drive growth before 2006.

Outcome: Household spending average quarterly growth in 2004: 0.1% vs 2.3% for exports.

Euroland

Consensus said: Euroland growth remains weak, the ECB should cut interest rates

We said: Euroland growth will be above-trend in 2004, slowing to trend in 2005. There will be no interest rate cuts.

Outcome: Euroland growth was 1.7% in 2004 (trend = 1.5%), but slowed in Q2 2005. Interest rates remain unchanged in the year to date.

UK house prices

Consensus said: house prices overvalued by up to 30%-40%.

We said: Interest rates of 4¾% will not lead to a house price crash: expect a stable market. "A crash in the housing market remains a distant prospect, with conditions simply not in place for a drastic fall in house prices" Quarterly Economic Forecast February 2005 .

Outcome: House price inflation slowed to 3% and started to accelerate.

2004

US debt markets

Consensus said: US long rates moving higher

We said: US bonds set to rally

Outcome: The ten year US treasury rallied over 75 basis points

UK housing market

Consensus said: A slowdown from the current inflation rate of 15%.

We said: Current reading suggests that house price inflation could rise back up towards 20% again by the summer.

Outcome: House price inflation rose to 19% in May.The momentum in the housing market has taken many, including the Bank of England, by surprise.

2003

Japan turnaround

Consensus said: Japan will continue to be crippled by deflation.The bad bank loan situation means Japanese stocks are not worth touching.

We said: Japan is turning. Buy Japanese equities.

Outcome: Nikkei has increased 50% since the lows of 2003.

UK shares recovery

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Consensus said: Markets extremely nervous and pessimistic.

We said: Valuations are now fair, even cheap - expect a bounce-back.

Outcome: FTAS rose 33% in 12 months.

2002

US market bounce

Consensus said: US stock market to rebound after two years of falls.

We said: Stocks to perform badly again. There is a powerful case for US treasuries. US corporate bonds are better value than stocks.

Outcome: Once again, stocks performed badly but US treasuries and corporate bonds did well.

China's prospects

Consensus said: Unlikely to take the world economy forward.

We said: Medium term growth prospects for China are very good.

Outcome: China has surprised some of the fiercest critics. GDP 9.1% for 2003.

Commodity Prices

Consensus said: Rising commodity prices unlikely to continue

We said: At least in the medium term China will fuel domestic demand growth, attempting to counter the global economic cycle. This will invariably have an upward effect on commodity prices (Daily Note 19th September 2002)

Outcome: Commodity prices continued their ascent

2001

US bonds preferred

Consensus said: Stocks to do well after a fall this year.

We said: Falling prices and a feeble US recovery means bonds will outperform stocks in 2002.

Outcome: Bonds outperformed stocks in 2002.

UK equities

Consensus said: UK stock market would rebound after the disastrous falls in 2000..

We said: Equities would perform poorly for the second year in a row.Commercial property and cash represented the safest investment vehicles.

Outcome: Another dire year for stock markets. FTSE-100 fell a further 16%. Commercial property was the best-performing asset class with cash a second.

2000

US economy

Consensus said: US to have a 'soft landing'. Corporate profits to rise gently.

We said: Hard landing for US economy, sharp fall in corporate profits 2001-2002, shares to plummet.

Outcome: US in recession from March 22% in year to Q3 2001.

Telco 3G licences

Consensus said: Telecommunications companies were right to pay enormous fees for 3G licences.

We said: The Telcos were overvalued, crazy to pay such fees, and that they would run into financing difficulties in the future.

Outcome: Continued decline in telecoms share prices in wake of bursting of high-tech bubble; significant problems at the major companies, including placing their enormous bond issues in the market.

1990s

US inflation 1999

Consensus said: 2.2% US inflation in one year's time.

We said: 3% and rising.

Outcome: 3% and rising.

UK economy 1999

Consensus said: UK recession in 1999.

We said: 1.5% GDP growth in 1999 (the highest forecast out of 43).

Outcome: 2.1% GDP growth.

Japan 1997

Consensus said: Fiscal policy can save Japan from recession.

We said: Japanese fiscal policy has run its course.

Outcome: Deepening recession.

Asian markets 1996

Consensus said: Emerging Asia will give good returns.

We said: Asia will have a crisis.

Outcome: The Asian crisis.

US economy 1995

Consensus said: US economy will slow.

We said: The strong economy and bull market will continue.

Outcome: Strong US growth.

UK base rates 1994

Consensus said: UK base rates will rise from 6% to 8%.

We said: Base rates will rise only slightly, to 6.5%.

Outcome: Base rates rose to 6.5% in 1995, then fell in 1996. Many Lombard Street Research clients made 250 ticks on short sterling.

German economy 1993

Consensus said: Germany will be the European locomotive.

We said: German GDP will contract.

Outcome: German GDP contracted.

UK inflation 1992

Consensus said: Rising inflation (to 4.2%).

We said: Falling inflation (3.5%) and strong growth.

Outcome:The five years from Q2 1992 saw above-trend growth, and inflation was lower in1997 than in late 1992.

Japan 1991

Consensus said: A model economy.

We said: A decade of economic collapse.

Outcome: Japan experienced a decade of economic collapse.

UK economy 1990

Consensus said: UK economy would experience growth.

We said: Recession.

Outcome: GDP was 1.7% lower in Q4 1990.

© Lombard Street Research 2008