Think outside the box: ten outrageous predictions for 2010

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Just like last year, I am going to present the list of ten outrageous predictions from Denmark’s Saxo Bank.  When I presented the list in 2008, I gave the following disclaimer:

Their list is outlandish — and I’ll get to it in a moment. But, first, I want to say these predictions serve a very useful purpose.

It’s called thinking outside the box. All of us have a bias that reinforces a false belief in the certainty of what we believe to be true. It’s called the overconfidence effect. Basically, we construct a mental map in our minds of what is probable and what is improbable. Over time, these beliefs harden and become what is certain and what is certainly not. I got a true test of this in business school.

My professor asked us some off the wall question like how much does the earth weigh. After we wrestled with the question and wrote down our answers, he then asked us to put a 95% confidence interval around the answer. He said give me a range of numbers that you believe the earth’s weight is 95% certain to be in. We mulled this over and answered. Result? Our 95% confidence interval was wrong something like 40% of the time within the class. Why?

Basically, by asking us the first question: how much does the earth weigh and giving us a chance to think about it, our professor was secretly giving our little pea brains a chance to become overconfident. By the time he asked us the second question, we had become anchored to the first answer. Essentially, he asked us to think outside the box and the mix of our overconfidence and anchoring caused us to make catastrophically wrong answers.

That’s how humans work. And this was a 10-minute exercise. Just think if you spend your life looking at economic events and making predictions. The likelihood of your being anchored to a specific prediction is that much greater. Eventually, you become so overconfident about this prediction that you are willing to bet the farm on the outcome.

With this in your mind as pre-amble yet again, here is the list:

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  1. Bunds yields will fall to 2.25%
  2. VIX will fall to 14
  3. CNY (China Yuan Renminbi) will be devalued by 5% vs. USD
  4. Gold will fall to $870 in 2010 but will rise to $1500 in 2014
  5. USDJPY to reach 110
  6. Angry American public to form third party in the US
  7. The US Social Security Trust Fund will go bust
  8. The price of sugar will drop one third
  9. TSE Small Index will rise by 50%
  10. US trade balance will turn positive for first time in 34 years
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Remember, these are not really predictions as much as they are extreme events to help one develop a broader sense of what is within the range of possibility.

The full color behind the rationale for each item’s inclusion on the list is available at FT Alphaville at the link below:

Source

Saxo’s outrageous predictions for 2010 – FT Alphaville

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