About RFC

Meet Max

Follow Max on Twitter

Articles and Presentations






Financial Predictions for 2008

Please remember that these predictions are for fun. If I knew what was going to happen, I certainly would not share that information with others! You must make your own decisions regarding your financial future and not hold others, including me, responsible for your own results. Enjoy!

 Most of these predictions were made in late December 2007, although final editing did not occur until late January 2008. 

  • Economy: there is not much positive to look forward to in the United States. The consumer has kept the economy afloat longer than I thought possible. The tide is likely to go out in 2008. How many consecutive years can the stock market show positive results? The economy might not formally hit a recession, but growth will continue below long-term averages. There are many issues to worry about: budget shortfalls, currency imbalances, credit issues, uncertain political situation, etc. A physical disaster could put the economy over the edge. I don’t expect a depression, but every time the Federal government bails out a bubble “victim”, the inevitable correction comes closer and will be deeper. The shots to the economy administered by the Fed late in 2007 should start to take effect in 3rd/4th quarter 2008, just prior to the election. A new President will likely reduce military spending and work toward a balanced budget for the first two years of their administration.
  • Volatility will stay above long-term averages, although I don’t expect it to surge above 30 unless there is an international crisis. VIX is currently at 22.50.
  • Oil will stay in the $80-120 range (initial cost is about $95/barrel)
  • Credit risk will increase with unintended consequences as the sub-prime crisis plays itself out – watch for commercial mortgages and junk bonds, along with CDOs and credit default swaps, to struggle in 2008. My worry is what unintended  consequences remain from this bubble. I did not anticipate the impact on liquidity that required the Fed to bail out the economy with lower rates, increasing the risk of inflation and lowering the dollar’s value. I am hopeful that the investment bankers learned more this time than they did from the manufactured housing debacle that preceded it.
  • Home building sector will finish bottoming and level or slightly improve depending on interest rates (up would be worse) – we’ll try this one again this year. I think I was just a little early in 2007.
  • The dollar will bottom out as oil prices stabilize. Other scenarios focus on countries who are heavily invested in dollars, such as China, Japan, and the oil exporters, choosing to dump dollars. US Treasuries would then spike and the US economy could find itself in a vicious cycle. This may take several years to play out and will impact the stock market heavily. The wild card here is the subsidization of ethanol in the United States. If these subsidies are reduced, the price of oil will temporarily increase, although that would open a financially feasible market to the oil held in the Rockies of North America and ultimately create a cap to the price.
  • I have a fear that the Benazir Bhutto assassination was only the first of numerous events over the next couple of years. Whether this is a repeat of 1968 remains to be seen. I worry for the Presidential candidates in the US in 2008. We should pick our Vice-Presidential candidates carefully.

Emerging Risks - Concerns 

  • Pandemic influenza – business continuity, impact on small businesses, combination with malaria/AIDS in Africa
  • Infectious disease - increased resistance to drugs like antibiotics (e.g., tuberculosis, staff infections or pneumonia)
  • Global warming – unexpected side effects like new viral/bacterial attacks, along with coastal flooding and increased hurricane activity
  • Terrorism
  • Principles-based capital in the financial services industry will be abused by some and will not be caught initially by peer review
  • Can an internal CRO be strong enough to stand up and be counted, or will fears for their job keep them “in line”
  • Tort reform needed
  • US gridlock/ presidential campaign
  • Malthus – too many people, not enough food – will ethanol subsidies result in starvation for the poor?
  • Economy – risk of stagflation and the lack of internal hedge for investors holding both equities and bonds
  • Counterparty risk – it is currently so concentrated that one misstep could have major repercussions. Watch the credit default swap market. Much of the economy is now concentrated in a few parties. This leads to more contagion in the system and more correlation in the tails. Financial experts seem to either rely on models that aren’t accurate in the tail or focus on top line rather than bottom line growth.

Top Actuarial Issues 

  • Defined benefit plan valuation – needs to reflect marketplace economics. Actuaries from other disciplines should be welcomed, along with those from outside the profession. Focus should be on cash flows rather than regulatory issues.
  • Demographics – designing a retirement insurance product that is economically sound
  • Obesity – how will the various drivers of mortality and morbidity interact (some good, some bad)
  • Lack of rudimentary knowledge of assets and how to value them – need teaching sessions that are short of stochastically based financial economics
  • Peer review – how to make it extend beyond a regulatory requirement to help manage the business by identifying and exploiting advantages
National health care – need actuarial solutions


© 2015 Rudolph Financial Consulting, LLC   max.rudolph@rudolph-financial.com
Omaha, Nebraska, USA
(402) 895-0829