It is appropriate at this time of the year to recall one of Sir Winston Churchill's remarks: "I alwa...
It is appropriate at this time of the year to recall one of Sir Winston Churchill's remarks: "I always avoid prophesying beforehand, because it is much better to prophesy after the event has already taken place.''
That should be nailed to the desk of every economist, broker or journalist tempted by the turning of the year to offer some predictions for the next 12 months. It is risky territory. That said, this column can claim modest success in 2004: five hits and three misses.
Here are the ones that were on target: Lazard LLC went for an initial public offering; hedge funds started listing/selling themselves; commodity prices boomed; the Greek economy, helped by the Olympics, was one of the fastest growing in Europe; and plasma screen TV's moved into the mass market.
Still, I would rather forget saying: Volkswagen might merge with France's PSA Peugeot Citroen; new media would make a comeback; and Spain would join the G-8, making it the G-9.
Nevertheless, here are some predictions for Europe in 2005. The first is that BNP Paribas bids for Lloyds TSB Group. Spain's Santander Central Hispano has kick-started the process of European banking consolidation by taking over Abbey National. The juiciest plum in Europe? Lloyds TSB. It may not be growing fast, but the shares yield more than 7%. For any European bank, buying Lloyds will be self-financing, even before it strips out any costs.
Next is that the Russian bear returns. Moscow's stock market is living on borrowed time. The Russian Trading System Index managed an increase of almost 7% this year in the face of President Vladimir Putin's attack on OAO Yukos Oil. Yukos no longer looks like an isolated incident. Political control of the economy is re-emerging. Throw in a weakening oil price, and the Russian market looks ready for a sharp correction, or even a full-scale crash.
As for Philip Green, the retail billionaire tried to grab control of Marks & Spencer last year and was fended off by Stuart Rose, the new chief executive. There is little sign that Rose can turn the company around. At the start of December, the chain had already started discounting. If sales do not pick up, expect Green to have another go.
Next is for Europe to discover hard work. In France, Prime Minister Jean-Pierre Raffarin has already taken steps to end that country's 35-hour week by allowing workers to put in more overtime. In Germany, a recent poll of 1,000 people found 63% of the respondents felt extending weekly working hours to 40 from as few as 35 was a good way of helping the economy. Years of steadily falling working hours are at an end. Beginning in 2005, Europe will work harder and start producing more.
Next is that lifestyle drugs will rescue the pharmaceuticals industry. Many of the world's biggest drug companies are being squeezed by expiring patents and falling productivity in their research departments. What will come to the rescue? New classes of medicines for conditions that, until now, weren't classified as medical. One example. Biotie Therapies, a Finnish drugs company, said it has developed a pill to help gambling addicts, and sold the US license for more than $13m.
The next prediction for this year is for the shakeout of hedge funds to begin. Dire predictions of the demise of the hedge funds are wide of the mark. They are a long-term growth story. Yet, like the internet, that does not mean people have not climbed on board the bandwagon. Hedge Fund Research reports that more than 1,000 funds opened this year, and more than 900 in each of the last two years. That is too many. Expect some people to jump off the bus and some to get thrown off.
Matthew Lynn is a Bloomberg columnist