Friday, January 04, 2008
The FT’s crack corps of pundits had great success in predicting the events of 2007. Once again, therefore, we have urged them to throw caution to the wind and risk humiliation in the pursuit of glory.
Last time, Edward Luce foresaw Barack Obama’s political trajectory with near-clairvoyant accuracy, beaten only by Christopher Brown-Humes, who called the turn in the credit cycle. Give that man a $1m bonus. John Thornhill predicted Nicolas Sarkozy’s victory in France’s presidential race and David Gardner said there would be no US attack on Iran.
Less successful was a prediction that the dollar would remain strong, but the worst prediction of 2007 was fortun-ately cut at the last minute. I had confidently forecast a New Zealand victory over France in last October’s Rugby World Cup. Robin Harding
Will China revalue the renminbi? No. The Chinese authorities will continue to permit measured appreciation of their currency against the US dollar, but will not allow the big one-off upward adjustment that the country’s trade partners call for.
Faster appreciation against the dollar is unlikely in 2008, despite growing pressure from abroad and another jump in China’s foreign currency reserves, perhaps to about $2,000bn. The government treasures the fast growth a cheap currency brings and believes it is able to manage the inflationary consequences. Ultimately, China will have to allow faster appreciation. But only a big jump in the rate of inflation would force the government’s hand in 2008. Martin Wolf
The best Olympics ever in Beijing?
Given China’s vast investment of political and fiscal capital, they had better be. Much of Beijing has been rebuilt in the past decade. Venues such as the "Bird’s Nest" stadium and "Water Cube" pool are stunning architectural feats. Popular enthusiasm and 7m cheap tickets mean the Games will also be the best-attended. Even competitors in minority sports such as rowing will bask in the attention of large crowds.
But the worry for organisers is the sheer level of expectations for an event billed as a coming-out party for the world’s most populous nation. Being merely the "best yet" will not be enough: anything less than perfection will disappoint. Mure Dickie
Will the credit crunch continue?
Yes. The good news is that banks and policymakers are now taking the necessary action. But even if the problems remain limited to subprime mortgage debt – and that is a big "if" – it will take several more months for losses to work through the system. After all, these subprime losses are extremely large, running at $200bn or more. And as they hit the balance sheets of banks, financial institutions will face pressure to cut lending in 2008.
But the really big uncertainty is whether further contagion will occur. Defaults are now emerging on other classes of mortgage, as well as credit card and commercial property debt, and this could create another $200bn of losses. The nightmare scenario, however, is one in which risky companies start to default on their loans. Thankfully, there is no sign of this occurring yet. But if the US economy goes into recession, the chance of corporate defaults will rise – which could produce more losses for banks, and thus a second chapter in the credit crunch story. Gillian Tett
. . . causing a bear market in equities?
Stock markets may well fall in 2008 from their levels at the end of this year, but they would need to drop 20 per cent from their recent peaks for there to be a full-blown bear market. The first half of the year will be challenging, as equities continue to be hit by credit market ructions, fears of recession in the US and UK and downward revisions to earnings forecasts.
But there are positives, too: the prospect of lower interest rates in the US and UK, mergers and acquisitions act-ivity supported by strong corporate balance sheets, and further moves by sovereign wealth funds to bail out banks and companies in distress. Equity valuations, relative to bonds, should also be supportive. These factors should be enough to allow equities to weather the credit gloom – and they may even make modest gains over the year as a whole. Christopher Brown-Humes
Will Citigroup break itself up?
No. Vikram Pandit, Citigroup’s new chief executive, may be tempted to split up the bank assembled by Sandy Weill. Citigroup’s problems in 2007, which led to the departure of Chuck Prince, have raised questions as to whether it is simply too big to manage.
Mr Pandit is an investment banker by training, as is Sir Win Bischoff, Citi’s chairman. Both of them know they might be able to drive up Citi’s shares in the short term by spinning off its investment bank. But there are obstacles: it would have to raise more capital, and tax would be an issue. As important, Mr Pandit will realise that, if Citi did not exist, someone would be trying to invent it: financial companies are consolidating. Citi’s problem is not that it exists but that it does not work well enough. John Gapper
Will Hillary Clinton be the next US president?
Most likely, yes. Barring a remarkable upset, the Democratic nominee will win the election, so great is the unpopularity of this administration – and Mrs Clinton will be the nominee.
Barack Obama’s surge in Iowa and New Hampshire shows voters grow to like him more the better they know him. Americans want a change, and he is fresh. Also, there are signs of Clinton fatigue. For all her talents, the former First Lady is not new – and leaning on her husband’s popularity whenever her campaign misfires underlines the fact.
Even so, Mrs Clinton’s grip on the nom-ination is tighter than the Obama bounce suggests. If the nomination contest were fought primary by primary Mr Obama might be favourite to win – but it is not. In February the elections arrive in a rush, and the candidates are spread thin. Mrs Clinton will not give up if she loses the first two votes: her drive and ambition forbid it. Her lead among Democrats is big and wellentrenched. Overturning it is likely to be beyond even Mr Obama. Clive Crook
（To be continued）
Ling 
I\’m looking forward to your update >*&^_^&*<