Credible? Kip Herriage’s 2008 predictions analysed

Wealth Masters International, who credit themselves as being ‘the world’s premiere wealth creation community’, take pride in helping ‘others create maximum wealth, health and wisdom, as well as experience success as they choose to define it‘.

To do this, the company hedge their wealth education primarily on the predictions of ‘the Nostradamus of investing‘, Kip Herriage. Herriage, who is the CEO and co-founder of Wealth Masters steers the company through the murky financial waters of todays economic environment and at a grass-roots level fundamentally dictates what Wealth Masters preaches to its members.

Even someone as famous as Nostradamus still had his shortfalls though,  so just how accurate is Herriage with his financial predictions?

Today, I attempt to answer that very question.

Back in 2008, Kip Herriage (photo right) wrote a blog post titled ”What the next 3 years will look like for you and everyone you know…

In his article, Herriage wrote

I’m writing this because I want you to be as prepared as possible for what is coming. The following views are my personal opinions on what I see happening.

Most people have no clue about what’s really going on, and since Karl and I started WMI in January of 2005, we have done our absolute best to make sure that our Members are educated and ready for this possibility. Unfortunately for all of us, it’s become a reality.

Here’s What The Next 3 Years Will Likely Look Like:

This was followed by a series of six financial predictions that Herriage claimed would eventuate by October 9th, 2011 (exactly three years from the date of his original post).

Well, it’s October 12th now – just over three years since Herriage made these predictions, so let’s see how they’ve stacked up.

Prediction #1 – ‘Unemployment will rise from 6% to over 15-20%. You or people you know and care about will lose their job.’

You yourself or people you know and care about might very well have lost their job, but unemployment in the US peaked at just 10.1% back in October 2009 (up from 6.6% in October 2008).

Currently unemployment in the US is sitting at 9.1%, a far cry from the ‘over 15-20% Herriage predicted.

Conclusion: Herriage’s prediction did not eventuate.

Prediction #2 – ‘Home prices will go down for the next 3-5 years, and in some areas will drop 30-50% from current prices.’

Here’s a chart from Zillow showing the home value index over 2007-2011. I’ve checked it with some other sources and they’re all pretty similar data wise.

As you can see, housing prices in the US started to dramatically drop around mid 2007. By October 2008, when Herriage made his prediction the average house price was $201,000.

Continuing to drop, in August of this year the average price was $172,600, or a drop of 15%.

No doubt some areas in the US did experience drops well above this figure, but it’s still a far cry from the widespread housing price carnage of 25-50% drops Herriage predicted.

And given that housing prices had been tumbling for over a year when he made the prediction, claiming they’d continue to drop (although at a much slower rate) wasn’t exactly a Nostradamus’esque prediction either.

Conclusion: Mildly accurate in that housing prices did fall and some areas no doubt experienced greater than average drops, but as a whole, Herriage predictions for the US housing market fell well short of his projected targets.

Prediction #3: ‘Large and small banks will fail all over the world, and “bank runs” will be a common occurrence.’

Over the past three years banks certainly have run into troubles around the world, but fail? A few… sure, but nothing like the apocalyptic devastation Herriage was gunning on.

And as for bank runs,

A bank run (also known as a run on the bank) occurs when a large number of bank customers withdraw their deposits because they believe the bank is, or might become, insolvent.

As a bank run progresses, it generates its own momentum, in a kind of self-fulfilling prophecy (or positive feedback): as more people withdraw their deposits, the likelihood of default increases, and this encourages further withdrawals.

This can destabilize the bank to the point where it faces bankruptcy.

I don’t follow financial markets all that closely but I do take a keen interest in general news, and I certainly can’t recall hearing about ‘bank runs’ occurring all over the world closing banks left, right and centre.

Hell, I can’t even recall ever reading about even one bank run over the past three years of any significance.

Can you?

Conclusion: Prediction fail. The banks are still alive and kicking and Herriage’s ‘bank run’ predictions never eventuated.

Prediction #4: ‘The US Dollar will fall 30-50% from current levels, causing massive inflation’

An analysis of the relative worth of the US dollar spanning 2008-2010 reveals a drop in value of just 1-2% (depending on your source).

Over at MyKindred.com, if you set the ‘reference year’ to 2008 (the $1 year) and click submit, 2010 shows the dollar value dropped to .99c, or by 1%.

MeasuringWorth (set the ‘initial year’ to 2008, ‘initial amount’ to 1 and ‘desired year’ to 2011) on the other hand actually shows a 1-2% overall growth in all areas except ‘unskilled wage’, in which the value of the dollar dropped 2%.

Conclusion: Utter fail. With the US dollar dropping just 2% at best, Herriage was miles off with this prediction of 30-50%.

Prediction #5 – ‘We will experience a “near Depression” that will feel like a serious Depression for millions.’

To date, depending on who you ask the US is either on the verge of a depression, at the start of one or never went into one.

One thing is for certain though, and it’s that the US never actually went into a serious depression. Even as of just one week ago, the question ‘is the US actually in a depression or not?’ is still being asked.

Again, given the economic climate in which Herriage made this prediction, guessing things were only going to get worse wasn’t all that hard.

Still, I guess you could call wha the US went through/is going through a ‘near depression’.

Conclusion: Reasonably accurate in that the US didn’t go into a depression but has courted one for a long time now (a ‘near depression’ as Herriage puts it).

Prediction #6: ‘If you’re in the Middle Class, you will likely slide into poverty unless you take action.’

On the American middle class, Wikipedia states that

Depending on class model used, the middle class (of America) may constitute anywhere from 25% to 66% of households.

And on poverty, they claim

According to the U.S. Census Bureau data released Tuesday September 13th, 2011, the nation’s poverty rate rose to 15.1% in 2010, up from 14.3% (approximately 43.6 million) in 2009.

In 2008, 13.2% (39.8 million) Americans lived in absolute poverty.

Whilst poverty levels have indeed risen 1.9% since 2008, the middle class of America makes up 25-66% of households in the US.

Bearing in mind that this 1.9% rise in poverty is nation wide and not just restricted to the middle class, statistically, if you belong to the middle class you’re far from likely to slip into poverty.

Conclusion: False. Herriage implies that unless you follow Wealth Masters advice, you’re likely to slip into the US poverty bracket, however statistics paint a totally different picture.

So… is Kip Herriage really ‘the Nostradamus of finance’?

I think the results speak for themselves.

Out of Herriage’s six 2008 predictions none of them eventuated with clear certainty.

Out of the six, two did eventuate somewhat, but only with differing and questionable levels of accuracy, or ‘reasonably’ and ‘mildly‘ accurate as I put it.

As for the other four predictions Herriage was miles off.

Looking at his blog post, it’s obvious Herriage’s intention was to market the at the time upcoming m2 Wealth Masters conference. By implying that unless you attended the event, all this bad stuff was going to happen and the world would collapse, Herriage obviously hoped that more tickets would be sold.

Whether that worked or not is irrelevant in retrospect, as we’re here to analyse Herriage’s actual predictions themselves. But it does give us some insight onto the motives and fallacies of having to base your predictions on gloom and doom, in order to push a business that fundamentally relies on the perpetual notion of ‘the financial sky is falling!‘

I mean, if the economy was roses and everyone was doing great, all of a sudden wealth education seems kind of irrelevant does it not? I’m not saying you don’t need to still educate yourself, but this style of doom and gloom marketing (along with the woefully inaccurate financial predictions) don’t make a whole lot of sense.

At the time things were looking bleak and from what I can see, Herriage has simply looked at past trends, magnified where they’re going (discarding any possibility of trend reversal) and told people if they don’t pay thousands of dollars to join his company, they’re pretty much going bankrupt.

Smart marketing, or ultimately misleading?

You decide.

Meanwhile, as far as I can tell Nostradamus’ predictions were never intrinsically tied into the financial success of a company he ran. And who started calling Herriage ‘the Nostradamus of finance’ anyway?

Seriously, if you’re going to start calling yourself that then at least be remotely accurate in your predictions first.

Two kind of accurate outcomes out of six predictions does not a Nostradamus make.