This year's
prognostications come a bit later than usual - about two weeks - however, don't
think for a second that the delay was used to "game the system" by
allowing time to review what other seers think 2010 will bring.
After having read a few of
these, it quickly became more confusing than when the process first began a
couple weeks back and I now regret having opted to nurse a slight hangover and
watch football on January 1st rather than knocking this out as has been the
routine in recent years.
Even without a plethora of
other opinions, seeing into 2010 has proven to be much more difficult than
looking ahead into 2009 a year ago, simply because, after the events of
late-2008, conditions couldn't get much worse - they had to get better.
This is clear to see in the
Predictions for 2009 made 54 weeks ago and
then discussed in last week's follow-up A Review of 2009 Predictions where a rebound
from the dismal 2008 results occurred for the economy, financial markets, and
my own forecasting performance.
As for the new year, some
things seem certain, others not so much.
Off we go...
1. Maybe the Last
Really Bad Year for Housing
It's hard to understand how
anyone can really think that the nation's housing market managed to
"stabilize" in 2009 when prices continued to decline on a
year-over-year basis even after government support to this sector on a scale
never before seen by Mankind.
Homebuyer tax credits,
central bank purchases of mortgage-backed-securities, a sharp increase in FHA
lending, and a host of other factors have merely "kicked the can down the
road" and that road will be "uphill" in 2010. Mounting
foreclosures, loan resets, and an increasing number of homeowners who simply
"walk away" from underwater mortgages will cause a relapse in housing
this year and month-to-month gains will turn back to losses.
As measured by the 20-city
S&P Case-Shiller Home Price Index for October 2010 (to be released in
late-December), home values will decline by another 8 percent. The U.S.
government will extend the homebuyer tax credit again in the summer and
late-2010 will be a good time to start looking to buy property in most parts of
the country.
2. The Dollar Will
Continue its Descent
The dollar fell modestly
last year after a surprisingly strong 2008 and it will continue that slow,
steady decline in 2010 after a surge of safe-haven buying in the spring after
equity markets have another little hiccup, temporarily boosting the greenback's
appeal.
The trade weighted dollar
ended 2009 at about 78 but will end 2010 at 72 after briefly dipping into the
60s and scaring the bejeezus out of the entire world as the long-anticipated
"global currency crisis" once again looks like it is at the world's
doorstep.
The dollar weakness will be
driven primarily by concerns about funding the U.S. budget deficit as
traditional buyers become more scarce and the entire world begins to realize
that the economic recovery in the U.S. will be very long and very slow.
3. Stocks Will End the
Year Lower
Broad equity markets in the
U.S. will advance early in the year and then, peering into the future of the
domestic economy and not liking what they see, have a relapse right along with
the housing market.
Retail investors will
continue to pull money out of stocks, in the process muttering Will Rogers' famous
words about the relative concern for the words "of" and
"on" when they are placed between the words "return" and
"principle". Whatever or whoever drove stocks higher in 2009 will
have much less success doing so in 2010, however, it won't be a complete washout
as the Dow will lose 10% and the Nasdaq 15%.
Stocks in China will get
about half-way back to their 2007 highs before reversing and ending the year
only modestly higher. Gold and silver mining stocks will fall in sympathy with
other equity markets but will rebound faster and end higher than most other
sectors.
4. Short-Term Interest
Rates Will Stay at Zero ... Again
Like last year, short-term
interest rates in the U.S. will end where they began - at zero - but the
central bank will tack another $1 trillion onto its balance sheet.
Chairman Ben Bernanke will
be re-confirmed for another four-year term as Fed chief but will receive the
highest number of 'No' votes in history and many elected officials voting 'Yes'
will regret their decision by summer as the economy sours and the mid-term
election nears.
The Fed will stop buying
mortgage backed securities in March and the housing market swoon will
intensify. Bernanke and crew will then resume their purchases in May because no
one else was willing to buy at anywhere near what the central bank was paying.
5. Energy Prices Will
Go Up and Then Down
After rising to $95 a
barrel during the spring, the price of crude oil will dip to as low as $45 and
then end the year at $65 a barrel. Peak oil will have to wait until global
growth begins to post much bigger numbers and that won't happen this year.
The price at the pump will
rise from their current $2.70 a gallon to more than $3 a gallon early in the
year and then retreat back to the low $2 range. Gasoline was one of best
commodity investments last year, this year it will be one of the worst.
None of the green energy
job initiatives will amount to anything and that's just sad.
6. Gold and Silver
Will Soar ... Again
The end of 2010 will mark
ten straight years that gold bullion has ended higher than it began and most
Americans still won't own it, continuing to put their trust in the mainstream
financial media that, for the most part, still doesn't understand it or
recommend it.
The yellow metal will make
new all-time highs at just over $1,400 an ounce in March and then begin its
every-other-year 18 month consolidation, ending 2010 at $1,300 an ounce. Silver
will rise to $24 an ounce in the spring and end the year at $21 an ounce.
An increasing number of
retail investors will eschew the advice of Money Magazine and buy gold and
silver anyway, but a good number of them will sell it over the summer when
metal prices correct. They'll be back in 2011.
People will start talking
about junior mining stocks at cocktail parties - just like internet stocks in
1997. (As noted the last couple years, I'm going to keep saying this until
it's true).
7. The U.S. Economy
will Barely Avoid a Double-Dip (too optimistic)
Economic growth will stall
by the second quarter as Congress finds it politically difficult to make
additional stimulus funds available during an election year. Following an
impressive growth rate during the fourth quarter of 2009, the first two
quarters of the year will see rates of between zero and one percent with the
economy posting a small negative number in the third quarter.
The overriding theme in the
economy during 2010 will be the continuing revival of a more frugal lifestyle
following the credit and consumption binge of recent decades and the savings
rate will continue to rise, from about 4% in 2009 to 7% by year-end, still well
below the pre-Reagan administration average of about 10%.
8. Inflation will
Surprise to the Upside
Consumer prices will rise
much more than most economists expect early in the year driven higher by
continuing unfavorable year-over-year energy price comparisons and the
government's "official" annual inflation rate will reach a peak at
over three percent as the grass starts turning green.
Then commodity prices will
plunge and we'll start hearing about de-flation again.
9. Only a Few Jobs
will be Created
Next month's benchmark
revisions to the Labor Department nonfarm payrolls data will show an additional
loss of 1.2 million jobs during the early-2008 to early-2009 period (greater than
the currently estimated 840,000 loss) and there will be only modest net job
growth in 2010 of about 500,000 jobs, all of it in health care.
The unemployment rate will
reach a peak at 11% early in the year and remain above the 10% mark during all
of 2010, save for a two-month dip in late-summer as millions of jobless become
discouraged and stop looking for work.
10. The 2010 Elections
will Be Shocking
As the economy turns from
weak to bad again over the summer, there will be some surprising developments leading
up to the fall elections as young and old alike express their displeasure with
the status quo, namely, the cozy relationship between elected officials and the
leaders of the FIRE (Finance, Insurance, and Real Estate) economy.
A record number of
independents will run for and be elected to office and Washington will start to
get the message, but Wall Street won't.