My 2010 Forecast
Wed, Jan 27, 9:26 AM ET, by Kenneth C. Bateman, The Brookside Letter
The following appeared in The Brookside Letter on December 30, 2009:
Like most other newsletter writers, it falls upon me to write about some of the trends that I believe will appear in the coming year. Of course, it is somewhat silly to try and narrow what trends will develop and cease within a 12 month period. But nonetheless, I give it a try, with the parenthetical disclaimer that it could take more than a year to occur. At the end of next year we will see how this outlook stacks up with how events unfolded.
A Yearly Outlook (which may take more than a year to occur)
I wanted to start with something that we can be fairly certain to occur: increasing government expenditures. As government expenditures continue to increase, it is likely that longer-duration government bonds continue to increase. We have seen some of this already in the closing days of 2009. This serves only to exacerbate the incentive for banks to not lend, because they will be able to safely, and profitably, loan money to the government via the yield curve.
With intermediate and long duration bond yields increasing, investments made in corporate bonds near the recent low in yields sets up many investors for the possibility of significant capital losses. Investors in bond funds which look to have 7-10 year duration or even longer, are set up for nothing short of a bloodbath, as the price of those bonds could fall significantly. I think the Fed keeps short-term interest rate at their current level for all of 2010, in what will end up being a failed attempt to support asset prices. The velocity of money remains stagnant, and inflationary pressures are non-existent. Precious metal prices collapse, hitting new multi-year lows. Faced with the idea of continued non-availability of credit, consumers begin to save in earnest, and personal expenditures begins a gradual decrease, as households continue to recapitalize their balance sheets to become more cash heavy. Demographics, with the first of the Baby Boomers entering retirement, are an instrumental part of this move. The economy stabilizes, and employment growth returns, but remains lackluster, especially when compared to prior recoveries. This leads to generally flat revenue lines for most corporations, and corresponding growth rate assumptions are abandoned. The equity market falls precipitously, as estimates from Wall Street analysts are cut. There will be some good performing stocks, of course, as well as some tradeable rallies in the stock indexes. I will try to capitalize on those, but I expect to take any gains early. The best performing asset class of the year is cash. So that is a pretty dismal outlook. I see it as a likely outcome given where we are. I find it interesting that people will disagree with me in earnest about many of these things, while simultaneously admitting that the conditions which proceed their outcome exist. Strangely, there are more people that are convinced the entire economy will collapse as we enter a currency crisis than think the way I do. Those, of course, were the same people who weren’t buying stocks in March, and were buying gold above $1,200. The market takes all kinds I suppose.
Subscriptions to The Brookside Letter are available here.
SDI Glossary: "price" Definition
SDI Glossary: "the Fed" Definition
This Article's Word Cloud:
Brookside
Letter
about
bond
bonds
buying
cash
collapse
continue
could
course
duration
earnest
economy
expenditures
falls
government
growth
have
increase
increasing
likely
many
market
money
more
most
occur
outcome
outlook
people
performing
rate
remains
short
some
take
than
that
their
think
this
trends
were
what
which
will
with
year
yields
More articles: 1 2 3 4 5 6 7 next »
|
RSS