Whats lies ahead for 2010?

The governments around the world worked their magic in 2009 and managed to stimulate financial markets that were on their death beds. By pumping trillions of dollars into the economy through quantitative easing, financial markets began an eight month rally that saw markets around the globe recover over 50%. The question now becomes...What lies ahead for 2010? Should we take profits while we can or let it ride? Why do I feel like we are in a Casino..not a stable financial world?

To begin, I thought I would look back on my predictions from January 2009 to see if it is even worth my time trying to guess what might occur in these turbulant times.

1. Gold and Precious Metals will Shine in 2009- Yep...this was definitely the place to be in 2009. Gold rose to all time highs...over $1200 an ounce. Most precious metal mutual funds enjoyed gains above the market...some over 100%. Good Prediction!

2. Oil will hit a gusher in 2009- Ok..keeping in mind that Oil was trading around $30 a barrel when I made this prediction...it has definitely exploded to its current price of $80 a barrel. Good Prediction!

3. Real Estate is still not out of the hole- Real Estate foreclosures continued to increase in the US in 2009 although the rate of increase may have slowed down. Interest rates of close to O percent (lowest on record) and plenty of government assistance has slowed the decline and some areas like Canada and Australia have actually had a real estate boom. So, although I may have miscalculated the impact government stimulus could have on Real Estate...it is definitely still not out of the hole.

A little stats from our friends at the Casey Report to back this up:

•Existing home sales in the U.S. are down 15.9% from the September 2005 peak seasonally adjusted annual rate of 7.25 million sales, but up 35.9% from the January 2009 trough of 4.49 million sales.

•Existing home inventory stands at 3.574 million, which reflects a seven-month supply. This compares favorably to the 11-month supply peak inventory figure of 4.575 million back in July 2008.

•The median home sales price in the U.S. of $172,600 is 4.7% above the January 2009 figure of $164,800, but is still 25% below the July 2006 figure of $230,300.
Furthermore, the Census Bureau reported a couple weeks ago that November housing starts rose 8.9% compared to the previous month.

On the surface it appears housing may be stabilizing somewhat. But if you dig a little deeper you’d find… not so much.

First of all, the slightly improved sales figures and marginal rise in prices likely have much to do with the first-time home buyer tax credit and the move-up/repeat home buyer tax credit, both of which were recently extended through April 30, 2010.
Second, the Census Bureau’s report was statistically insignificant. The margin of error (with a 95% confidence interval) on these figures is +/- 12%.


4. The China Dragon will continue to Roar- The Chinese government responded like so many other governments around the world in stimulating its own economy...to the tune of over 80% this year. Emerging markets was a great place to be in 2009, so another good prediction!

5.US Dollar will continue to Fall- This was one of my best predictions. US dollar was down over 30% in 2009. Most americans don't know this but if you ask a Canadian...they know that their money is back close to par with the US. This is not good for our export oriented economy but great for people that want to take a vacation to the states.

6. Agriculture will grow your portfolio- Although agricultural companies followed the market up...they did not show the type of returns that I expected. Towards the end of 2009 we started to see life in the prices of soft commodities like grains and cotton. Look to 2010 for a major recovery in the price of agricultural goods and stocks as inflation really starts to kick in.

7. Infrastructure will keep the Economy from Falling Apart- Like agriculture stocks, infrastructure plays moved up with the market. This is still a safe place to put your money as I regard a lot of these companies as protected by government economic stimulus programs.

8. Smallcaps will continue to get their kneecaps taken out by Creditors- Well, small caps didn't get hammered like they did in 2008, they were definitely late to the party in 2009. What does this mean for 2010....buy small caps. More talk about this in a second.

9.The Green Team will Win- Well just like my hockey team, 2009 was not the best of years for green stocks. The controversy with the British scientists didn't help but I continue to believe that green will win over the long term. Lets wait till energy prices move up a little more and I think you will start hearing more about our green stocks.

10. Death by Mutual Fund- The mutual fund industry had a great year in 2009 which is due in a big part to the market recovery. The industry continues to adapt to changing economic conditions and investor demands. Unfortunately, with over 90% of people having no clue on investing, these financial instruments will continue to be used by the uneducated. One day people will wake up to the fact that we are paying these people way too much money to lose our money.

So, overall...I hit some of my predictions but missed a few. I still think I am batting over 50% which is good for a lowly educator. So back to our question, What lies ahead in 2010? Well here I go...buckle up and hold on for the ride..that is the theme I am going with.

Lets start with a chart..showing bear market rallies after THE GREAT DEPRESSION



This chart simply demonstrates that there can definitely be major market advances during a bear market. We have experienced one of the greatest rallies of financial history. Way to go Ben and the rest of the central bankers around the world. You have helped Wall Street and pulp and paper companies.

1. My first prediction is that we are in a Bear Market Rally which means that it we should see a substantial pullback in market performance in 2010. I can see this happening between May and August of 2010. So..I think it is safe to stay in the market for the time being but be ready to set some sell stops on your winners this spring. We could essentially see a complete opposite to 2009 where instead of the market recoverying in March...it will get hammered.

2. Debt will continue to Rise- Although consumer credit and home mortgage debt declined 0.8% and 0.9%, respectively, in the third quarter, increases in government debt more than made up for this marginal decline. Federal, state, and local government debt outstanding grew 4.2% in the third quarter, pushing total debt outstanding to a new all-time high of $34,551.9 billion, according to the Federal Reserve’s newly released Z.1 Flow of Funds document.
This document also revealed that in the third quarter, personal savings dropped 17.8% based on the seasonally adjusted annual rate figures. Governments will have to take on more debt to keep votes.

3. Interest Rates will begin to Rise- With interest rates at all-time lows, it doesn't take a genius to predict that they won't remain there for long. US and other governments will be forced to raise interest rates to thwart another housing boom and bust and to attract foreign investors back to their currencies. I think Canada will be first to raise rates and will start in the middle of 2010. The US government will be forced to follow other countries to save what little value the US dollar has.

4. Inflation will support Commodity Prices- The massive injections of money by Central Banks will provide support for commodity prices where they are and we will begin to see further increases in these prices in 2010. Oil will pass $100 a barrel and Natural Gas will pass $10 in 2010. Look for copper, nickel, uranium, etc. to also increase in price by 20-30% in 2010. This will help commodity stocks and provide some big profits to companies that are unhedged.

5. Silver will outperform Gold- Gold had an amazing run in 2009 and I believe that it will continue to move higher. My prediction is that gold will pass $1500 an ounce in 2010. Silver traditionally lags gold and that was the case in 2009. Look for silver to outperform the increase in gold prices in 2010. Prediction is that silver moves over $30.00 an ounce. By your Olympic silver coins while you can:)

6. Smallcaps will recover during the first part of 2010- I see this happening already and feel that people are having a larger risk appetite after the recent recovery. Unfortunately, this will be a short lived move as small caps will get hammered with the market when it corrects this summer. Once again, hold on for ride and set stops along the way.

7. Agricultural Land Prices will increase- The one shining star in real estate will be agricultural land. I continue to believe that with an emerging middle class in Asia forming, demand for food will continue to rise. Unfortunately, there is less and less farmland available due to urbanization. So...sell your mansions and buy a farm...

8. Currency Traders will Reap Big Profits- The FOREX market is the largest market in the world, trading volumes of 3 trillion dollars a day. Currency traders make their money on the volativity in the market. 2010 will be a very volatile year and thus traders will be able to take advantage of big moves in currencies. The advantage to this market is that you can make money when currencies are going up or down. Just look for the trend and jump on.

9. Another Big Financial Company in the World will fall- The Dubai World scare proves that many big companies have pretty bad balance sheets. Look for another "Lehman" type collapse due to too much debt and not enough assets. This may spark the next leg down in our Bear Market.

10. GTIC Investment Club will make money- My final prediction is based on the fact that we all learned a lesson in 2008...don't marry stocks..even our market darlings. We watched Bronco Energy move from $1.00 a share to $19.00 a share and then all the way down to $0.30. We won't make that mistake again...I hope. We will follow a more disciplined approach and will sell shares in our big gainers as they rise.

2009 was a very good year for our club. We gained 5 more members and doubled our share value from $1000 to over $2000 a person. It will be important in 2010 to protect our gains and be prepared to sit in cash when necessary. So, it will be interesting to look back at these predictions and see if I can nail a few more. The most important one is that the club continues to learn and make money. Happy New Year everyone and heres to a very profitable year in 2010.