Wednesday, June 30, 2010

2010 Predictions Revisited

Well it's time for the first semester grades on my 2010 Predictions:

In looking at these now, there are in a bunch of them several different predictions, some of which have come to pass, whilst the other parts of them have not. I'll just give the best grades possible. Here we go !

"Jobs" Bill: Not sure how big, but the politicians are a tad scared about the unemployment rate (and well they should be lest they themselves meet that same fate in the next election). Aid to local governments will also be a part of this to avoid a muni bond implosion. Look for new taxes (trader's tax, etc) to partially pay for this. The healthcare bill might also contain immediate taxes on the wealthy": On this one, I'm going to give myself a "B".. there was a small jobs bill and as we speak a $50 billion aid package to local governments is working its way thru Congress. So far a traders tax has yet to pass, but there are tax hikes in the ObamaCare Bill.

"Another QE: Expect Bernanke to announce another round of MBS purchases in the $600bln range, and perhaps another round of Bond purchases depending on how the roll over rates on short term bonds look. Look for Japan to curtail their rollovers of US debt" On this one (so far) has been a clear miss.. let's give this one a "D" because I feel that another round of QE is indeed coming, but no longer feel that MBS purchases will be part of the plan. As for Japan, their overall levels of US debt have remained essentially unchanged, certainly not the debt dumping I envisioned.

"The FDIC will get another injection of aid from somewhere, likely the Fed, to deal with the bank failures" The FDIC raised their rates and forced big banks to pay years in advance.. but to be precise the Fed did not bail out the FDIC. Lets give this one a "C".

"The Bank of Japan will announce QE in some form, perhaps bond purchases" Hit.. in April the BOJ announced a series of measures to increase liquidity, though so far bond purchases were not among the measures. Again, lets call this a "B".

"The US Gov't deficit will be north of $1.25 trillion" This one was easy.. an "A".

"Unemployment will hover around 11%" It's hovering around ten percent.. and if they would've stopped their endless extensions of unemployment, my 11% would be right on the money. Still.. lets call this one a "C".

"This printing will have an effect somewhere in the world; the "carry trade" will, somewhere, inflate someone's stock market and real estate prices to unrealistic levels. Look for a crash somewhere, likely in Asia. Many other nations have begun to restrict the inflow of money; Taiwan and Brazil to begin with, and the list will probably grow" Well.. on this one, China's stock market and real estate markets have come back to earth; a few nations like Switzerland and Australia have valiantry tried to stem the rise of their currencies or resorted to outright capital controls (Brazil). Lets give this one a "B".

"Look for at least one sovereign default in 2010. Ukraine, Mexico and Greece head this list of shame. They'll get bailed out in one fashion or another, but there will be serious damage done to EU banks in the process. Also refer back to point #7 for other candidates in Asia. These panics will not crash the system, but will scare investors out of equities and back into bonds" This was a clear hit.. "A".

"There will be no recovery back to the good ole days. We are as a nation still WAAAYY too far indebted for this to happen anytime soon,and this will continue for the better part of a decade at the very least" So far go good.. but a decade still to go. "B".

"US Bond rates: There is some $3 trillion in short term bonds that needs to be rolled over in 2010...nevermind the additional $1.25 trillion that Obama will need to borrow. Then we get to the borrowing needs of other nations, other states, other cities all over the world. In short, there is a chance that despite Bernanke's efforts, rates will rise.. unless.. the stock markets take a hit, in which case investors flee stocks and (voila !) begin buying bonds again. A minor panic or two in exotic locales will help encourage yet more investors to once again purchase US bonds" So far there seems to be absolutely no problems funding the deficit; indeed, rates are today at Lehman-era lows. But.. this is due not to a stock crash, but rather a major panic in a very large exotic locale (Europe). Lets give this one a "B".

"Stock market: Because of #10 (bond rates) I fully expect a dandy pullback beginning early in 2010; look for the DOW to sink to at least 9000ish at some point. Lets just hope that it does'nt turn into a stampede for the exits, and there exists that possibility, though I think it won't turn out that way" This has been (so far) a clear miss, especially given the time frame I mentioned. There's still the chance we'll see 9000 in the DOW, but clearly my timing was off here.. lets call this one a "D".

"Commodities: Since I expect a stronger dollar and a sluggish economy (and thus demand for commodities) I see commodities having a down year. Gold will cool off, but I would'nt look for it to get much below $900/oz again" Well, the CRB Index (a broad measure of commodities vs the USD) has gone from 290 at the beginning of the year to 258 today (a roughly 12% retracement), indicating that commods are indeed having a down year. But gold absolutely did not do what I expected, today closing at $1,242. Lets give this one a "B".

"Currencies: When the stock market begins to tank, the USD will strengthen some versus both commodities and other currencies. Bernanke will not allow it to strengthen so much as to bring about deflation, but he will allow it to go up some" A clear hit.. except that Bernanke has yet to attempt to slow the upward swing in the USD, and the stock markets have yet to tank. Lets give this one an "B".

Next year I'm going to try and not make three or four different predictions in the same sentance, muddying the grades. Overall I'll give myself a "B-".


  1. Thank you for grading yourself fairly. Not too bad overall. I give you a B+ overall.

  2. I'm just happy to have some good stuff to read on your blog ;)

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