Wednesday, December 15, 2010

2010 Predictions Revisited

"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 12/6, Obama and the new Republican congress agreed on a megadeal: Allow all of the Bush tax cuts for another two years and also extend unemployment for another 13 months. They also reduced the payroll deduction. All of this amounted to a $900 billion stimulus. I'll give myself a "B" here because no new taxes were added and municipalities were not helped

"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" I got the amount exactly correct.. but not the form it took (it was Bonds that were purchased, not MBS). Lets call this one a "B"

"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" China's stock market and real estate markets have come back to earth in part because of our own monetary policies; money printed here is finding its way there, resulting in inflation. Over the last two months, China's government has been trying to stop this inflation by hiking bank capital requirements and will likely now try interest rate hikes. Vietnam, Taiwan, Brazil and Peru have resorted to capital controls to stop the inflows. I'll give myself an "A" here. 

"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 bondsThis 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. But.. this was due not to a stock crash, but rather a major panic in a very large exotic locale (Europe) as well as the Fed purchasing vast quantities of Bonds. Rates this summer were at Lehman era lows when Europe was having it's crisis, but they've crept up very smartly after QE2 was announced. Lets call this one an "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"  A clear miss, especially given the time frame I mentioned. "F" 

"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" The CRB Index (a broad measure of commodities vs the USD) went from 290 at the beginning of the year to 258 in June, indicating that commods started the year as I expected. My call on gold was a clear miss. Since September, the CRB has rocketed upwards, hitting 319 today. Lets give this one a "C-".

"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. The USDX (which measures USD strength) started the year out at 78. By June, the dollar strengthened up to 88. In July it began a Bernanke engineered descent to the current level of 80. Lets give this one an "A".

Overall, I'm going to give myself a "B". 


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  2. At least you were in the ball park. If you asked Bernanke what would happen in 2010 he would have gotten and F. He was, is and will be wrong about everything. The direction of an economy can not be determined in a test tube. Bernanke studied the Great Depression, but today's world is far more complex and that is why he never gets it right.

  3. I think you were a bit harsh in your scoring.

    Unemployment, with real U-6 around 18%, and the actual number approaching 25% - is just way under-stated in the "statistics" - see 'ShadowStats' - so give yourself a B+ at least there

    "there will be no recovery back to the good old days.." - give yourself an A on that one

    Nobody's perfect. You did pretty well there on most. The market calls are difficult, hard to say where they will be in a year.

    Well done.