What Are Some Market Risks for 2010?

Includes: DIA, SPY
by: Enzio von Pfeil

Markets preview for 2010 -- what are your expectations? Will recovery gain foothold and will we see more exit strategies by central banks? You were bearish the last time, highlighting that you see greater volatility ahead.

  • I have been dreadfully wrong on stock markets since this March; this is because I was not listening (properly) to my Economic Clock®.
  • But I suppose that if you say something long enough, it will transpire.
  • My guess is that volatility will rise considerably in 2010: the market subconscious finally will accept that the Economic Time® looks pretty dreadful, and thus that topline (i.e. revenue) growth cannot help profits. Meanwhile, costs have been cut to the bone.
  • Next to markets moving out of denial, Central Banks will move into exit mode, thereby reducing that excess supply of money.

What risks/themes do you expect next year?

  • A major stock market crash due to particularly stock market pundits moving out of denial: the Economic Time® cannot improve with sticky high unemployment.
  • The very likelihood of a bond market crash in the U.S., what with the U.S. mid-term elections implying that spending cannot be cut.
  • A stronger dollar as well as yen in 1Q10 due to rising volatility, so the investment herd unwinds carry trades.

Where will the opportunities be for investors? Which sectors or regions will outperform? You mentioned consumer staples, and to catch the bounce in gold/USD the last time.

  • The compass needle will point towards “capital preservation”, given these twin forces that will worsen the Economic Time®.
  • Thus, “safe haven” is the name of the game, as in:
    1. Consumer staples
    2. Gold, silver, platinum, palladium
    3. Credit default swaps