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John Lounsbury, Managing Editor and Co-founder of Global Economic Intersection, provides comprehensive financial planning and investment advisory services to a small number of families on a fee only basis. He has a background which includes 34 years with a major international corporation, 25... More
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  • 2010 Outlook 9 comments
    Dec 25, 2009 5:12 PM

    Don't miss Bespoke Group's survey of 12 top financial bloggers here.

    Disclosure: No stocks mentioned.

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  • Mayascribe
    , contributor
    Comments (11198) | Send Message
    John: I have re-evaluated my thoughts of a correction of the DOW to the 8500 level; something I believe both you and I agreed upon a month or greater ago; there just has to be a correction, there has to be! History says so!


    It's not going to happen in 2010. We'll experience a choppy sideways, slightly up market throughout 2010. There will be volatility, there will be more shoes to drop, but way less than this year.


    My Wells Fargo broker said to me last June or July that the hedgies who were waiting for a correction before plunging back into the market are, "Like a Christian Scientist with a broken appendix. Sooner or later..." That sage advice allowed me confidence to go full tilt into the market when many were waiting for the "impending and iminent correction."


    My experience since last X-mas, and especially since the March lows, given that I have both a highly aggressive and active trading e-gamer account, versus a quite conservative buy and hold brokerage account, has told me that buy and hold works. Problem is that no one to my knowledge has ever truly defined what buy and hold means. Once again my broker defined this term for me. Buy and hold lasts only as long as a business cycle lasts.


    Yet, the results are now in. In my conservative brokerage account, I have a dash here and there of non-yielding stocks, riskier stocks. The performance of these stocks has far out performed my e-gamer account, where I for the most part do tight stops and technical and sentimental trading. I mean way out performed. Yet, my e-gamer account has done very well, too. Paying attention does work.


    So what do we do, where do we go here forward? We follow the money. Uncle Sam is about to embark on the next phase of stimulus. There are going to be huge monies pointed directly toward infrastructure improvements. This means that steel company stocks should out perform the rest of the market. The current administration has to show job creation, or they will be in big trouble come the next election.


    Battery stocks should do well, too, as the monies allocated for grants and matching loans to the battery companies has yet to be dispensed. All the Green Energy projects, good or bad, smart or dumb, have to store their produced electricity somewhere, until the Grid needs it.


    Another idea I'm working on is miners that were closed, such as North American Paladium (PAL), that are now working toward reopening, will be shrewd investments. Further, mineral stocks, especially precious mineral stocks that will begin harvesting during 2010 will be winners as well.


    Agricultural stocks, especially those in emerging markets will out perform. For instance, check out what (CNOA) has recently done.


    Biotech stocks will as a group do well. However, for the investor who knows little about this segment of the market, I would suggest to stay away. Those stage two and three testing hypes versus failures can park one's investment in the horrer zone. My favorites to succeed are those involved with new vaccine technology, such as Novavax's (NVAX) VLP concept, where eggs are not used. Break thoughs in the stifled but now okayed stem cell technology will enhance one's portfolio. Problem is, which ones?


    I still see best of breed junior gold miners outperforming as well, and anyone who does a little research knows the Jaguar Mining (JAG) is top dog in that category, as they expect to increase production from 25,000 ounces of gold in 2007, to as much as 700,000 to 1,000,000 ounces produced by the year 2014. Even if gold stays flat, the increase in production itself makes this company a no-brainer to invest in.


    Further, in the commodities arena, I believe that rare earth elements will begin to show promise, as China controls 92 to 97 percent of all rare earth elements on our blue planet. SA's rare earth element gure, Jack Lifton, cites Great Western Minerals as the best company with the most promise of any rare earth element company outside of China. As Jack states, "Green energy starts in the black earth." Those who would like to read more about this can learn more here:


    Then there is financials. I expect this group will end up even, to maybe 10% higher by the end of 2010. Perhaps the most passionate and sentiment oriented segment of any market sector; reminding me of the controversy of how best to cook ribs. Surviving regional banks will likely outperform big banks in 2010. After that, the reverse will be true, especially when the big banks reinstitute descent dividends in 2011 or 2012..


    Finally, ther is tech stocks. The big companies will outperform. As will the smaller companies, such as interCLICK (ICLK). Cloud computing will be winners. Also, there are a lot of very small companies with bright ideas that will come out of nowhere and be big hits.


    In 2010, I expect the markets will drift sideways, with some volatility, and the DOW, S & P, and NASDAQ will all be up about 10 percent from where they lie now.


    The easy money is over. It's now time time sharpen the stock picking skills more than ever.
    26 Dec 2009, 01:45 AM Reply Like
  • Mayascribe
    , contributor
    Comments (11198) | Send Message
    Apologies. SA needs to learn that when one hits the new editing feature, it wipes out links.

    26 Dec 2009, 01:57 AM Reply Like
  • Freya
    , contributor
    Comments (3369) | Send Message
    AIG's President made an Interesting comment a few weeks ago. He believes AIG will be able to repay TARP in full if Markets are Stable.


    The Markets are ruled by The big Financial Institutions of which AIG is one. AIG is a $Trillion plus company, When it looks like they are on the Verge of same, I will consider looking for the exits but until then it will be all about Stability.


    Stability doesn't require a One Way Street, A trading range will suffice. The Trading range I envision for the Dow is the 10,300 to 11,700 for most of 2010. Sector rotation and a "Stock Picker's Market is what I envision for 2010.


    Natural Gas was the Dog for most of the year, I expect it to outperform in 2010. But, even here, you will have to be selective later. Initially, you will be able to throw Darts at a list of them and make money.


    26 Dec 2009, 02:19 AM Reply Like
  • Freya
    , contributor
    Comments (3369) | Send Message
    Caveat, A successful Terrorist attack on US soil Has the Potential to wreak havoc here, especially on stocks like Disney.
    26 Dec 2009, 02:21 AM Reply Like
  • tripleblack
    , contributor
    Comments (13581) | Send Message
    Interesting, John. The blogpoll showed that 7 of 9 picked Gold, Homes, the S&P and China to be up in 2010, a decidedly Bullish sentiment, and with a 6-2-1 tally for the $, also an interesting result. 9 of 9 saw Bonds going down.


    Myself, I look at broad brush planning like this in a different way. 2010:


    Domestic Political Risk - High, particularly early, as multiple sources for new and higher taxes are installed atop a kitten-weak economy. Bush Tax Cut Expirations (LOL, the msm will NEVER admit that these are actually tax increases), Obamacare taxes (years before it becomes a government insurance net), the ironic rebirth of the Death tax, higher corporate taxes in general, but especially aimed at juicy political targets like traditional coal, oil and smokestack industry; new Federal Sin Taxes (already installed on tobacco, with fuels and excise taxes in the pipeline) and tax hikes in States and Local governments across the land. Late in 2010 the effects of devastating losses to the Democrats in the by-elections may destabilize Washington, propelling the current Regime into a bunker mentality while the msm flashes back to the horrific days (for them) when Bush first won election. The lame duck 2010 session may see some astounding events, as the now dominant Left seeks to utilize their fading power...


    GeoPolitical Risk: High, with Iran the key trigger, but with danger in other areas like North Korea as well. The Strait of Hormuz could be closed for an indefinite period, which WOULD change the world's economic order. Lower level dangers might pop up around Venezuela or several key areas in Africa (Nigeria).


    Financial Risk: High, particularly in Europe. Eastern Europe is in generally poor shape, as is Greece, Spain, Portugal, Ireland, Iceland, etc. The UK is in none-too good shape, and in any emergency is more likely to be part of the problem rather than support for a solution. As has been shown in overbuilt areas like Dubai, there is a potential for other parts of the Middle East or within the ranks of the larger emerging markets for disruption caused by default, either in large corporations like Dubai World or small nations in South/Central America.


    China: I would segregate this nation as worthy of its own seperate analysis. They present EVERY sort of risk, included in every category above, perhaps even the Domestic Political arena, if they once again entangle themselves in our campaign financing ritual dance. China can continue their shift away from exporting toward their domestic build-up for at least another year, should they choose to, but I suspect they are already wary of doing this. The required acceleration of their nation away from a passive peasant base to a restive "aware" middle class worries the Communist Party, and will be curtailed as much as possible. Signs of this are already appearing... Even so, the continuing weakness in their key European and American markets will force a certain type of domestic growth to keep their manufacturing and development trains on the rails. This will NOT be the same path, however, and is already causing severe disruption (far more, I believe, than is publicly admitted). A nascent trade war between China and ALL its trading partners (over the past year, the exchange of protective tarrifs has been at a low level but constant, involving US, Russian, European and Australian targets) has simmered, and I expect it to get hotter as time goes on.


    Finally, I believe we are seeing a maturation of the productivity curve propogated by the information age wave front. The technology curve is still pointing upward, but we are in a shallow plateau forming between "probable or potential" technology and "applied and functioning" technology. Another analogy would be that working space which has always lain between the physicist and the engineer. We see a lot of promise for the future, but GETTING all that promise organized, engineered, infrastructured and in practice takes TIME. The sense of urgency which should be attached to many of these matters is being squandered on healthcare navel contemplation or inane cap and tade accounting roulette.


    I see 2010 as a tremendously dangerous year, by many seperate measures, and yet also one where much opportunity will be lost as we implement gridlock in our national political, economic and even technological process. The international picture will, amazingly, see similar problems in Europe and Asia.




    LOL, is still a foggy mist in my crystal ball.
    26 Dec 2009, 08:28 AM Reply Like
  • John Lounsbury
    , contributor
    Comments (4050) | Send Message
    Author’s reply » Maya, Freya and Triple - - -


    I saw the Bespoke article when taking a few minutes to clean out my e-mail late Christmas afternoon. I threw the post up without taking time to add my thoughts because I wasn't even supposed to turn my computer on yesterday. I'm glad that you got your excellent thoughts posted in spite of my delinquency in giving mine.


    Here's how I would have answered the survey had I been a participant:


    S&P 500 - Down, but just barely.
    The index will hit it's low for the year late spring or summer around the 900 level. A fall rally will bring it back to near 1100. The Nasdaq will do better, ending the year up about 10-12% at 2500 - 2600.


    Long Bond - Down, but a lot less than people think. The 30-year rate will be about 5%, up only modestly from about 4.6% Dec. 24. The short end will be down a lot more as the yield curve will flatten. I predict 2-year Treasuries will end 2010 above 2% yield (below 1% Dec. 24). Fed rates will be between 0.5% and 1% at year end (near 0% today).


    Corporate Bonds - Down, but very modestly. Investment grade bonds will be somewhat correlated to the S&P 500 and will maintain current spreads to Treasuries.


    Junk Bonds - Unchanged. They will dip into the summer and rally in the fall.


    Gold - Up 20 - 30%. Gold will end the year between $1300 and $1500. But this spring there will be a pullback, possibly testing $900. In my trading portfolio on I opened long positions in GLD and SLV this past week, but have a strategy in place to reverse both to positions in GLL (short gold) using a trailing 5% stop loss order on GLD.


    Oil - Unchanged. During the spring oil will drop back toward 60 and then in the summer rally sharply above 80 before settling back to mid-70's end of the year. These predictions are all out the window with any major international incident, especially in or near a major oil producing state. If something happened like Israel bombing Iran, oil could double within a week. Any continued uncertainty would delay a price drop back below 100 and the year could end above that mark (100).


    Dollar - Up. If there are any financial or political crises, the dollar could be up a lot, taking out the 91 high on the dollar index reached in early 2009. Without crisis, the dollar could end 2010 near 80 on the index.


    Home prices - Down. My still incomplete research over the past several months indicates that a number of factors will push the median home price lower in 2010, probably 5 - 10% below November, 2009 (the latest numbers). The factors weighing down home prices: (1) Rising mortgage rates in 2010 (about 1% above recent levels); (2) Foreclosure burden of at least 1 million more homes on the market from that source in 2010; (3) Shadow inventory of delayed listings will continue to pressure the market (possibly several million homes not listed waiting for "better prices"); (4) Continued high unemployment; and (5) Selling ahead due to the 2009 tax credits will depress 2010 demand among first time home buyers. We may not go back to the low sales volumes of early 2009, so the sales volume bottom may be in. However, the home price bottom has not been reached.


    China - Up, but less than some believe. China stocks may have a rough first half of 2010 but should rally in the second half of the year to end around 10-15% higher than they are now.


    The economy was not on the list, but I am expecting about 2% GDP growth over the four quarters 4Q/09 to 3Q/10. If GDP growth gets into the 3 - 4% range, my estimates for U.S. and China stocks are too conservative and housing prices may not be below current levels by year end 2010. Unemployment could then drop back to 8% or slightly lower instead of remaining above or near 10% throughout the year. If we do get the more robust GDP growth, though, Brazil will be the place to hold stocks, rather than the U.S. or China.
    26 Dec 2009, 11:37 AM Reply Like
  • Clive Corcoran
    , contributor
    Comments (1206) | Send Message
    You are a brave man John to make so many precise predictions - and overall I would find myself in agreement with many.
    I would like to propose some thoughts provoked by your forecast here (and I plan to write a longer piece with more specifics later).


    US Equities


    I see the S&P 500 hitting both 1280 and 870 during 2010 - more likely that the 1280 comes in the first half and 870 in the summer or second half. Both are key technical levels and the timing will have to do with the market's perception of when the Fed is planning to exit its super-accommodating monetary policy. I am sure there will be some missteps here and the market (and the Fed itself) could easily become confused by the economic data and the underlying strength of the banking system


    US Treasuries


    In my opinion the 20 year bull market in long term Treasuries is over and there will be gradual yield creep which could take the 10 year towards 5% during 2010 - the 30 year may well get to 5% in coming weeks. If anything the yield curve could get steeper - and will be influenced as much by growing risk aversion of the long end of the yield curve as by any upward trend in short and medium term rates.


    Emerging Markets


    There is an enormous amount of "hope" being rested in the BRIC's and other emerging markets. (much of it coming from Jim O'Neill at GS). There exists the possibility of a major mishap - either inflationary pressures (as for example in India and China), financial scandals/shenanigans and capital flight in the case of any currency crises.




    Very dependent on the strength of the US currency and the continuation of the FX carry trade. The key will be to watch the Australian and Canadian dollars - they will be the canary in the coal mine on the "warehousing" tactics of industrial commodities by large funds and prop trading desks.


    Foreign Exchange


    Euro will remain under pressure as Eurozone economies drift further apart in terms of economic performance, even possible that a couple of current EZ members could exit the EMU. It would not be surprising to see the EUR/USD back below $1.30


    Sterling could also drop down to the $1.30's (implying parity for EUR/GBP) and if the UK election (due before June) proves indecisive with a split Parliament one should not rule out a UK gilt buyers' strike and currency crisis.


    The hardest one to predict is USD/JPY. If yields on US Treasuries continue higher then, to me, that suggests the Nikkei will move higher (they are strangely correlated) and in turn that would suggest that there will be a trend towards yen weakness. If Treasury yields don't rise the way I think and if the yen does strengthen against the US dollar that will not portend well for US equities and for risk assets in general.




    $1350 is a six month target and $1600 could be seen in 2010
    as China, India etc diversify their reserves.


    Real Estate


    Hard to see any real dynamics to help residential property market in the US, UK, Spain, Ireland, Greece, Italy etc. Commercial real estate will become increasingly problematic not just in the US but, echoing Dubai, increasingly in the emerging world - India and China are also developing a glut of commercial property.




    The great juggling act for central bankers during the latter part of 2010 will be their expressed desire and need for much stronger GDP growth, with estimates for 2011 of at least 3% for the "mature" economies but still a benign enough inflation outlook to retain relatively easy monetary policy.
    The risk of continuing too long with virtually zero interest rates and a more vibrant private sector might well result in causing greater political unrest between those who are reaping the benefits of financial wizardry and the average Joe, which could spill over into more disaffection with political leadership and this in turn would raise the risk, not just of the few remaining AAA credits being downgraded, but the real possibility of sovereign defaults. Depending on just which sovereign (s) might default that would be the "outlier" event that could require a newer and bigger bailout of the financial system. Let's hope we don't have to test the viability of that option!
    27 Dec 2009, 04:30 AM Reply Like
  • John Lounsbury
    , contributor
    Comments (4050) | Send Message
    Author’s reply » Clive - - -


    Look forward to your article.


    I presented some caveats which give some wiggle room, but my prediction of a significant dip in gold before the rise is totally different from yours. I don't have enough wiggle room if you turn out to be correct.


    At any rate, I'm sure that I will feel hugely successful if only two of my prognostications are complete bombs. And the upside of less success is that it will provide great discussion fodder over the next year.
    27 Dec 2009, 02:01 PM Reply Like
  • Mayascribe
    , contributor
    Comments (11198) | Send Message
    John: Beneath is Doug Kass' top 20 predictions for 2010. A quibble for me within his predictions bubbled up in that he calls for corporate profits to soar by 100% in the first quarter, but also calls for stocks to drop by 10% during the first half of 2010.


    I also disagree with his call (and yours) of gold pulling back beneath $900/oz for the following reasons:


    --India, and several smaller countries bought gold from the IMF for above $1000 per ounce, giving strong support beneath the $1040 level


    --Paulsen's and Van Eck firing up new gold ETF's early next year (even though it is relatively tiny, there may be even more gold ETF's coming)


    --My instincts tell me that institutions will increase their allocation toward gold mining stocks, especially if they drop. Gold miners at these levels, or even at $900/ounce are making money hand over fist


    --Demand is outstripping supply


    --New discoveries are also decreasing


    --In my mind, $900 gold seems cheap! My thinking is that China will feel the same way, offering more support.


    I'm enjoying this column immensely, and wish there were more contributors making comments.



    Hoping your Holiday Season is proving better than the last one. I think it is safe to say that during last late December, a lot of people were making very difficult financial decisions. This year, not so much.
    29 Dec 2009, 12:48 AM Reply Like
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