Seeing that events move so fast these days … what with high
frequency trading and trillion dollar bailouts being produced like
rabbits out of a hat, and more discoveries about more creative ways
to "fix" an audit or a credit rating being revealed by the second,
I've decided to put out forecasts every six months.
Thus, I'm updating my
January 1, 2010, forecasts
(see in italics):
It won't go above 1,300 in 2010 but it won't go down much
until hits at least 1,200, at which point it risks a 15% to 20%
reversal that will be relatively short-lived.
It hit 1,200 for a few days, then it went down 13% (closing
prices) and 15% intraday -- interesting that 1,200 was about (one
of many) Fibonacci numbers. I was expecting it to carry on at least
until 1,300 before a reversal; but the question I'm asking myself
is whether 13% down is a blip, a reversal or a correction?
There's no reason to change January's forecast now, as then,
it's a "value-picker's market."
Oil will drift sideways between $65 and $85 unless there is
an "event" of which the most likely is a war of some sort … it
won't go down below $60.
The gold market is struggling to understand value and the
path ahead is therefore likely to be choppy.
This is great for traders to show off their surfing prowess but
perhaps a bit risky for "buy and hold."
My view then and now is that gold is a bubble and that its price is
driven by fear. Interestingly, the view I had in January was
probably the first accurate prediction I ever made on gold, it went
down from $1,200 to about $1,000; then it went back up above
$1,200, and like I said, it's great for traders.
With regard to the year ahead, who knows what terrors lie
hidden? And who knows what other skeletons are concealed like
plastic land-mines by the clever auditors and rating agencies? My
view remains that at some point it's going down to below $800,
whether it gets there via $3,000 is anyone's guess.
US House Prices
S&P Case-Shiller 20 City Index will drop 10% from where
it was in October 2009 before the end of 2010.
In the New-Year there was talk of a "bounce," that didn't
happen; and in any case house prices don't bounce, they go "splat."
I still think there is a little to go down before the bottom,
foreclosures are not going away, but then that all depends on how
much taxpayer's money (or the money of future taxpayers) is thrown
at overcoming the forces of nature, which is impossible to predict.
UK House Prices
There is one more leg down to come, possibly to beat the
previous bottom on the Nationwide Index, but this could be
delayed by Labour artificially pumping up the economy (by
borrowing) so that they can have a good showing at the
Now that the election is over the next question is whether the
New-Boys will continue the peculiarly British tradition of bribing
the electorate with high house prices, or whether they will come
around to the idea that the complex mix of subsidies for home
ownership and restrictions on building that make UK such a
nightmare for the poor, is bad economics.
I suspect that because most mortgages in UK are ARM (i.e. linked
to short-term interest rates) meant that the necessary adjustment
of prices down to an economically sustainable level have been
kicked down the road, and will continue to be kicked down the road.
As always, it's hard to predict how far politicians will go selling
the birthright of their children to hang on to power.
US 10-Year and 30-Year Treasury Yields
By end 2010 the 10-year yield will be at least 5% and the
30-year will be at least 6%.
Last September I was the odd man out saying that yields would
rise and they did, a bit. But by December I had started to change
my mind (my January prediction was lower than most), and by
February I had gone 180 degrees, just in time to be the odd-man out
Nowadays even Nassim Taleb has come out of the closet and broken
his golden rule "I never make predictions," and has predicted that
US Treasury yields will rocket, this is what he said on
Every single human being should bet US Treasury bonds will
Then the 10-Year was 3.7% now it's 3.3%. I understand that
Nassim has taken up a consultancy position with ACA (the people who
took the long-position on the CDO cooked up by Goldman (
My logic then and now is simply that there is a demand for good
quality debt (US Treasuries, suspect as they may be, are the best
quality you can buy, at least in any quantity), and since the
supply of non-toxic-AAA is limited, and getting more limited now
that euro denominated debt is suspect, demand is likely to exceed
supply … regardless of whether or not the US Treasury sells $2
trillion more in the next year.
Remember in 2007 the "shadow banks" were creating $2 trillion a
year of AAA rated garbage; and the suckers were lining up around
the block to buy it.
So long as pension funds and insurance companies are obliged to
keep a proportion of assets in investment grade debt, the demand
will still be out there. I don't see yields going up much in the
next year, although it's hard to imagine how they can go down a lot
One thing that is predictable though, is that this time next
year, there will still be plenty of "economic experts" going on,
and on and ... on, about hyperinflation just around the corner
(just like this time last year).
US Commercial Property
It will bottom in 2010 and the Moody's index will be up end
2010 on end 2009
I think that's right; there are more funds being put together to
buy distressed properties, sales are up although the banks are
being allowed to practice "forbearance" so there is not much to
buy. I think it's highly unlikely the market will go down much now
and that end 2010 will be (slightly) up on end 2009, but it won't
be a "bounce," just an opportunity for anyone who knows what they
are doing (i.e. didn't get hammered by the downturn), to go back
Hong Kong Property
This is not a bubble
Well if it was it still didn't burst, prices went up and
although I would expect prices to be muted if, as looks likely,
China starts to cool down. By the way I found a great
site for property prices
If you can find something Dubai property is a reasonably
good investment now (if you like that sort of thing).
There is no change, although it's harder to get a bargain than
it was nine months ago, then you could buy a "standard" villa on
the Palm for $1.8 million, nowadays you would be lucky to find one
for less than $2.3 million.
At the more "affordable" end of the market, the increase in
inventory is still keeping rents down and will do for some time,
although the economy is starting to grow (albeit on two cylinders
and from a low base). Still hard to find anything that doesn't have
something wrong with it.
Shanghai Stock Exchange
This is not a bubble, it will hit 4,000 before the end of
2010 (up 25% on end 2009), but it could be choppy.
Big Idea about bubbles is wrong?
The SSE had a big bubble in 2007 (5,900) and it bust down to
1,728 which according to the "Big Idea" should put the
"fundamental" at about 3,000 in early 2008. And if China has grown
since then well it should be heading up in the direction of 4,000.
OK there are still six months to go but 4,000 looks out of the
question from here, although the "Big Idea" says that unless China
implodes, and the world stops buying from them, it has to head up
towards that number at some point. With regard to when, well that's
what you got your risk premium for.
On reflection, perhaps the part of the Chinese economy that is
represented by the SSE is not growing as fast as the official
figures say it is. China is effectively two economies (a) the
Special Economic Zones who are the backbone of the SSE which
generate 80% of China's exports (b) the hugely inefficient and
corrupt part of the economy outside the SEZ which is the part that
is (allegedly) having a housing bubble and is the part where much
of the Chinese "stimulus" was directed.
The "evidence" of what happened over the past six months is that
although mainland China might be booming, the SEZ are not. Which
makes sense, they depend on exports, and there is no huge reason to
be in an SEZ if you are selling into the mainland.
For the next six months, I think the SSE is going to do whatever
the world economy does, i.e. not very exciting, particularly now
that European banks have stopped lending to each other; but I don't
think it will go down much.
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