The New Mantras for 2010
By: Shishir Nigam Wed, Jan 6, 2010
Just as in 2009, in the new year, we’ve had a flood of predictions on what the major trends, movements and opportunities are going to be, looking forward to 2010. There are so many opinions that you can probably find one that corresponds to your exact views. Only time will tell whether any of these forecasts are worth the (virtual?) paper they are written on. So here are the most common new (false?) mantras for 2010:
Healthcare’s turn in the limelight
After the extended public debate on the best healthcare model to follow in the US, one thing is for certain – more and more Americans are now going to demand proper healthcare, especially now that they actually know they can. The health care bill proved less harsh on the industry then most expected. Investors are now making bets on the healthcare sector growing its way out of the uncertainty of 2009 and possibly even leading the US economy out of the recession.
Emerging markets continue to roar
In 2009, the US economy and stock market significantly underperformed emerging market economies and equities. And the belief is that this trend is going continue, barring a black swan event like the 1997 financial crisis. Global growth is going to continue being driven by Asian economies as countries like China and India grow to form a bigger slice of the world GDP pie. Demand will continue to be spurred by domestic population growth in developing nations and increasing consumerism from their expanding middle classes.
Gold continues to shine
Despite reaching new highs in 2009, the consensus is for gold to continue its ascent as investors and governments slowly lose faith in the value of any one currency and move to holding hard assets, like gold, instead. This sentiment was clearly on display when the Indian government didn’t think the current price of gold was high enough to discourage them from buying 200 tonnes of gold from the IMF. With many investors having elevated inflation expectations due to the amount of liquidity injected in the system, gold is also seen as an effective inflation hedge.
US dollar weakening persists
The US dollar will either continue weakening or will remain at its current level as the effect of the Fed’s eventual interest rate increase is expected to be outweighed by the rising debt burden on the US. The faster growth rates and performance of Asian economies would also hurt the US dollar on relative terms. Though this will mean increased foreign demand for US manufactured exports, it’ll also mean lower purchasing power for US consumers who make up 70% of the US economy.
Bonds slide
The consensus on the outlook for bonds hasn’t been so negative in years. With current rates at all-time lows and the Fed expected to raise interest rates in late 2010, bonds are expected to perform poorly in 2010. Investors who have seen the equity rally of 2009 are no longer going to be satisfied by the measly returns offered by safe fixed-income investments. With the push to go into emerging markets, and invest in commodities to hedge against inflation, bonds will lose out.
Disclosure: Long market.
Image Credit: Sally M under a Creative Commons license.
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Last 3 posts by Shishir Nigam
- When Correlations Collide - March 7th, 2010
- Is the United States an “Emerging Market”? - February 28th, 2010
- It’s Time To Accept The C$ At Parity - February 21st, 2010
Another interesting thought I had related to this topic.
What’s interesting is that this year might have been one of the few situations where every person on the street called themselves a “contrarian”. Nearly everyone doubted the solidity of the equity rally because of the disconnect with fundamentals…and so just because they opposed the direction of the market, they were “contrarian”. In fact, the REAL contrarian would be going against the consensus amongst investors…which was that the rally had no legs, when it actually did. Do you think the same applies to predictions about 2010?
The real answer is, “who cares”… prediction and opinions have an intrinsic value of “zero” – and if anything – are detrimental to profiting in the financial markets. Opinions have been the source of ruin for many an investor and trader.
Whether you are an investor or trader, you need a set of RULES for engaging the markets, holding your positions and exiting the markets.
You want the holy grail of investment success?.. “Trade what you see, not what you think!”
I was a professional trader in a brokerage setting for 10 years – and have been managing a hedge fund since 2005 with total returns of %161 over 4.5 years. The only entity I listen to is the market itself… the rest is “noise”.
leave history to the historians… This economy has no precedent. Tread carefully.
leave history to the historians… This economy has no precedent. Tread carefully.
It would be wise to check the predictive capability of Elliott Wave Theory. There are a number of web sites that claim to use this theory, however, I have found Elliott Wave International to be quite accurate regarding the form (direction) of the market, however, their timing is often early enough that critics say they have missed the prediction.
Their view, greatly simplified – 2008 was just the first wave of this leg of a depression that will have greater impact (fall further) than the depression of the 1930’s.
If you are fully invested long, be very careful.
Some investors, perhaps led by the quasi-institutional ultra-HNW segment, will actuate their dis-illusionment with the repetitive over-extensions of financial value (away from inherent value toward a daisy-chain of debt, derivatives and distribution systems) to non-traditional assets and innovative (sub)asset classes.
Well, in 2009, Market rallied without any major improvement in the global economy. Now its time for the economy to start improving. Ideally, we should start receiving better GDP numbers, growth in housing demand, reduction in unemployment, along with improvement in other economic variables.
Thus, I believe that during 1H2010 the market would be range bound (within wide range), rather than moving in one direction.
2H2010 should witness further improvements in both economic figures and the market. thus, market should start touching new levels.
Inaddition, the years 2010 and 2011 should witness profound increase in M&A’s, consolidations, restructuring, etc.
Shishir, you have raised very interesting discussion on the New Mantras for 2010. I believe you have correctly selected consensus view on new Mantras for 2010. Before commenting on new Mantras, we need to assess the tools available to the financial analysts. Among many things, some of the major tools available to financial analysts for macro analysis are trend analysis, how the crisis in past was resolved, how long it took to resolve the crisis and assessment on monetary and fiscal policies of central banks of the respective countries (or group of countries such as European Union) and G20. Assessing the situation from different angles will give you different opinion. Then, events like Bears & Sterns, Lehman Brothers, and recent event like Dubai may prove you completely wrong. All of sudden, bullish view will become financial bubbles. Prediction is based on the experience and judgment of analysts/economists who take their position on particular subject based on the available information. Hence, each prediction irrespective of stature of economist/analyst is fraught with risk of going either way.
Ultimately, diversification comes to the rescue. Individual investors should analyze his risk/return profile and take position. Gold is shining on several concerns as dollar is weak; central banks are printing money’ relatively stronger economies are buying gold, and risk of reduced gold supply in time to come due to declining gold reserves from mostly old mines. Everything is positive for price to go up further. What is your call on gold? How much weight you will give to gold in your portfolio? 10%, 20%, or 90%. In my opinion, even if you are too bullish on gold, you will not hold it more than 20%. Other most important expectation about 2010 is “non performers in 2009 will outperform in 2010” has its own merit. Or who knows, they will again be non performers in 2010 and performers in 2009 will still out perform in 2010. Considering these inherent uncertainties in predictions, my optimum portfolio will be formed by taking consensus views and having my independent assessment considering risk and reward trade off.
Like the last recession, I think we’re going to see the “nesting” instinct return, but with a focus on improving communities, reusing/remodeling what we have and a larger focus on the green mindset. Large corporations like Pepsi are already starting: http://seobyswaby.wordpress.com/2009/12/28/ten-fearless-predictions-about-internet-marketing-in-2010/
I’m seeing clients thrive who are in the business of providing experiences – workshops of all stripes, further education, events, community-related services, and so on.
Your article definitely hits some macro trends. I really think consumers, customers today are totally focused on value. “Beware of hidden fees” is a mantra right now…so many consumers are so disillusioned by the industries that thrive on hidden fees (banks, airlines, etc.). People do NOT want to feel that their money is wasted. There was a luxury backlash – it is all about value right now. People are passionate in their belief that businesses (stores, restaurants, what have you) need to offer the best value – a good quality, appropriately priced product. Combining marketing mantras and investing, companies should be very careful about the pricing models they put in place. Those companies that focus on providing a solid product at a good price, then marketing this focus, are the companies that are going to come out ahead in the consumer economy.
Shishir,
My feeling is that the unemployment rate will stay higher in the USA for most of 2010. In any event there will be many money making opportunities in ETF’s and common stock if you follow the trends. I think no matter what the government says we are moving into higher inflation levels. That will mean that hard assets, commodities and the like will be the trend in the later part od 2010. Currently I am in ETF’s in a big way but mostly emerging market funds and trade only if they are above the 200 day moving average. I sell them when they go below the 200 day moving average.
As far as the big correction or any correction I think it will happen sometime in the late January or February timeframe. I think that is only because the “big money” is selling on strength. The reason why the market has not corrected normally is that there is too much money on the sidelines and jumps in every time that there is any down day. That being said I am looking for something that will spark a real down situation such as a real bad employment report etc… There has to be a catalyst. Stick to the uptrending stocks and ETF’s and you will be OK.
In general, I would say that it is interesting to read and speculate on what may happen and to review afterwards what really did happen. Note that the black swans could turn any well-founded expectation upsidedown. Shishir, thanks for sharing your views and starting the discussion.
For my index investing actions, I know I cannot predict the future and do not need to. My open door is: trends will continue till they change. No need for me to predict when they change (I can’t), I just focus on recognizing it when they do so I can take the action at that moment: http://www.StockTrendInvesting.com
buy gold and silver and hold on to it. watch it rise.
interest rates will creep up-dangerous.
don’t invest in china-also dangerous-they own too much US paper
US is still on the cliff
I for one am contemplating training in the hedge fund area. What are the people with the most experience doing and thinking? I came across http://www.fintuition.com – “Understanding Hedge Funds post Madoff Era” !