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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Disclaimer: Views and opinions expressed on above are those of the author alone and do not in any way represent the official views, positions or opinions of the employers – both past or present – of the author in question, or any other institutions and corporations associated with the author. Neither the information nor any opinions contained or expressed above and elsewhere on Young & Invested constitutes or should be construed as a solicitation or offer by Young & Invested to buy or sell any securities or other financial instruments or to provide any investment advice or recommendations. Young & Invested shall not be liable for any claims or losses of any nature, arising indirectly or directly from use of the information on or accessed through the site. Please see full disclaimers here.

As we reflect on the lessons learnt from 2009, it’s important to look at which theories have not come to fruition, or at least not yet. I look at the main themes and mantras that we heard echoed by almost every market expert but which we are still waiting to see in reality. In a follow up article, I’ll look at “New Mantras for 2010”.

Volumes will return after the summer

Throughout the summer of 2009, it was a regular occurrence to see the market spike upwards on low volumes and no news, while it fell on higher volumes. And in general, the market volumes were way below the norm. The mantra at that time was that volumes will return to the norm in the months of Sept – Dec. But of course, we didn’t see a major rise volumes while the equity markets continued to rally. Now, entering into 2010, volumes continue to remain low – possible indications that the low volumes are not due to seasonality but in fact due to large amounts of money still on the sidelines.

The big correction is around the corner

Starting from the end of March, 09, by which time markets had already rallied about 20% from their lows, investors/analysts/institutions have been calling and waiting for the big correction to come because the markets just can’t go straight up. But of course, that’s what we’ve seen for most of 2009. The closest we came to a major correction was in early July when the market lost about 7% from its high in June. How far away is this corner that we have to turn?

US savings rate will rise above 10%

When the US savings rate (as a % of income) rose from a low of 0.8% in Apr, 08 to 6.4% in May, 09, the mantra out there became that the US is going to see their savings rate spike to above 10% due to the consumer deleveraging being undertaken. Hence, the consequences for the consumer-driven US economy – roughly 70% of GDP is consumption – would be dire. Here we are in Jan, 2010 and since May, 09, we’ve seen that savings rate back down to 4.7% in Nov, 09. I’m sure waking up every other morning to 100 point gains in the market must have helped improve sentiment!

Insider sales indicate upcoming slump

Starting in the summer, people started noticing that insider sales outweighed insider purchases by quite a margin, with the ratio of sales to buys reaching 60 times on occasions. It was claimed the insider sales are indicative of the upcoming correction as insiders are bailing out on their own companies while they can still get a good return from the rising markets. Half a year later, markets are still rising and the insider sales to buys ratio continues to hover around 50 times.

Deficit will make US debt stink, China will dump debt

The US debt-to-GDP ratio reached roughly 65% and the IMF predicted a rise to 90% and beyond in the coming decade. The alarm bells went off and everyone started predicting failed US Treasury auctions and weak foreign demand as the Treasury auctioned of billions of dollars in debt each week. China, as the biggest foreign holder, was seen representative of the global demand for US debt (even though it holds only 6% of total outstanding US debt). However, the auctions came and went without surprises with some auctions doing better than expected. The current yield on the US 10-yr note has risen back to normal levels of around 3.75% since the crisis months of Jan, 09, but still way below the 5% highs of 2007. The same trend was followed by 30-yr notes which ended the year yielding 4.6%.

What does 2010 hold?

While the above mantras didn’t translate to reality in 2009, they should still be kept in mind looking forward to 2010, as I’ll discuss in a follow up article.

Disclosure: Long market.

Image Credit: Optical Illusion under a Creative Commons license.

Young & Invested is THE hub for finance and investing insights from the new generation. Head to our blog for more insights! — http://youngandinvested.com

Disclaimer: Views and opinions expressed on above are those of the author alone and do not in any way represent the official views, positions or opinions of the employers – both past or present – of the author in question, or any other institutions and corporations associated with the author. Neither the information nor any opinions contained or expressed above and elsewhere on Young & Invested constitutes or should be construed as a solicitation or offer by Young & Invested to buy or sell any securities or other financial instruments or to provide any investment advice or recommendations. Young & Invested shall not be liable for any claims or losses of any nature, arising indirectly or directly from use of the information on or accessed through the site. Please see full disclaimers here.