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Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Stock Market, Commodity and Dollar Forecasts for 2010

Stock-Markets / Financial Markets 2010 Dec 30, 2009 - 10:42 AM GMT

By: Tony_Sagami


Best Financial Markets Analysis ArticlePredicting the future is not easy, but at the end of last year I made five for 2009. How’d I do? Pretty darn good if I say so myself.

In this column, I’ll review my 2009 market predictions and more importantly, tell you what’s in store for 2010 and how to play the markets.

2009 Prediction — The U.S. Stock Market Is Headed Lower. A Lot Lower … I don’t believe we’ve seen the last of the exploding, financial time bombs.

What’s more, I expect:

(a) real estate prices will continue falling,

(b) unemployment will continue rising,

(c) our economy will continue contracting, and

(d) our stock market will reflect the deterioration of those long-term, systemic economic woes.

How’d I do? I was absolutely right about more deterioration in real estate, jobs, and the overall economy, but I was dead wrong about the U.S. stock market.

2010 Prediction: I’m sticking with the same prediction for the coming year. The U.S. stock market is more overvalued and headed for a very painful fall.

How to profit: An inverse ETF, such as ProShares Short S&P 500 (SH), is designed to profit from falling stock prices.

2009 Prediction — The U.S. Dollar Is Headed Lower. A Lot Lower … The cost of bailing out our county’s financial institutions alone will be at least $5 trillion. And that’s just the beginning of the trillions of dollars in loans, grants, guarantees, and other programs being cooked up!

Smart international investors do not want to hold what will become devalued dollars. One of the best moves you can make is to diversify into non-dollar denominated assets.

How’d I do? I hit the nail right on the head. The U.S. dollar index through the middle of December is down 4.6% for the year.

While the dollar is overdue for a short-term bounce, the long-term trend is downward for the buck.
While the dollar is overdue for a short-term bounce, the long-term trend is downward for the buck.

2010 Prediction: The dollar is overdue for a short-term bounce, but the factors that killed the dollar in 2009 — runaway government spending and massive trade deficits — haven’t been fixed, so the long-term trend of the dollar is still downward.

How to profit: Merck Hard Currency fund (MERKX) invests in the short-term AAA debt of the world’s economies with the strongest economies and monetary policies.

2009 Prediction — Interest Rates Are Headed Higher. A Lot Higher. Inflation always has been and always will be a monetary phenomenon where too many dollars are chasing too few goods.

Our national debt is $10.6 trillion and going up by $3.49 billion a day. That’s $34,723 in debt for each U.S. citizen. To pay the interest on this debt and finance even more massive bailout plans, the U.S. Treasury Secretary will crank up the government’s printing presses to an unprecedented speed.

How’d I do? Right again. The yield on the 30-year Treasury bond started the year at 2.69%, but is now above 4.5%.

2010 Prediction: Interest rates are higher, but they are headed a lot higher. Inflation has yet to rear its ugly head … but it is coming.

How to profit: There are also inverse bond fund that make money when interest rates rise, such as Rydex Juno (RYJUX).

2009 Prediction — Commodity Prices, Including Energy, Will Be Higher 12 Months From Now … I used to spend $100 filling up my full-size SUV, so I appreciate falling energy prices as much as anybody. But I don’t expect low prices to last for long.

The growing emerging-market economies and the other supply/demand factors that sent oil prices to $150 earlier this year remain in force today. Perhaps not at the previous gangbuster pace, but certainly at a pace that is enough to steadily push commodity prices higher over time.

How’d I do? Commodity prices of all kinds were up sharply for the year.

Commodity Prices Soared in 2009!




YTD % Change

































Source: Bloomberg

2010 Prediction: I believe that the commodity boom has a long way yet to run.

How to profit: The Dow Jones-AIG Commodity Index ETF (DJP) gives you instant diversification to all categories of commodities.

2009 Prediction — Asian Markets Are Headed Lower. But Will Bounce Like A Superball … I don’t care what part of the world you pick — Europe, North America, South America, or Asia — the short-term outlook is not good.

The long-term outlook varies greatly around the globe. And right now, it’s the brightest in Asia in general, and China in particular, where I expect the rebound to be powerful.

The Chinese economy is a multi-decade story. And there will be plenty of “ten baggers” to be found amidst the beaten down diamonds.

How’d I do? Right again. Through the end of November, the Shanghai Index was up 75% for the year.

2010 Prediction: The Chinese economy is improving … not getting worse, so I expect 2010 to be another great year. Perhaps not 75% great, but look for a strong double-digit return.

How to profit? The simplest way to put some China in your portfolio is to buy the biggest Chinese ETF, the iShares FTSE/Xinhua China 25 Index ETF (FXI).

My advice for 2010 is simple:

(1) get out of dollar-denominated assets,

(2) commodities and hard assets are undervalued, and

(3) the fastest growing and best place to invest is in Asia.

Best wishes,


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