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Thursday, December 30, 2010

The future ain't what it used to be.

If you are old enough you will recognize the title of this article as a Yogi Berra quote, and I just wanted to give him the credit he deserves. Neils Bohr, the Danish Physicist, who was a major contributor to our understanding of atomic structure once said,”Prediction is very difficult, especially about the future”. I would add to Bohr's quote “but it is fun to try”. I have taken a stab at some of the things I believe we could see in the upcoming year, I could be 100% wrong but time will tell. We all have a tendency to extrapolate what the future will be based upon the past but the future has a mind of its own, just like Yogi Berra was alluding to. We humans cannot see with true clarity what will be, which is what makes predicting so much fun. I spent some time pondering what 2011 would be like as I was trapped inside during the “Blizzard of 2010” and below I have listed 15 things I believe may come to pass (just my opinion).

·         The Euro zone crisis will continue and Spain will be the next problem child causing the dollar to strengthen initially. After the Euro problems metastasize the Dollar will face problems of its own because US sovereign and state debt will be exposed to be much more risky than previously thought. The EU will continue down the path for further QEuro (quantitative easing Euro style) much to the chagrin of the Germans who are trying to desperately hold things together. The Germans who have the EU's strongest economy do not want to go down the QEuro path due to memories of the Weimar Republic, but alas the Germans cannot walk out on the Euro zone without serious if not devastating repercussions for themselves. Long live the Euro, long live QEuro. The Dollar and Euro will reach parity.

·         Longer dated interest rates will rise not at the hands of the FED but instead because bond investors will demand higher rates of return for their capital. Yields will rise as a result of continued falling bond prices. Bonds will be impacted by the weakening Dollar and the rise of undeniable inflation.

·         Partially as a result of rising rates outlined above housing will continue to fall or be weak at best. The foreclosure rate will increase next year as the “Mortgagegate” mess gets resolved and people are displaced from properties by the banks, adding to the pool of houses and creating a drag on price recovery.

·         Bernanke will continue to punish savers with Zero Interest rates for the coming year.

·         People worldwide will be looking for a means to keep their purchasing power and will further turn to commodities and money alternatives like precious metals. Copper will become very popular as the poor man's Silver and Silver will continue upward as the common man's gold. The gold price will power up to at least $1600 (not in a straight line); then it will correct down in order to prepare for a further leg up in 2012.

·         Despite his denials that the FED is printing money, Bernakne and company will continue to try and devalue the dollar enough to break Chinese Yuan peg. Further Government funded rescues will be required at the state and municipal levels requiring more money printing than Ben had anticipated further fueling the rise in tangible asset prices.

·         Some municipalities (between 15 and 25) will file Chapter 9 next year but most will limp along until 2012 or beyond. The big 3 deadbeat states (California, New York and Illinois) will require Federal help to prevent a meltdown and filing for Chapter 9.

·         The markets will become increasingly volatile by the second half of the year. It will be what is known as a stock picker's market and most buy and hold will not produce great returns. High frequency and programmatic trading will cause another “flash crash” with unpredictable results.

·         Oil will spend the majority of the year over $100 and continue its slow upward march. Oil will probably match its peak price of 2008 since the Dollar will ultimately turn down after an initial run to the “safety trade” is finished.

·         The US deficits will be larger than previously estimated between the extension of the tax cuts and increase in unemployment benefits and the lack of will to actually cut spending in Washington. Add to this the increase in energy costs the FED will be forced in to discussing QE3 (or QE2 extend remix) by the third quarter when QE2 is supposed to wind down.

·         Price for natural gas, currently the red headed bastard child of the commodity space, will go up as supply will get constrained due to less available water that is needed to extract natural gas from unconventional methods (IE Fracturing). If you are more of an investor you can look for natural gas suppliers that are expanding their reserves more through conventional methods, as well as on shore drillers in the space.  Master Limited partnerships will continue to do well for those looking for dividends.

·         Restaurants will have to raise prices next year as agricultural price increase need to be passed through and I believe this will translate in to lower profits. Food producers like General Mills (NYSE: GIS) will see their margins squeezed as input costs will rise faster and eat in to their profits. The food producers will be unable to pass the costs on to consumers at the rate internal costs are rising at least not initially.

·         The trend of Chinese health reform will begin to assert itself and lead to a rise in health related stocks especially equipment makers and pharmaceuticals both of Chinese domicile and elsewhere.

·         Consumers will continue to spend, however, they will be more selective and a desire for quality over quantity will be the driving factor. “Joe six pack” and others will be looking for the best bang for the buck and that does not always translate in to the goods with the lowest price tag. Food prices will also impact the average American and this could lead to a further uptick in sales numbers for companies like Walmart (NYSE: WMT), BJs (NYSE: BJ) and Costco (NASDAQ: COST)

·         Technology stocks in certain areas will continue to do well as new trends like “cloud” computing take hold. I believe that Google Inc (NASDAQ: GOOG), Apple Inc (NASDAQ: AAPL [FREE Stock Trend Analysis]) and EMC Corp (NYSE: EMC) will continue to do well going forward and the stars continue to align for a resurgence of Intel Inc (NASDAQ: INTC) and Cisco Systems Inc (NASDAQ: CSCO). Many smaller tech companies are poised to do well too; for example Teradata (NYSE: TDC), Nokia (NYSE: NOK), Research in Motion (NASDAQ: RIMM [FREE Stock Trend Analysis]) and Salesforce.com (NYSE: CRM).

I hope that all have a safe and Happy New Year! I look forward to seeing what will really happen in 2011 and I will continue to write about the unfolding events and investment opportunities I see. I will be back on Thursdays at Benzinga.com in 2011 as well as on my own blog. Next post should be Jan 4, 2011.

1 comment:

Lola said...

That's way more clever than I was expecting. Thanks!

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