2010 Forecast/Predictions/Musings

Posted by Ray on December 24, 2009 under Main | Be the First to Comment

It is always fun to make forward looking statements or predictions even though no one knows what is really going to happen. I decided to write this piece because Dennis Kneale was bragging about his wonderfully generic and completely mindless 2009 predictions he wrote last year which he claims was 90% accurate, even though it was the equivalent of a John Edwards show accurate list of junk.

Sorry, but predicting ‘corporate smashup,’ which I am not even sure if that is an actual technical term or not, but regardless, is as pretty generic as you can get as the government was passing out bailout money like mad. My other favorite prediction was that the Big 3 would get bailout funds as they were begging Congress for, drum roll please, a bailout, I mean seriously. The mindlessness went on of course, but that is Dennis for you, so I figured I would actually go out on a limb and make real predictions, and not use general ‘corporate smashup’ terminology.

I am not picking on Dennis, ok I am, but its fun! In all fairness to Dennis 2009 was a tough year for him as CNBC teased him with his own show only to take it away from him. He clearly is putting all that weight back on again, hey we all face the battle of the bulge at one point or another though. He got smacked by multiple guests for being an idiot because, well, he’s an idiot. The real irony is his 2010 prediction of Twitter going under is already in the can as they just inked 2 deals worth millions, wrong again Dennis and it is not even 2010 I guess VC money is a lot smarter than you, go figure.

Here we go, 2010 predictions:

1. Sovereign debt issues will escalate in Eastern Europe, meaning defaults because no one cares about that area. Dubai will not receive more exceptional help because they will be “made an example of” by its neighbors. Greece will be bailed out by the EU, go figure. However, emerging market debt will be OK.
2. Unemployment does not improve and will reach 11.2%, unfortunately. U-6 unemployment/underemployment will reach 20%+.
3. A third party will be formed in the US, but not in time for the midterm elections.
4. Democrats will lose the majority in the Senate and the super majority in the House, but not the majority.
5. Obama’s approval ratings will mirror Bush’s as he pushes cap and trade which is unnecessary and punitive to the American people. He will learn that there is a price for over exposure, seriously, we do not need to see him every day and he is no FDR. Unfortunately, if we give anyone any credit for the BS growth we are witnessing it is the, I can’t believe I am going to say this, the Fed.
6. Bank failures will reach over 300 for the full year.
7. We will see a spectacularly large bank failure next year, obviously not a too big to fail, but a large institution. I actually would place the FHA in this category, but it could also be a large regional about the size of a Key Bank, I refuse to give my prediction because of legal reasons and Key Bank is for comparative purposes only, but they are not in great shape.
8. We will see inflation and the Fed will be unable to raise interest rates due to the unemployment picture. For the first time we will have a recession, or whatever we are calling it by then, with rising prices.
9. Health care premiums will go sky high because the biggest sham of “reform” just got past by our elected officials who do not understand how the system actually works.
10. Some nut job attempts to shoot investment bankers because of high bonuses they will receive. I am not advocating it, I think it is stupid and it will be senseless, but there is a high probability that some nut job will do it.
11. High frequency trading, dark pools and other questionable practices will be regulated or severely restricted by Congress through legislation. Whether or not this is a good thing remains to be seen, but I would suspect it is.
12. The market suffers a sharp and severe correction as people realize that stocks do not go straight up and the markets actions have deviated from the realities of the economic conditions. When this happens is anyone’s guess, but it will happen.
13. We may see a 5% GDP print, but those numbers will be severely revised down and we will see the weakest ‘recovery’ ever in the history of recoveries from recessions. After we had spent some $2T+ fighting this economic downturn which will astound the public. The average recovery in terms of GDP growth is well above 6%, but the latest revision for 3Q09 GDP is 2.2% which is appalling. Remove government spending, just forget it because you don’t want to know.
14. The dollar will have some strength before the Fed realizes that it must double its balance sheet again and we will then see new lows in the DXY by year end.
15. Gold will reach new nominal highs.
16. The debt ceiling will be raised again to $16T before they eliminate the debt ceiling completely. I am kind of kidding here, but seriously why have a ceiling when as soon as they hit it they just raise it?
17. Emergency tax hikes will be enacted by summer bringing top marginal rates to 40%. Capital gains tax rates will increase to 25% and dividends will revert to ordinary income. I would not be surprised to see a VAT enacted as well, just because.
18. Google takes over the world because Android is really a secret mind control device that when Eric Schmidt gives the secret command, I hear the word is ‘snicker doodle,’ everyone with an android phone will do Google’s bidding.
19. Obama will finally fess up and admit that he was born in Kenya followed up with the following statement; “what are you going to do about it?”
20. Mark Haines finally snaps on the air and starts babbling incoherently to himself while swatting at invisible bugs… wait he already does that.

There you have, Ray’s long list of predications for 2010. Some will happen, most won’t, but they are fun to guess at. I also have a wish list that involves people joining that 11.2% projected unemployment rate because they deserve it, but since its Christmas I will refrain from printing such a negative list. However, I am sure you have guessed that one of those wishes, projections, is that Dennis’s contract will expire at CNBC and we never see him again, I can dream. However, as we have seen from other failures like Ron Insana no matter how bad you screw up that network will always take you back. Man, how do I get a job there? Merry Christmas, yeah I am not politically correct.

Subscribe to Annuity IQ's Feed

LS Blogs


Sphere: Related Content

The US and its AAA Rating

Posted by Ray on October 22, 2009 under Main | Be the First to Comment

I have talked about this before, but figured I would bring it up again as it is making headlines that the US may lose its coveted AAA rating. Does it really matter if the US loses this rating or not? It does from an ego point of view, but that is about it since it is highly unlikely that the US will default on its debt. Instead the US will more than likely simply inflate our way out of the mess we are in rather than actually default, but that would still count as a “default” to a certain degree.

What you need to know about rating’s agencies and how they rate sovereign debt is that the game is rigged. We know these agencies did a bad job with the mortgage debt and other private debt in the recent past, but Green Light Capital wrote a great piece on how Moody’s in particular rates sovereign national debt. Basically, the firm only looks about a year out to see how these countries can finance themselves and they do not tax demographics or tax policy into account yet they are predicting some 5 to 7 years out. It was a very interesting read and I will post the article below. Essentially, Moody’s is telling everyone that there is nothing wrong until there is something wrong and then they downgrade the paper, sound familiar?

I could also point to Executive Life which carried AAA ratings right up until the day it filed for bankruptcy, but I would be dating myself. This is what ratings agencies do, they have a CYA policy and then try to argue that their service is covered under the 1st Amendment, when clients pay for it which is not how the real world works. Anyhow, getting back on point, would the US lose its AAA rating? More than likely we will, but not because of default, but because of devaluation of the currency.

Investors will always get back the face value of the debt they buy from the treasury, I would guarantee that, but the US never guarantees the value of said dollars. Hell, Zimbabwe guarantees you will get back the face value of their debt, but, well you get the point. In a nut shell, even if get taken down to a AA rating it will not even impact our interest rates since we set them. Until we actually have a real crisis, meaning a currency crisis or consistent failed treasury auctions which would force higher interest rates – see Argentina – then the borrowing costs will remain wherever we set them.

Essentially, until the market says otherwise we still call the shots, but I will be the first to tell you that we cannot and will not be able to call the shots forever. With the total public debt, including intra-government debt, at $11.9T, according to treasurydirect.gov, which is 83% of 2008 GDP, we are getting up to a level when people are going to question are ability to pay them back. I mean, it’s not like we were really going to pay them back to begin with, but at least we gave them the illusion of repayment with debt-to-GDP well below 100%.

With the administration and CBO, I never give estimates much weight because they are always wrong as in way too low, calling for trillion dollar deficits for the next 10 years and that is if we have an actual recovery I think we need to think worst case scenario. If we do not recover in the next year or two then double those numbers and then we are talking reality or close to it. That is when the market will tell us that we know you are full of it and will demand higher returns on their loans to us. Basically, a credit rating means nothing on sovereign debt as it is still market driven and a great example is Japan who lost most of its AAA ratings already.

My big fear is and I think we are far away from this unless something funky happens in the currency market is a failure in the USD. However, in my opinion I think we would need to see treasury auction failures happen well before we see a currency failure occur and based on demand right now that simply is not going to happen. China, Russia and India can talk all they want, we are listening, but they are still buying and that is all that matters right now. Yes, we need to get our act together, I am not denying that, but it is not as severe as many are saying, unless the DXY slips below the 71 level then I will be a bit worried and you should be too.

21311124-Einhorn-Vic-2009-Speech

Subscribe to Annuity IQ's Feed

LS Blogs


Sphere: Related Content