2010, Do I Dare Predict?

For 2009 I did predictions that I labeled as items I hoped would not occur. They were all pretty much doom and gloom predictions, though some, like unemployment topping 8% ,were a bit too optimistic. Still, my predictions on the stock market being down significantly were not right for the year (but would have been had the year ended March 9). So with the new year coming, is the gloom passing? Is the doom behind us? Am I an idiot?

Let's start with me simply posting here the first six headlines as they appear at this very moment at Bloomberg:

•China Manufacturing Grows at Fastest Pace in 20 Months, Cementing Recovery
•U.S. Jobless Claims Unexpectedly Decline to Lowest Level Since July 2008
•South Korea's Exports Rise at Fastest Pace in 17 Months as Demand Revives
•Commodities Post Biggest Annual Gain in Four Decades as China's Use Surges
• Hatoyama Says He'll Focus on Deflation, Jobs as `Honeymoon Period' Ends
•AT&T Biggest Winner With $15 Billion Savings From Lowest Yields Since 2005

Wow!! Those are some incredible stories!! Everything is absolutely fantastic!! And so, it is with heavy heart that I am still a pessimistic sod.

Now my quandry here is that I believe we are in a major bubble building process and I have no idea how long this process will last. I suspect it will pop in 2010 or 2011, but it could last longer. Still, I am going out on a limb and predicting the "POP" in late 2010 or early 2011. Too much air in too little time and too little balloon to handle it, in my opinion. So here are my predictions for 2010 (I am just guessing here so do not invest based upon them):

1. The U.S. is going to start to run into some serious issues in getting other countries to buy its debt and finance stimulus spending. I am not expecting a massive sell-off by sovereigns, primarily China and Japan, who hold our debt but they will be net sellers, not net buyers in 2010, and their purchases will be hard to replace.
2. As I did last year I am predicting the S&P will be down 10-20% by year end from where it ended today. Hey, the prediction did not work for 2009 so if I keep predicting it every year eventually I will be right. In truth, I do believe the market is well over bought and we have no where else to go but down as stimulus dollars wear off and the government runs out of stimulus dollars to throw at this mess. I really think we will be more than 30% off our current highs but am being a bit conservative in my prediction.
3. The Euro will have some major hits as countries, like Greece, suffer some major ratings downgrades. Do not look to the Euro to replace the dollar any time soon.
4. Interest rates in the U.S. will end the year roughly 2% above where they are currently. Mortgage rates have already increased steadily for the past four weeks. The Fed is running out of ammo to keep them down.
5. Housing will remain stable but will not climb off the bottom it is at. Adjustable rate/Alt-A loans will peak in defaults and this will keep the banks on the sidelines. Fannie Mae and Freddie Mac will continue to provide most loans, with government support, and their books will continue to look worse and worse. Commercial real estate will continue to decline in the U.S. We are so overbuilt in this area that we could go a decade with no construction and still not catch up. Bottom line, real estate on the residential level is probably at its low or near there but do not expect any big increases.
6. Tiger Woods will find the 19th Ho.

Disclosures: None.