Wednesday, December 30, 2009


Now that we almost have the naughts behind us it's a good time to look out into 2010. I tend to believe that there is little value in preparing for and reiterating the consensus. The general line of thinking around most in the financial community is that 2010 will be much more of the same - rebounding corporate profits, limited hiring, but stocks can go higher because it seemed to work in 2009.

Well that line of thinking works until something changes the game. So while all of these events have low probabilities of occurring in 2010 they are events that should be on our radar and could seriously derail our fragile "recovery".

* A major European country defaults

* Interest rates rise in the US - a move of 1-2% in the 10 yr note would stop the housing market in its tracks.

* Dollar Rally? There are enough people betting on the demise of the US Dollar that the rush to exit that trade could create a massive short squeeze. The impact of this sort of rally would crush all commodities -- like gold -- and stocks.

* Speaking of gold. When gold has become the infomercial of choice on late night TV you know that it's probably time to take some profits. There are far too many variables to accurately predict the price of gold, but when Joe the Plumber starts pitching gold that will be the top of the market :)

* Housing is showing signs of weakness again and I don't think there will be any political appetite to come to the rescue of the Realtors again in 2010 (an election year).

* Lots of geopolitical risks exist in the market - Iran, Pakistan, etc, but the market has not assigned almost no value to those risks.

Finally, I've tried to highlight before the importance of thinking outside of the box and avoiding herd mentality that tends to get you trampled.

Consider this stat "The level of Bears in today’s Investors Intelligence reading fell to 15.6% from 16.7% last week and is now at the lowest level since April 1987." This isn't an indicator of any impending collapse, but when this many people are all bullish it's usually a sign that there is reason to be wary.


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