2010 Predictions

Most financial bloggers do this. So I'll do it too.

1) I see 2010 looking a good bit like 2008. Deleveraging.

2) The U.S. Dollar Index makes it's way up to 92 or so, with a stop and a correction that takes place at around 82 or 83. The Euro heads down to 1.20 or 1.15 or so against the dollar. Parity between the two is not out of the question.

3) Short term treasuries hang in there for the most part. However, the longer end of the curve in notes and bonds doesn't. Rates rise but I'm not putting out any predictions on what the yields will be, as different policies around the world may affect what treasuries do and policies can be so insane, that they just aren't predictable. I don't think the bond bull is dead yet. But it's older and needs some time to rest.

4) Gold and silver get a pretty decent correction. Silver takes a harder hit than gold. Gold corrects below $1000, maybe as low as $900 or $850. Think of this as deleveraging just as what took place to 2008. However, global instability (war and economy) keep gold from dropping as far as many other commodities probably will.

5) Commodities in general take a hit. Countries with commodity driven economies see their currencies take a big hit. Oil gets cut in half the first part of this year.

6) China's property bubble brought on by insane increases in debt slows. China repeated what the U.S. did from 2003 to 2006. By the end of the year, it becomes obvious to all that China is entering deflation. Many of the analysts and pundits who claim China is going to be the next superpower start backtreading on their predictions, as they start to realize that same was said about Japan 20 years ago in the co-dependent economic relationship Japan had with the U.S. at that time. China is following in the U.S. and Japanese footsteps. It's just a few years behind.

7) Europe is in worse shape than the U.S., especially the banking sector. It shows greatly in the Euro this year.

8) Baltic states default in mass. Or at least get bailed out.

9) Many U.S. states and municipalities end up relying on Federal aid to keep functioning. California, New Jersey, and Michigan immediately come to mind. Illinois, Rhode Island, and Nevada have major issues. Many state governments have major spending cutbacks, essentially reversing any of the stimulus the Federal government has provided thus far. LOL.

10) Japan, the second largest economy in the world, is just screwed. And everybody realizes it in 2010.

11) The FDIC starts closing smaller and regional banks much more aggressively. We see a return to all banks taking write downs due to FASB accounting changes since there will be more things that will not be off the balance sheet in 2010.

12) Oh what the hell... Wells Fargo fails in 2010. Probably not that likely but if there was a big one to go, that's the one I pick.

13) Small company bankruptcies continue to increase in 2010.

14) Unemployment rises, although slowly by official numbers due to the BS at the BLS. U6 might explode though.

15) Housing takes a tumble as interest rates rise. Foreclosures rise as the ARM resets come back in force from 2010 to 2012.

16) The U.K. is screwed.

17) I'll go way out on a limb on equities. The high for the first half of the year will be 1175 on the S&P 500 and will occur on January 15th. I'll take the bet that it's the high for the whole year too.

18) Talk of cutting the Federal budget starts to heat up at the end of 2010, as a U.S. default in 2011-2012 starts to look likely.

To really sum it up. I see conflict heating up around the world in the second half of 2010. Gold corrects the fist half of 2010 due to deleveraging again but gets a bid the second half of the year. I see the same for the long end of the curve of U.S. treasuries. I see oil getting cut in half in the fist part of the year only to be resurrected by the global instability, much in the way gold might be as well.

The only real difference I see between 2008 and the first half of 2010 is that long dated treasuries don't get a bid this time around during the deleveraging due to government spending. There ends up being very few places to hide this time around except for cash itself. Most of this year ends up being about looking for safe havens. I see the dollar and short term treasuries as being the safe havens most of the year with gold coming in to play later as a safe haven again after deleveraging in it is completed. And maybe oil enters in to the equation later in the year.

The real question for 2010 is going to be gold. Just how big of a bubble is it? Will it collapse or will the potential global instability keep it rising?

Unaccounted For Treasury Purchasers

A definite read...

Sprott December

Let's assume the numbers are correct.

The only question is... Was this money printed?

The Fed WAS trying to hide the fact that the chinese were bailing from agency debt. But it didn't take long for folks to figure out that the Fed was buying agency debt from the Chinese in return for them to use the proceeds from the sale to buy treasuries. Coincidentally enough, as of June 2008, the Chinese held about 527 billion worth of agency debt.

The fact that they were trying to hide it to begin with suggests to me that this is possibly where the 500 billion came from. It was classified as "household" to hide it. Maybe... Maybe not...

The whole issue of swaps could be part of this equation. Watch the video below.





The swaps talked about in the above video are very likely a check kiting scheme where central banks do currency swaps and in return, buy each other's treasuries to keep global interest rates low and to keep the public's faith in their governments.

Back in June of this year, adjustments were made to how indirect bids at treasury auctions were calculated that might possibly hide some of this activity. Maybe this is part of the equation as well. The "household sector" may be where the "proxy" exists through which a check kiting scheme it taking place.

Truly, I don't know what's going on here. But I know it stinks. Let's face it. Economies around the world are suffering and by all appearances, do not have the ability to continue to get funding for the soaring expenditures of governments.

Is it a ponzi scheme?

I'd say yes.

And the scary thought is that a ponzi scheme might be the only thing that is holding the global economy together, as most of the world's debt is denominated in dollars.

The U.S. Government's Christmas Gift To You

From Reuters: Treasury uncaps credit line for Fannie, Freddie

The Obama administration pledged on Thursday to back beleaguered mortgage finance giants Fannie Mae and Freddie Mac no matter how big their losses may be in the next three years.


The U.S. taxpayer will be in debt forever. Merry Christmas.

I believe the number it WAS capped at was 400 billion (200 billion each). Regardless, up to this point, only about half of that had been used although recently, the agencies were going to be asking for more bailout money.

As you would expect, the bond market was not happy about this (and not to happy about the health care bill either).

Click Image To Enlarge



If the government keeps this up, you are really going to see rates rise and housing values get absolutely slammed.

Thirty year fixed mortgage rates are now back above 5% and loan applications are dropping again because of all of this stupidity. If rates get to 7%, housing values will be in shambles. How much house can you afford at 5% vs 7%? A typical monthly mortgage payment would go up by about 24% with a 2% interest rate rise from here. To afford the same home with the higher interest rate, housing values would have to fall by roughly 19%.

This is the best way to kill housing (and in general, the public's wealth) while protecting your Wall Street sociopath buddies.

The administration only cares about their bosses on Wall Street. The other 300 million of us can "go to hell" in their view.

And by the way, Fannie and Freddie execs are getting multimillion dollar compensation packages. From the Washington Post: Fannie, Freddie chiefs to get Wall Street-style compensation packages

For disclosure purposes, I have owned "PST" since Monday. PST is Proshares' UltraShort of the Barclays 7-10 yr treasury bond fund. The health care bill scared me into it.

The long end of the curve has been rising the last few weeks, ESPECIALLY this week. Someone was tipped off on this news that was just so timely announced at the end of the trading day on Christmas eve. Can you say Fraud? I knew you could.

The Worst States

Click Image To Enlarge



Image from ResearchRecap.

Sideways Forever?

What's wrong with this picture?

Click Image To Enlarge



That's mutual fund outflows totaling more than 40 billion since August. And yet the market soared during that time.

Just to verify the above... See this link where mutual fund cash levels are at lows not seen for nearly 40 years. With outflows predominant, there's definitely no way mutual funds are going to push the market higher.

With insiders selling like crazy as well (82 sell for every 1 buy) and shorts entering the market, one has to wonder... Who has ended up with all the shares of stock with the retail investor leaving the market?

With the dollar on a run, one has to wonder if that has left quite a few more shares in the hands of those who are becoming unwilling owners.

Who has the shares? It would have to be mostly market makers and those firms doing the high frequency trading.

I am guessing with as thin as the market volume has been, they have tons of shares without a fool to dump them on. And they don't lose. Moving the market strongly either direction might introduce more sellers than buyers, leaving these guys in a major jam. So something has to give or watching this market will become like watching paint dry. Sideways ad nauseam.

I truly don't know what's going to happen, however if you are a burned out trader, right now might not be a bad time to take break.

Then again, bonds might be looking exciting again. More on that later.

After Hours Currency Carnage

The dollar is rippin'.

Three Days

Click Image To Enlarge



Three Months

Click Image To Enlarge



It's a blood bath tonight. The Dollar is smoking everything. And we are just a few points away from a dollar sky rocket, as much of the resistance will have been passed. The EUR and GBP are getting killed.

Asia may be quiet overnight but if this keeps up, expect European markets to get trashed in the morning and expect follow through to the U.S.