2010 The year of Financial reckoning!

Year four and as always this list is in no particular order

1.       Total U.S. consumer consumption will continue to contract in 2010 as consumers pay off negative savings from the past and begin building a savings buffer.  The consumer deleveraging trend will continue.

I will have to give me a CORRECT on this one

2.       The dollar rebound will last through most of the first quarter, but will hit new lows by year's end.

I was not sure on this one until I ran a YTD chart on UUP.  Ok, the rally lasted to the end of the second quarter, but we did put in a new low for the year in October.  I will give me a CORRECT on this one too.

3.       Small Cap Growth will be the top performing asset class in the US.  Look for outsized returns in this sector, they get to make up for 2009's underperformance and put in 2010's natural premium.  If the normal premium is 3-5 percent, look for 6-10 percent of excess performance.

Oh yea, everything right except magnitude of outperformance!  BULLSEYE  See all asset class chart in statement 7.

4.       By year's end the number one topic will be inflation.  TIP and WIP will be top fixed income asset classes.  This means interest rates will be going up - dramatically.  Rates to double!  10-year US Treasury at 3.50% will be 7.00%.

Ok, interest rates did not go to 7.00% but inflation and dollar devaluation did become major topics of conversation and the 10 year Treasury yield did move substantially off its lows.  Well Long Treasuries were the top performing fixed income followed closely by Corporate bonds and TIP coming in third.  Not correct but not all that wrong either.

5.       Total Global demand will increase even with the US consumer deleveraging.  US may stop losing jobs, but it will not be creating new ones.  Productivity will make up US's portion of increase global sales.  Exporters will have the best year.  XLK, XLI and MOO will be the sweet spot in U.S. Large Cap equity market.

Well XLI was the top performing sector of the SP500 and MOO outperformed it, XLK was not only failed to be a leader, it didn't even beat the index.  Because XLI was the actual leading sector, I will give me a BULLSEYE with an asterisk.

6.       Local governments will struggle with declining revenues as the US consumer market contracts.  Just like people, local governments are spending all their savings before cutting staff and services.  When the savings run out - dramatic cuts will be the only option.  If you own Muni's, do your due diligence.  Once the downgrades begin you will not find the exit fast enough.

Well this is moving into a 2011 story, but I am on the right track... So I get a CORRECT

 7.       Emerging market equities (EEM) will be the top overall major asset class.  I am thinking between 25-40 percent by year's end and will have two really great trades during the year.  If you own it now, a sell and a buy.  If you don't own it now, a short and a cover and buy long.

 This one I clearly got wrong.  US Small and Mid cap stocks followed closely by real estate were the top performers.  EEM did not even beat SPY, YIKES!

8.       IYR and XLU will be the most stable coupons earned 2010.

 It would be hard to argue IYR was stable this year, but when it is to the upside who cares right?  XLU was fairly stable but relative to TIP or AGG, no.  What is surprising to me is the high correlation between HYG and XLU, who would have thought?  Call this one a push.

9.       US Equities at this point in time are fairly if not slightly over valued.  How they do will depend on how bad the dollar falls.  Equities will earn about three quarters of what the US dollar falls.

 Turns out these two move nearly perfectly negatively correlated.  Cannot count this as a correct, but I have a hard time saying it was wrong.

10.   Congress will be put in a position it must make real decisions with immediate consequences regarding spending, borrowing and the realization of trillions of dollars of losses at the Fed and Treasury.  It will be their action that creates the double dip in the economy and the slope of the following recovery.  

 This will be a 2011 story, Congress managed to kick the can down the street far enough not having to deal with the budget until the new Congress comes in.  Not wrong, Congress at least came to the realization that there is a limit on which they can borrow and spend.

I see a big V coming in the stock US Stock Market this year and all fingers will be pointing at the Administration, FED and Congress in this election year.  Congress will do what it should have done last year and not have spent all that money and let the Fed and Treasury leverage themselves up.

 So yep, got this bonus statement right in fact it is a BULLSEYE.  Ok it was a different reason (Flash Crash) and not Congress waking up but sometimes it is better to be right than knowing why. 

2010 the year of Financial Reckoning!