Hopeful Predictions for 2010
Happy New Year!!!
Here is to a wonderful 2010. I read an article on Yahoo that most people considered 2009 a very bad year for America. I was fortunate in that I had a great year, both personally and financially. I am looking forward to 2010, with many exciting challenges and opportunities. And, I wish all of you a healthy and prosperous new year. May you be blessed with an abundance of success and happiness.
As for America, I think it was definitely a bad year. The problems that surfaced in our economy have exposed our Government as corrupt and incompetent at all levels. And, our very way of life is threatened, if the Government continues to mismanage our country’s finances. I’m not just blaming the current administration for this problem. The integrity and effectiveness of our government has been deteriorating for decades. I sincerely hope we can change this course and restore the courage and glory that America has demonstrated to the rest of world.
Without any further delay, here are my predictions for 2010.
Housing will Recover Slowly
Despite the artificially low interest rates, housing still isn’t affordable in many inflated areas, for working class people. Where I live in San Clemente, Ca, entry-level houses still cost over $500K and condos cost almost $400K. This is way out of whack with real wages, which have been flat for years. Young couples simply can’t afford half million dollar houses and people who can afford them are looking up the food chain. Add to this, skittish banks, high unemployment and a lot more foreclosures hitting the market and all signs point to a slow recovery in housing.
Obviously, geography plays an important role. And different areas have a different outlook for recovery. Although housing has recently become more affordable in bust areas such as California, Nevada and Florida, banks are strict with lending in these areas. Other states, such as Ohio, Michigan and upstate New York have lost so many jobs that housing may never recover.
Another consideration is the shifting demographics of America. First, there are millions of Baby Boomers, who are retiring and down-sizing. And, there are fewer new families coming up to purchase those homes. Second, most of the growth in American population will come from immigrants and minorities, who may not generate the income levels needed to qualify for expensive housing. These two changes will influence pricing to the downside.
The Stock Market is Headed Up
I am looking for another 15-20% gain in the stock market. Even though the economy isn’t out of the woods yet, companies are making profits from the recent layoffs and high productivity. This supports higher stock prices, based on the P/E ratio. And, if the economy does come roaring back, look for companies to squeeze out as much profit as they can from the improving economic conditions. With interest rates low, inflation down and an eager supply of labor, companies should have a great year.
Another important consideration is the pent-up demand. Consumers have delayed big-ticket purchases during the recession, such as appliances and automobiles. And, they will be compelled to make these purchases as the economy improves and their existing items wear out. These industries are considered cyclical and the cycle will turn positive at some point.
Incumbents will get Voted Out
I have never seen voters so angry with our politicians. First, there was the bailout of the financial institutions, who are feasting on bonuses, while sticking it to their customers. Then, there were the stimulus programs, which frittered away billions of dollars, with dubious results. Finally, there was the health care reform that most voters hate with a vengeance. In all three cases, voters wishes were completely ignored, while companies aligned with our politicians pocketed money our government doesn’t have.
I’m not sure how many incumbents will get voted out in the 2010 election, but I’m hoping for at least 20% of open seats. That would send a clear message to our elected officials that voters can’t be ignored for the sake of generous lobbyists. There is an ugly mood on Main Street right now and voters are well aware they are not being represented by their elected officials. I look forward to the 2010 election. It will be interesting to see what transpires.
Electric Cars will Spark Change
I have posted on the subject of energy before. But, 2010 will mark a very important beginning for electric cars. The Nissan Leaf and Mitsubishi iMiEV will be released in 2010. The Ford Focus BEV will follow in 2011. And, there are dozens of EV concept cars from virtually every manufacturer. If EVs start to sell well, look for other manufacturers to release EV models. Nissan already claims 20,000 people are lined up and waiting to purchase a Leaf. Although it will take a while before EVs replace the millions of gas-burners sold each year, 2010 should be a solid start.
If the price, weight and range of EVs can be improved, they will become a solid seller, based on their low maintenance and operating costs. Once people get a taste of driving around for pennies per mile, they will be happy to say goodbye to $3 gasoline. And, they will be happy to say goodbye to oil changes, tune ups and smog checks. Obviously, electric cars won’t be practical for people who have long commutes. But, for most people, this will become a very attractive option.
The Bottom Line
The bottom line is, no one really knows for certain what the economy, housing and stock market will do in 2010. But, there are many historic patterns and indicators that can be used for an educated guess. My guess is, unless we have an unforeseen catastrophe, 2010 should be a pretty good year.
“I predict future happiness for Americans if they can prevent the government from wasting the labors of the people under the pretense of taking care of them.”
Thomas Jefferson – Founding Father of America
Recommended Reading
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I hope you are right, Bret! I’m just not as bullish as you.
You make a great point regarding housing – and why housing is still unaffordable? As we both know, that’s because of government meddling (via homeowner bailouts) that isn’t allowing the natural “cleansing” process (i.e., foreclosures) that capitalism uses to rid the market of the excesses that occur during periods of speculation.
Our capitalist system is broken because creative destruction has become politically incorrect.
I think the stock market recovery in 2009 was impressive, but was it too much too fast in light of, yes, more government meddling via bailouts and continued lax monetary policies that are propping up our economy (see auto industry, banking, etc.)?
That being said, the market may continue to rise – despite what I perceive to be lacking fundamentals to support its current rise.
The commercial real estate market is, by some estimates, three to four times more oversold than the residential bubble that popped in 2008.
When that shoe drops, look for another severe hit to the markets. If it doesn’t come in 2010, it will be here in 2011.
Thanks for letting me air my two cents. 🙂
Best,
Len
Len Penzo dot Com