Outlook for 2010 – What is your mindset?

We saw a great recovery of the markets and of most economies in 2009, post era of the financial meltdown in 2008. As i am too young to have experienced those prior, i am blessed that this is the first i have experienced and yet the worst ever from what has been, or so i am told. Often, i speak to bankers and hedge fund managers whose experience are at times twice my age and they go “You know, we haven’t seen anything like this in the markets for a long time,,,” Swipe that ego aside, “a long time” means they have never yet seen it. Come on, give me some hope and faith here, i scream within. Then again, i have to act it cool and nod in agreement “Yeah, i agree”, though i have no idea what mental flashback is running in their heads as i often see them staring in space for a few seconds.

Well, coming back to our point, if indeed, 2008 has been the worst crash, how have we recovered so far? Remarkably indeed. Here are some numbers;

To keep our comparisons consistent, i would like to note the high at Aug ‘08, the low point since, and where we are today.

1) S&P 500

Aug ‘08 Close – 1,282.83
Low Since – 735.09
Now – 1,145.68
Recovery Since – 75%

2) DJIA

Aug ‘08 Close – 11,378.02
Low Since – 7,062.93
Now – 10,680.77
Recovery Since – 74.4%

3) Hang Seng Index (Est)

Aug ‘08 Close – 22,899.8
Low Since – 11,440.0
Now – 20,328.86
Recovery Since – 77.6%

4) FTSE (Est)

Aug ‘08 Close – 5,154.4
Low Since – 3635
Now – 5,501.69
Recovery Since – 122.85%

5) NIKKEI (est)

Aug ‘08  – 12,600
Low Since – 7,060
Now -10,435
Recovery Since – 60.9%

It is therefore obvious that with most markets crossing the 70% recovery mark and with some even doing better than the previous high of August ‘08, it is quite believeable that most would think the worst is over and we are soon getting out of the recession. We can also easily forgive most bankers to go about business as usual.

So, how come we have recovered so fast?

Now, as most of you already know, 2009 has been the year of bailouts. From West to the East, governments have been pumping in money with their QE policies and also Central Banks intervening with rate revisions and monetary policies, one cannot deny that much has been done to prop up a stumbling world  economy.

The tricky part here is this, with so much liquidity pumped in and “free loan” money handed out, there can be only good news eh? Well, with all good things too, there has to be an end.

So, what lies ahead?

In 2010, is when most of these policies will expire, rates will be raised or loans will be withdrawn. I see lots of volatility ahead and irrational market behaviours which might upset long term investors. However, being traders, who love volatlity, especially yours truly, this can be a fabulous year.

Let me share with you why i think 2010 will be a rocky year;

1) Because of the various effects and consequences caused by these stimulus steroids, the fundamental underlying assets may require more meticulous analysis. This will make future growth and projections uncertain. As we understand that the government fundings can no longer be the sole life-line for these companies, withdrawal of them will; a) cause immediate credit crunch and b) de-stabilize the possible growth pattern that has been envisioned, particularly in the last 6 -12 months.

2) Therefore, the only saving grace that can beef up these economies and get the engines roaring again will be to have increased consumer spending. With the current climate and general mentality, we know that the bullishness with the market and its consumers(in general) haven’t yet returned.

For example, in US alone, unemployment rate is still concerningly high and the foresight of having a double dip recession is highly possible with the last NFP report that was released.

3) Most companies/real estate problems will surface again. This time, there isn’t anymore funds for help.

Under the FY window, most companies close their books and declare earnings for the FY in Sep-Mar. This would mean that the post meltdown year, in its aftermath, hasn’t yet reared its ugly head with all the effect it has had on the various companies.

As for the real estate sector, in the US again, 1 out of 12 houses are still delinquent or in the state of foreclosure. If this is true, then a new wave of mortgage nightmares will re-appear again this year.

On top of which, if you have noticed, Treasury Secretary Geithner has just extended the TARP program. This is basically the Troubled Asset Relief Program which is keeping many of the big boys alive on their hospital beds.

News had it also that the FDIC (Federal Deposit Insurance Corp) who are basically the insurance coverage for your US banks, have also increased their budget by 56%  ? Are these signs of an economy recovered? I am not sure about you but these all symbols big red flags to me!

Oh, and of course, to make things bitter sweet, the Tax Relief program deployed by George Bush Jr. will expire in mid April  Will Obama let the tax relief program end amidst such uncertain times with more foreclosures and under such tight credit circumstances? Or will he indeed let them expire and enjoy the healthy tax gains that the Govt can enjoy to re-deploy via its TARP fund or for his new health care bill? Sounds like one real sticky situation to me!

Whichever way it is folks, 2010 will be a violent year. It might not have pure recession-like shocks like 2008 did, but it will have large periods of extended congestion and the market will be generally directionless, if not with widespread whipsaws and erratic movements.

If you are a currency trader, sharpen your tools to adapt to this situation. If you are not a currency trader, ensure you have a diversified portfolio.

2010 is not going to be a bullish year folks and don’t believe the media, cuz that is exactly what they want you to believe, so that,,…

Cheers,
Seeni

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