Things I Think Will Happen I Think?

All I have seen, heard, and read over the last few weeks are people's expert opinions and predictions on what happens with the market and economy. Let me tell you something about experts. Run from them.

I am no expert. Not an intellectual in the least. I do know a vast amount of stuff about diverse subjects from baseball to derivatives. From Heavy Metal Music to Mortgage Trading. But I in no way call myself an expert. As soon as that happens I start to take my self seriously.

So....Here Goes.

EQUITIES

The Dow will at some point reach 11,000. Probably by the first week of 2010, only to collapse to under 9000 by the end of February 2010. The reason? Quite simply this huge rally from the March 2009 lows is 100% fraudulent. Its all liquidity and kick the can down the road trading. The banks run the joint and have at every moment delayed their day with destiny. The liquidity will continue through out 2010, but the cat will be out of the bag as the banks are toast. As the markets fall apart the Fed will keep printing and reflating. What else can they do? This will keep a floor on equities through out the year. If and only when long term interest rates rise considerably will the markets revisit the March 2009 lows. The odds of this happening is 2-1. My guess is that treasuries don't capsize and the Dow finishes near 9200-9500 for the year. The SPX at 950 or so. Technology AKA the NASDAQ will outperform as those high tech names generally have cleaner balance sheets. Apple, Google, Amazon.com, RIMM, and Oracle will do better then the averages. Semiconductors will under perform.

TREASURIES/USD

Long Term Bond Yields will drop in January as a general flight to quality will ensue. Ditto for the US Dollar. The 10 year yield is at 3.84%. I see that yield hugging close to 3% during the coming swoon in equities. There is a risk that another huge round of treasury refunding will wallop yields but that's what Quantitative Easing/Monetization is for. If QE doesn't work and the Treasury has problems selling government paper, it can be a snowball effect where as I can just finish this post at this moment. I don't believe the end is that near. Not yet anyway. The dollar will rally across the board. Yields across the curve will be lower at the end of the year then where they started. The US Dollar will rally 15% from here.

COMMODITIES

Crude Oil prices will be volatile for most of 2010. I see Crude dropping to $55-$60 by the end of the year. Partly from USD gains but mostly as Wall Street deleverages and the global growth story takes 2010 off. Natural Gas is 100% an inventory play. Its currently quite cold on the East Coast, so inventories are tight, this will lead to classic hoarding of inventory as the spring/summer period hits us. I see Natural Gas plunging to $3 then climbing back to $4 or so by year end. Gold is the wild card. Gold is a classic weak dollar/inflation hedge/drunken central bank printing play. Gold will correct at some point, likely towards $950-$1000, but as I stated above the Fed will continue to print, so Gold will then reverse course and head towards $1300-$1500 by year end.

Employment

This figure will be depressing for most of 2010. I don't see this rate dipping below 10% too much. If it does its all governmental manipulation. At best the rate goes towards 9.5% Employers are more worried about the state of the economy today then they were 6 months ago. This tempered enthusiasm will have employers on their heels. I don't see the employment rate sky rocketing as work still needs to be down. This is still America. But wages like they have been for the last 30 years will be pressured and hours worked will increase as employers will suck the blood out of scared workers. More and more people will be transferred to temp status as the cost of keeping a full time worker rises. By the end of the year we will have a better idea about the state of employment. But only after we get clarity on the housing picture.

Housing

Let me see.
Disaster.
Blood Bath.
Sink Hole.

This is the one single entity that is holding back the economy. Yes, Its housing! Not jobs. You heard it from me. Millions of jobs have been lost. They are not coming back. We all have to move on. But housing which is heavily leveraged up the wazoo is a serious problem that government and the financial sector keep pretending is getting better. The banks have totally forgotten about the trillions of bad mortgage debt on their books as well as off their books. They are having too much fun borrowing from the Fed and lending to Treasury. But guess what? Just because u don't pay the bill this month, doesn't mean the bills stop coming. There are hundreds of billions (Maybe Trillions?) of horrid ARM/CDO/ALT-A mortgage paper that is still floating around in banking circles. Maybe that is what trillions in Excess Reserves are for? As a cushion for those losses. Funny. Did anyone tell Bernanke and the Fed That? Is the Fed really wasting their time with reverse repo's?

The coming wave of ARM and Option ARM resets will be brutal. These homeowners can't pay the ARM side of their mortgages, what makes you so sure they can pay the fixed? The foreclosure abatement was only temporary. The banks found out they can slow the foreclosure process by completing fake loan modifications and reap huge fees from the tax payer in the process. In this case, they modify mortgages with original principle, add more debt to the back of the mortgage, bill the tax payer for the privilege, and get to keep home foreclosures off their books for the year. This allows the National Association Of Realtors and Case/Shiller to say that housing has stabilized. Of course stock index futures rise 10 points on this alone, allowing banks to do fraudulent secondary stock offerings to dilute current shareholders. They only do this to pay back TARP, so they can go back to paying ludicrous bonus money to the same people who made the reckless bets that murdered us in the first place.

Net.Net...Foreclosures ramp up pretty aggressively throughout the year. The banks cant handle the foreclosure activity so they sell the underlying notes/deeds to FANNIE/FREDDIE/GNMA which really is the government. Need I say the government bends over backwards in buying these loans from the banks? Immediately the government starts to cut down mortgage debt(Cramdown), because that was the original problem that was swept under the rug. Obama will scream to the heavens its not a 100% takeover or nationalization of the housing market, but that's what it is. Housing takes a 30% cut right then and there. This is the reason the caps were taken off of the GSE's. Pure and Simple. I just cant say anything positive about housing with these type of headwinds and the gross incompetence that has been exhibited by our elected officials. Every step of the way its been lets avoid the unpleasant. Lets avoid upsetting the banks. Lets play hard ball with homeowners. This is the year that turns around. The mortgage market subsequently takes a hammering as the securitization market collapses. Credit default swaps written on garbage CDO's will also explode destroying the synthetic CDO market. But homeowners get a reprieve, they get to stay in their homes. The jobs picture slowly gets better going into 2011. The main reason being is that although the government is running on fumes, the banking sector should be OK as the banks are generally on the sell side of the synthetic CDO market, that falls apart, they make money. This coupled with the government paying close to par for toxic mortgage paper will again liquefy the banking sector. Its the long side (Pension Funds/Institutions) that will be looking for a bailout this time around not the banks or Wall Street. I am not stating that the banks are buys. Far from it. They will correct some 50% from here, but will recover their losses as the year draws down. From this event the banks will be a lot better off going into 2011 and beyond. Its government we have to worry about.

GOVERNMENT

Tim Geithner will be fired and Bruce Bartlett takes over for him.
Ben Bernanke will be confirmed.
Lawrence Summers gets marginalized.
Paul Volcker and Shiela Bair get more props from Obama and move into his inner circle.
Obama approval rating will stabilize around 40% and move back to 50% by year end as another crisis has been averted.
The GOP make head ways in the mid term elections, but not enough to take over Congress.
The Treasury works overtime to again sell treasury paper. Flooding and extending the duration of long term paper will be the biggest test for Treasury.
The Federal Reserve will continue with QE 2.

There you have it. I think?