2010 Predictions
Monthly ColumnBy Daniel A. Barnes
Well, the year 2009 has come and gone. Few would claim it was the best of times. But perhaps, it was far from the worst of times as well. It was a momentous year, a year of building on last year, where nothing was at the end as it began. The year began with a nation aghast at Bernie Madoff and his “crime of the century,” a 20-year Ponzi scheme that caused billions in losses for savvy and simple investors alike.
I think the real story of 2009, however, is the rebirth of thrift. Americans tend to reject the idea of sacrifice. President Carter’s 1979 “malaise” speech, where he urged people to save energy by lowering their thermostats, did not go over well, and it ushered in Reagan’s presidency. But consumer household debt fell in 2008 for the first time since the level of household debt had been measured (1952), and in 2009 consumer household debt has continued to decline.
This is significant. It remains to be seen, however, if this is a permanent shift. If it is, it bodes well for the long-term productivity of the nation, as more dollars will become available for investment in long-term capital projects and other efficient utilizations of capital. Sadly, national economic policy is much more complicated, and the actual benefits of thrift could be largely unfelt for years, or decades.
Nevertheless, all great change begins with a successful turning point and 2009 qualifies as one. In my company newsletter, Barnes Capital Insight, I traditionally provide predictions on the coming year, as well as a review of the preceding years’ predictions. If you would like to review predictions form 2007-2009, go look at our website, www.barnescapital.com and sign up for the newsletter’s if you would like to receive our quarterly letter in the future. Because of the space limitations of this column, I’ll share two of my five “likely to happen” predictions and two of
my five “unlikely to happen, but I wouldn’t be surprised if…” musings.
With no further ado:
Likely to Happen
1) Changes in health care become law. But with the deepening recession, this milestone event pales next to the growing unemployment problems. The actual implementation of health care reform is less clear and remains unrealized in 2010.
2) In real estate, the selling season begins strong in late February as hope springs anew. Then the Alt-A mortgage resets kick-off and massive amounts of suppressed inventory flood the markets. By June, oversupply and higher long-term mortgage rates sends multiple regional markets into tailspins. Deals fall out of escrow and sellers begin to face the music. But it’s too late for big changes to happen in 2010, and inventory quietly gets taken off the market as buyers in waiting and sellers in denial put off getting real and moving real estate for another year.
Unlikely to Happen: but it wouldn’t surprise us if . . .
1) Longer-term interest rates keep rising, right through levels believed to be insurmountable in the near term (6%), leaving the yield curve at its steepest ever.
2) Bond market investors begin viewing the monstrous mountains of debt and the revolving ponzi scheme of government financing as unsustainable, and they don’t quit their buyers’ strike until late fall when the 30-year bond flirts with 6%.
In Conclusion
The coming year portends potentially a lot more change. Mid-term elections, health care, real estate imbalances and higher unemployment could combine into a combustible brew. If new mayhem ensues, I’ll be keeping my eyes open for opportunity. However, in stewarding client’s accumulated savings, I’m focusing more on income and capital preservation than growth right now.
For a complete list of 2010 predictions, sign up for the Barnes Capital Insight newsletter at www.barnescapital.com/insight.