Top 10 Outrageous Predictions for 2010
As New Year's approaches, money managers, strategists, sell-side analysts and economists turn their attention to what the next year holds.
Which sector will do best? Which currency, country, asset class? Is it time to invest in that leather-bound waste-paper basket that would really tie the office together?
But one group of analysts at Saxo Bank goes one step further to lay out its "outrageous predictions," or "Black Swans" for the year ahead.
It looks to those high-impact, hard-to-predict and rare events that can blindside investors. The exercise aims to challenge market conceptions, but the chance of one of the predictions actually coming true is no better than 50 percent, they say.
Judging by last year's list of predictions, it would appear the success rate is closer to zero. Click here to see last year's "Black Swans" and read below to see what Saxo Bank thinks could be happening in 2010.
Bunds Yields Will fall to 2.25%
German bunds, and other sovereign fixed-income assets, will see their yield slump because of deflationary forces and easy monetary policy, according to Saxo Bank. Traders will refuse to buy into the "growth story" that is being pushed by the stock market, the report said. The German 10-year government bond could be forced from 122.6 to 133.3 by the end of 2010, it added.
VIX Will Fall to 14
The VIX could fall from 22.32 to 14 points as trading ranges narrow and implied options volatility declines, according to the report. Investors are showing the same kind of complacency toward risk as they were in 2005-06, Saxo Bank said.
Yuan Will be Devalued by 5% Vs. Dollar
The yuan could be set to fall 5 percent against the dollar due to the spare capacity in China and the general economic backdrop, according to Saxo Bank. The efforts of Chinese authorities to stem the credit growth and avoid bad loans, coupled with the creation of several growth bubbles could spell weakness for the Chinese currency, the report said.
Gold Will Fall to $870 in 2010
The rally in gold prices will be brought to an end by a strengthening dollar, Saxo Bank claimed. Pushing gold higher has become too easy and too widespread to bring results in the short term and a serious correction could send the precious metal toward $870, the analysts said. However, it will reach $1,500 within five years, they said.
Dollar Vs. Yen to Reach 110
The dollar could snap back next year, sending the yen to 110, because the greenback carry trade has been too easy and too obvious for too long, Saxo Bank said. Meanwhile, the yen is not reflecting the economic reality in Japan, which is laden with growing debt and an ageing population, the report said.
Angry Americans to Form Third Party
Next year will bring see an anti-incumbent mood in U.S. politics as a result of bail-outs and general disapproval of both the big parties, the analysts said. The demand for change could bring about a new third party to offer an alternative, they added.
US Social Security Trust Fund Will Go Bust
"This is not so much an outrageous claim as an actuarial and mathematical certainty," the report said. "The outrageous part is that social security taxes and contributions have been squandered for so long."
Next year outlays for the non-existing trust fund will have to be part-financed by the federal government's General Fund, Saxo Bank said. Part of the social security outlays will have to be financed by higher taxes, which will bring more borrowing or more printing, they said.
Price of Sugar Will Drop One Third
A return to more normal weather conditions in 2010 could make sugar one of the less attractive commodities, Saxo Bank said. Meanwhile, Brazil and the US have lowered the ethanol content of gasoline by five percentage points because of the rising price of the commodity, the report pointed out. Both factors could push prices of sugar lower.
Tokyo Small Caps Will Rise by 50%
Tokyo's small-cap stocks have been underperforming the Nikkei 225, but their fundamentals indicate this is a "bargain index," according to Saxo Bank.
"With a price/book ratio of only 0.77 and only about 12 percent of the index consisting of financials, we know no other index this cheap," the report said.
US Trade Balance Will Turn Positive
The dollar has become weak enough to stimulate US exports and put strain on imports, the report pointed out. The changing trend could see one or two months of positive US trade in 2010, it said.