Year-end is high season for market and economic outlooks. Douglas Kass, founder and president of Seabreeze Partners Management shared his 20 predictions for 2010 with CNBC on Monday.
1. Corporate profits soar 100% in the first quarter of 2010 from a year ago, while GDP jumps 4.5%.
2. Housing and jobs fail to revive.
“Modest gains in jobs,” Kass told CNBC in a live interview. “Real rates will ratchet higher. We’re starting to see it. It’s one of those due bills from the nation whose deficit is growing in a spectacular fashion.”
3. The U.S. dollar explodes higher.
4. The price of gold topples.
“Gold is going to break $900," he said. "It’s one of the most crowded trades.”
5. Central banks tighten earlier than expected.
"We might see a policy mistake—everyone’s concerned about it," he said. "I think we’ll follow China. China’s already trying to stem the property speculation…So one of the surprises will be a much earlier increase in the Fed funds rates than generally expected.
6. A Middle East peace is upended due to an attack by Israel on Iran.
“What will cause a correction is something that no one’s thinking about. And when I distill all the possible uncertainties that will break the disequilibrium, geopolitical is uppermost in my mind,” he said.
7. Stocks drop by 10% in the first half of next year.
“If we look at the consensus forecast, they’re really clustered in a narrow range," said Kass. "We get a decline and the first surprise is that corporate profits double in the first quarter and then you have an exogenous event, which hurts the market and then we get nothing for the second half of the year.”
8. Goldman Sachs goes private.
“With Warren Buffett assisting," he said. Kass predicts that Goldman Sachs stock will drop back to $125 to $130 a share, within $15 of the warrant exercise price that Warren Buffett received in Berkshire Hathaway's late 2008 investment in Goldman Sachs.
9. Second-half 2010 GDP growth turns flat.
10. Rate-sensitive stocks outperform; metals underperform.
11. Treasury yields fall.
“They will peak in the first quarter—4-4.25—not much more than they are now," he said. "And they drop with slowing growth.”
12. Warren Buffett steps down.
“With the Burlington Northern acquisition, the Oracle has completed his canvas and there is very little for him to do," said Kass. "And he steps down, and as you know he’s been testing out some outside managers as his CIO.”
13. Insider trading charges expand.
14. The SEC launches an assault on mutual fund expenses.
Kass predicts that the SEC restricts 12b-1 mutual fund fees and in response to the proposal, asset management stocks crater.
15. The SEC restricts short-selling.
"All short-selling," he said. "We get a double dip in the economy—stocks start moving lower, and they panic."
16. More hedge fund tumult emerges.
17. Pandit is out and Cohen is in at Citigroup.
"Pandit will be out—he's doing a horrible job—he's slow to react to the demise of the credit markets and my surprise is [former Shearson Lehman Brothers Chairman] Peter Cohen replaces him." Kass also predicts that Sandy Weill rejoins Citigroup as a senior consultant.
18. A weakened Republican party is in disarray.
Sarah Palin announces that she has separated from her husband, leaving the Republican party firmly in the hands of former Massachusetts Governor Mitt Romney, said Kass. An improving economy in early 2010 elevates President Obama's popularity back to pre-inauguration levels, and, despite the market's second-quarter decline, the country comes together after the Middle East conflict, producing a tidal wave of populism that moves ever more dramatically in legislation and spirit.
19. Tiger Woods makes a comeback.
Tiger Woods and his wife reconcile in early 2010, and he will return earlier than expected to the PGA Tour, predicts Kass. After announcing that his wife is pregnant with their third child, both the PGA Tour's and Tiger Woods' popularity rise to record levels, and the golfer signs a series of new commercial contracts that insure him a record $150 million of endorsement income in 2011, he added.
20. The New York Yankees are sold to a Jack Welch-led investor group.
The Steinbrenner family decides, for estate purposes, to sell the New York Yankees to a group headed by former General Electric Chairman Jack Welch.
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No immediate information was available for Kass or his firm.