The Edmond Sun

Business

Discussion

February 4, 2011

2011 predictions don’t pull any punches

NICK MASSEY The Edmond Sun

EDMOND — Investors and businesses experienced plenty of ups and downs in 2010. The global economy, as I see it, is in a period between two crises. In 2007-08 we had the global credit crisis, the private-sector banking crisis and the bursting of the real estate bubble. Now we are in a period of cleanup with a respite from the chaos. Here are my thoughts for 2011:

1. After a brief correction early in the year, the stock market works its way higher in a volatile fashion to a top sometime in the fall, possibly to 12,800 on the Dow, before rolling over late in the year or early 2012.

2. Gold, oil and commodities in general continue higher with gold eventually hitting $1,500 an ounce and oil $100 a barrel.

3. Interest rates on long-term Treasury bonds spike in late 2011 creating a great buying opportunity in bonds again.

4. GDP figures continue to show improvement in the first and second quarters before turning down again in the second half of the year.  Predictions of 4 percent GDP growth by some analysts are likely way too optimistic. Inventory rebuilding, which was over half of the GDP growth in 2010, is largely over. Fiscal stimulus from the U.S. government runs out and state and local governments have to make major cut-backs to balance their budgets. Look for GDP at 2 percent to 2.5 percent at best. Unemployment will remain above 9 percent.

5. Home prices on a national average fall another 10 percent. If home prices stay flat or continue to fall, the level of defaults will accelerate and the banks finally will have to admit to and deal with massive levels of bad loans. Another round of mortgage resets is on the horizon in mid-2011.

6. U.S. municipal bankruptcies become headline news. More cities that are technically bankrupt are contemplating the idea of making it official. This will finally force a major shift in dealing with public unions and the funding of public pensions. The first major city to go bankrupt will cause a huge stir in the municipal bond market.

7. The sovereign debt crisis in Europe will put the Eurozone under more pressure. Their problems have not gone away and several countries will be forced into massive austerity programs or the European Central Bank will be forced to print money and devalue their currency.

8. China’s economy is overheating and they are raising interest rates as rapidly as possible to stop runaway inflation. This eventually will pop their real estate bubble, slow their economy and put pressure on commodity prices.

So there you have it. No guts no glory, right? We’ll review it again next year and see how I did this time. Thanks for reading.



NICK MASSEY is a financial adviser and owner of Householder Group Financial Advisors in Edmond. Massey can be reached at www.nickmassey.com. Securities offered through Securities Service Network Inc., member FINRA/SIPC.

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