Nine big predictions for markets in the year ahead
Dominic Frisby Jan 04, 2013
It’s that time of year when we look into our crystal balls, nod wisely and pronounce what will come pass.
And this time next year, we offer excuses as to why it didn’t.
Today, I’m going to make some specific predictions for 2013. 13 for 2013 is too many, so I am going to give you nine - nine’s my lucky number.
Perhaps next year we can mark it: two points for a hit; one for a ‘nearly right’; nothing for a flunk.
Most of these predictions are based around my current ‘big-picture’ theory, so I’ll start by giving you that…
The outlook for 2013 – more of the same
‘More of the same’ is my current theme.
The great purging that should have happened after the 2008 crisis never came. Banks were bailed out. Asset prices were propped up. Rates were slashed. Money was printed. Savers were robbed.
That which should have died did not. And so the zombie was born.
One look at Japan tells you how long zombies can ‘live’ for. Only now, 24 years after the bubble there popped in 1989, do things seem to be starting to move. The yen has fallen sharply in recent weeks and stock markets have rallied. I stress ‘seem to be starting’ – those sharp moves could easily reverse.
That’s after more than 20 years. We’re not even fully four years into our Western unravelling. While I can envision an acceleration of this unravelling, I don’t think we'll see until later in the year, if at all. Almost every policy is about maintaining the status quo.
So my big picture view is simply this: we grind on. ‘Extend-and-pretend’ is prolonged.
For example, I expect the Bank of England base rate to stay at 0.5%. Economic stagnation will continue. House prices won’t fall by more than a few per cent, if that. In London they’ll be flat, and they’ll remain unaffordable to the young.
Public sector workers will continue to feel mistreated. Anger will simmer on and occasionally boil over. There will be more hounding of the rich, demands made for increased taxation, and more exposés on tax avoidance. Lending will remain tight, entrepreneurs stifled and bureaucrats dominant.
Within that rather negative framework – I must’ve got out of bed the wrong side this morning – here are nine specific predictions.
1. No country will abandon Europe this year
Not Greece, not Portugal, not Italy, not Spain, not Germany, not even the UK will drop out of the EU.
This one may sound obvious. But so many forecasters have been saying for so long that one of these countries will leave, and the economics of the situation are so deeply in favour of several countries defaulting and dropping out of the eurozone, that I actually think I’m being contrarian by saying the union will stay whole.
Why will no country drop out? Because those running the ship haven’t got the courage to let it happen.
In the UK, the coalition will continue to lose votes to UKIP, but Labour will fail to capitalize on this. UKIP will continue to be overlooked by the UK media, loathed in the European Parliament and admired in America.
2. The UK will lose its AAA rating
Surely one of the credit ratings agencies – Moody's, Fitch, or Standard & Poor's – will downgrade us. It’ll be bad for George Osborne’s reputation, and the media will get excited about it, but it won’t make much difference to anything – it’s not telling the market anything it doesn’t know. The long-term outlook for the UK is grim, very grim, but I don’t think we’ll see drastic collapse just yet.
Sterling will fall a bit, but remain within current established ranges. $1.66 will be its high for the year against the dollar, while $1.54 will be the low. The euro will continue its current trend and gain strength against the pound. I expect the low for the year to be 80-81p, and the high 88-90p.
3. The Bank of England to own 40% of UK government debt
Not much to add here really. The Bank will continue with its financial repression. By my calculation, it currently owns about 32% of UK government debt; by the end of the year, that figure will have risen to 40%.
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4. Gold will flirt with $2,000 an ounce
One thing I’ve learned from following football – particularly England – is to bet on the opposite outcome from the one you want. That way, when England disappoint, at least you have the consolation of some winnings.
I want gold to go up, as you all know, so really I should be saying here that gold will drop to $1,200. And I’m slowly, and rather resignedly, coming round to the theory that this consolidation period will last for longer than the 12-18 months (starting September 2011) that I originally envisaged. In this case we’ll remain stuck in a range between $1,520 and $1,800 through 2013. That would tie in with the big picture view above.
But shucks, it’s Christmas. Well, it was last week. So to hell with it: gold to break above $2,000 and end the year at least 15% higher.
5. Egypt to experience heavy inflation (20%-plus), if not hyperinflation
The Egyptian pound looks decidedly vulnerable. Inflation and political turmoil are brothers in arms, and unfortunately, Egypt’s new political regime doesn’t look to me to be entirely what the Arab spring was agitating for.
The country is very dependent on tourism, but it’s not currently top of many people’s list of go-to countries. The Treasury is under strain. Those who can are converting their Egyptian pounds into foreign currency. Import costs are rising. It doesn’t look good.
6. Oil - West Texas Intermediate - goes above $100 a barrel
There’s been a lot of hype about ‘fracking’ saving the US. There’s been a lot of talk of oil falling to $50.
Frisby says it doesn’t go below $77, but it does go over $100.
7. Most stock markets are range-bound...
The FTSE 100 will stay stuck in a range between 4,800 and 6,100. At some stage in 2013, both the Dow Jones and the S&P 500 will re-test their 2007 highs, barely 10% above where we are now. I don’t think they’ll get through, but they’ll end the year maybe 5% higher.
(If you want me to be really specific: both will begin the year positively in a reaction to the fiscal cliff can-kicking – in fact, we’ve already seen this. They’ll then have a bad February. Then from March to August there is strength. Weakness returns in September or October).
8. … except Japan
Strength in the Japanese stock market will continue, with the Nikkei 225, currently at 10,395, rising as high as 11,400-700. There will also be more yen weakness. One US dollar currently buys 87 yen. We could see that rise to ¥95 or ¥100 before the year is out.
9. The bond bubble doesn’t burst - yet
I expect the US long bond (the 30-year maturity), currently sitting at $146, to end the year lower than it began, but it won’t yet enter its long overdue, full-blown bear market. $128-$130 is the low for the year.
10. A Brucey-bonus prediction
I know I said nine, but I’m giving you ten – that’s inflation for you.
Manchester United win the league. QPR, Reading and Wigan will be relegated.
What do you think? Am I right? Am I wrong? Post your own predictions below. Time will tell us the answers.
Meanwhile, I wish you all a happy and profitable 2013.
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