Steadfast FinancesTrends that Will Influence Financial Markets for 2010

Trends that Will Influence Financial Markets for 2010

Filed in Business Trends , Consumer Education , Market Themes , Strategic Planning 9 comments

Now that the Greater Fool Decade is over, I thought I would dust off my prognosticator hat and do a little strategic planning since we just experienced the stock market’s second worst performing decade ever.

Here are a few of my top, and relatively simple, investing themes for 2010 that will weigh upon the financial markets:

1) Borrowing Money for Consumption Remains Low

The phrase “no credit wanted” might be broad sweeping theme for many U.S. consumers in 2010.

No longer will consumers “bet the farm” or leverage themselves to the breaking point just to buy more stuff. That ship has temporarily sailed. The cost of being an indebted consumer is just too high (20%+), and too much resentment exists from debtor nation to (voluntarily) carry a balance.

Hat tip to Mike Mandel at the Innovation and Growth blog for posting one of my favorite charts of the last decade. If there was ever an X-Y plot to symbolize the irrational behavior of 2000 to 2009, this might be it.

2) More Underwater Homeowners Walking Away from their Homes

If the popularity of walking away from your debts gains momentum in 2010 (I and several others think it will), more Americans who owe more than their home is worth will elect to walk away from their homes even though they can afford their payments.

Americans love to walk among the herd, and if others begin to do it, the sting of foreclosure’s social stigma will become even more diluted. Perhaps walking away from an underwater home will become the default (pun intended) game plan for anyone who finds themselves in this unfortunate position, and willing to take the hit on their credit score.

3) Water (Almost) Becomes More Valuable than Oil

A reduction in rainfall has been wreaking havoc for California farm owners, and while water won’t become more valuable than oil (per barrel) anytime soon, the controversy surrounding water availability for the southwestern states will become even more heated as we move into 2010. It’s not a national debate — yet — because it’s fairly isolated to the southwestern states, but if Governor Schwarzenegger’s appearance on 60 Minutes chanting “We Want Water” is any indicator, 2010 could be a very big year for the water conservation movement.

4) Bond Investors are Herding as We Speak

Like clockwork, the fear of the unknown has pushed more investors away from equities and into the “safety” of bonds when they should be looking for bargains elsewhere. Most of the analysts I’ve seen are very bearish on bonds and suggest jumping off the momentum train before the bubble pops.

(My purely unprofessional opinion only.)

When you find yourself in the the unfortunate position of buying just because everyone else is buying (e.g. the herding mentality), it’s a good idea to switch to a third person view to get the lay of the land and buy the undervalued assets that no one wants for the short term but still has a positive long term outlook.

Got any big picture ideas that will move the markets in 2010 and beyond? If so, please share them with the group.

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Posted by CJ   @   2 January 2010 9 comments
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Jan 2, 2010
2:01 pm

Matt – I actually think credit loosens handsomely as rates stay low. As a result, consumer binge spending returns and the housing markets in super star cities such as San Francisco, LA, New York City do quite well.

Bonuses in finance for NYC this year, for example, are HUGE! Massive liquidity, and a lot of assets rebound this year!
.-= Financial Samurai´s last blog ..Samurai Predictions And Resolutions For 2010 =-.

Jan 2, 2010
2:13 pm
#2 Matt SF :

I respectfully disagree FS. I think credit loosens because it really has to, but I’m not sure the 20%+ rates consumers paid will be so easily forgotten everyday consumer. But if you recall, I stressed this was a temporary glitch in the consumption machine and I fully believe our short memories and flippant mentality towards debt will kick in later in the year.

(Maybe I’m just letting my wishful thinking get the best of me?)

Of course, San Fran and NYC aren’t your normal markets, and folks like yourself like the Porsche’s more than country boy’s like me!

Jan 2, 2010
2:21 pm

No problem. There may be blips this year, but I’m a firm believer that earnings will continue to rebound, credit will loosen, people will spend again, unemployment will start to improve in 4Q given the lag effect, and people will be earning more this year than last!

Gotta admit, I’m always an optimist! And I may like the new 911’s, but i like my 9 year old Moose just as well!
.-= Financial Samurai´s last blog ..Let “Freement” Reign! Spending Paralysis, Material Lust And Obsession =-.

Jan 4, 2010
1:41 am

I really like the Professor’s statement on homeowners responsibility in the mortgage crisis. I have seen a lot of my friends lose their homes and some who may lose them in the future. In a number of cases, they filled out the modification paperwork, only to have their requests burried.

I’m not for changing the rules after they have been agreed to. But, why do banks get a bailout from their mistakes and homeowners get left on the hook? Why aren’t we forcing banks to modify these loans as they have agreed to do as a condition of the bailout?
.-= Bret @ Hope to Prosper´s last blog ..Hopeful Predictions for 2010 =-.

Jan 4, 2010
2:16 am
#5 Matt SF :

That’s a good ethical debate, and I’m sure more than a few Top 25 Business Schools have been debating that very thing.

Why does “Too Big To Fail” guarantee a bailout when the bank holds the mortgage, but doesn’t apply to the homeowners living in the home for which the mortgage is written. Where does one draw the line for those who need savings versus those who are willing to be cast overboard.

I had an interesting debate with a friend of mine who has worked in battlefield medicine and he said it was uniquely similar in that “you first help those who can continue to fight, and push off the more seriously wounded because they take the most work”.

Sounds cold, but makes sense, when you consider the government’s role is to get tax dollars flowing in and banks generate a lot of tax revenue.

Jan 5, 2010
9:04 am
#6 Curt :

Excellent article. Water is an excellent investment that not few are considering at this time.

Jan 5, 2010
9:12 am
#7 Matt SF :

Thanks Curt. Unfortunately, you can’t just buy a pure play commodity ETF for water like you can with crude oil (USO), but there are a few different ways — individual water holding companies, infrastructure companies, diversified water ETF — to play it.

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