Monday, January 05, 2009

Predictions for 2009

As a trader it has always annoyed me when reading an analyst declare "I told you so" when hitting an objective on a trade. It is only a real objective if the analyst employs real risk management in applying the trade. What I mean is this, I say the Euro will go to 2.00 against the dollar by Dec 2009. It first trades down to parity, trades at this level for 11 months then spikes on Dec 20 up to 2.00 and the analyst says "BINGO". Any trader would probably have been stopped out OR cut the position due to lack of movement (11 months trading at parity) and never held the position for the 11 ensuing months. Remember Traders are paid to make money and watching a losing trade do no thing for 11 months would make for a quick exit from most trading desks. With this being said I will make a few predictions for the coming year. They mean very little and I will probably have few of these trades on as I trade much shorter term and alot (I repeat ALOT) should happen between now and Dec 2009.

The Dollar.

The current environment is one, which, most countries will attempt to devalue their currencies. A weaker currency will help with trade and help companies who have income generated from off shore entities. The U.S. should be no different. The question is who will be able to devalue in a quicker more efficient manor. I think the Bush administration has pursued a policy of a weak dollar (although they say the want a strong dollar) for years now and I believe that President Obama will be the same. That being said I also feel that the U.S. will come out of this global recession quicker then anyone else, followed by recoveries worldwide. Therefore I see a stronger dollar near term (1-3 months) as the turmoil continues followed by a period of dollar weakness 3-9 months. I see this playing out against the other major economies, Europe the UK and Swiss. I do not see the Dollar making new lows but we should finish 2009 weaker then we started.

Against Emerging Market currencies I see a similar situation playing out. The Dollar trading stronger near term as market participants continue to exit risky currency plays and looking for a safe haven for their money with global turmoil (Israeli/Hamas) but reversing in the 3-9 month area as traders look to yield to make money. Remember U.S. rates are very low (.25%) and the Fed has said that they will keep them their for the foreseeable future. If markets go quiet like I think they will traders will run for yield as a way of producing profits.

U.S. Rates

As the Fed has said, rates will stay low probably throughout at least the first three quarters of 2009. I do however see the yield curve steepening out as markets quiet down and the world begins to have more confidence in the global banking system. I think alot of the reason 3mth treasury bills are near 0% is the fear of losing principle. Right now you can earn 3% in an HSBC Direct account which is guaranteed by the government (up to $250,000) so eventually people will begin to shift into a better yielding alternative.

Global Rates

Interest Rates globally have to come down and in a big way. It seems to me that everyone is moving to slow currently and this will catch up to them. How far everyone moves I am not sure but the general direction is certainly lower.


U.S. stocks should end the year higher then they began. I am looking for a level of 11,500 by year end. Why, well it is basically a guess but I think that stocks should go bid before the rest of the economy shows signs of rebounding. The U.S. consumer is a funny bunch, they forget very easily. Once the turn is in they will invest, maybe not to the extent of previous years but they will certainly invest. I do however think we move lower first and I am also looking for a very up and down first 1-4 months.

Random Stuff

Baseball Attendance

I think that Baseball attendance will be poor this year. Huge salaries being paid to athletes while a large portion of America is unemployed and having a big problem paying their bills. I am certainly not against a player getting paid all he can, but I think personal finances will have Americans watching more games from home this year.

Bernard Madoff

I really don't care what happens to this guy as long as he is locked up. He destroyed many people and numerous charities. I have read all the stuff about greed (on the side of the investor) being the cause of this and I don't fully buy it. He lied about his fund (could he have done this alone!?) and took money up to the end. I am sure most of the victims of this fraud were unaware that they were in a Madoff fund. Blame the right people here, not the one looking for an honest return but the guy stealing their money.

Sarah Palin

I think she will fade away and rarely be heard from again (Sorry Tina Fey).

Remember these predictions mean little to anyone including me.

Good Luck and Good currecny Trading.



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