It has been a while since I have spewed my two cents worth on the financial markets, so I think I should dip my toe in the water as the Dow Jones Industrial Average sheds 200 points. The markets should stabilize into a steady upward trend for stocks and commodities. I am setting the S&P at $1200, gold at $1200/oz and oil at $75/barrel which amounts to an 8% return for stocks, a 10% return for gold and a 5% decline for oil relative to December 31, 2009 close prices.
As far as bond returns go, I see the long term rates stabilizing and creeping up as foreign depositors require more incentive to buy treasuries. Currently the safety of these securities allowed rates to drop as low as 2.75% before perking up to 3.375% to finish the year. A jump of 62.5 basis points certainly killed portfolios that were fully invested in March of 2009. Unfortunately, I believe treasuries will continue to march towards 4.000%. In 2010, I think they can make it a little better than half way and expect the December 10 year auction to end up at 3.75%
In terms of the US dollar, I think we are out of the woods. 2009 ended with the EUR/USD at $1.4325. I see the dollar strengthening as the US economy is more nimble than its foreign counterparts. Even with the printing presses at full tilt, I see the EUR/USD finishing at $1.3000. Until the job market recovers, the possibility of hyperinflation is just not real. Once the US unemployment rate dips below 7.5%, you can start to worry.
The bottom line is keep buying stocks and gold, don’t worry about gas prices, borrow money while it is still cheap and wait until next year for that trip to Europe.