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What will 2010 bring?

21 Jan 2010 16:16Peter Waring
2009 - The Year in hindsight

2009 was quite a year for the markets. A 60% stockmarket rally off the S&P500 March lows, and a similar rally (50%) in the New Zealand dollar of the March lows against the US dollar. Staggering changes, in hindsight we could all be saying "if only I'd bought in March I'd be 'rich' by now", but then we will probably all look back at the end of 2010 and say the same thing, although it could be about something entirely different.

The question for both these markets, is, having come so far so fast.. can they go much higher? With so much government manipulation through quantitative easing it's very hard to say as the markets are not acting in any 'rational' fashion, although some would say that the markets are made up of human beings so therefore rationality can hardly be expected. It is more the herd mentality that takes over and drives the markets to extremes in both directions.

2010 - What to expect?

The markets in the last few months have been very highly un-volatile. So by that token by the law of averages we can expect that we will be in for higher volatility going forward, simply as it cannot go much lower (in terms of volatility).

I'm going to stick my neck out and make some predictions - mind you these are merely based on what I 'think' and although I can find endless means and facts and figures to justify them - I am sure that someone could come up with equally sound reasons for something quite opposite - using their favourite methodology.

  1. The Stockmarket is overbought, and due a correction of 10-20%. I'd say it has about another 15% of upside potential from its current levels but no more than that - based on the unusually high P/E ratio of the market in general, and the fact that it has come so far so fast (the rubber band effect).
  2. The NZD/USD will struggle to extend past 75c, and if there is a stockmarket correction, will test the 60c level. It is highly unlikely to extend more than 80c (against the USD), unless there is some major meltdown of the USD which I highly doubt, despite all the doomsday theorists' predictions of a USD collapse.
In the meantime - I am going to ride the prevailing trend in either direction until I see meaningful signs of a change in the wind. If 2009 taught me anything - it's that the markets can rally or fall much further than one would think despite any 'rational' reason why they shouldn't do so. In either case it's better to be on the side of the prevailing trend, even if the reasons why are not obvious at the time.

Let's see what 2010 brings! And good luck!

Peter Waring

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