Thursday, December 30, 2010

THTB 2011 Predictions

I finished up my predictions for 2011 during today's Wall St snoozefest.  As always, these are just my opinions and they shouldn't be used as investment advice. 

Here we go:

1.  The US dollar will strengthen in the first half of the year thanks to the European debt crisis.  This trend will then reverse midyear and the USD will close down 10% from 2010 levels by the end of the year.

2.  Treasuries will trade in a large range early in the year before selling off later on as the Fed turns off QE2 and/or the the bond vigilantes finally get their way.  The 10 year bond will end the year at 4.5%.

3.  Gold will trade violently between $1000-$2000 as it reacts to inflationary and deflationary panics based on various central banking decisions that are made around the world in 2011.  Gold will end the year at $1700 due to increasing demand as fears around fiat currencies continue to rise.

4.  China will encounter severe inflationary issues and will raise rates substantially in order to avoid social unrest and political turmoil.  I think these efforts will fail and I wouldn't be surprised to see another " Tiananmen Square" type event by the end of the year.

5.  Two of the PIIGS will default and leave the Euro in an attempt to get their arms around their solvency issues.  Just so we're clear here:  A debt restructuring/haircut will be counted as a default.

6.  Stocks:  Volatility will rule the day. Equities will rise early in the year as a result of a massive European capital flight to safety.  This will also help the treasury market.   The S&P will then sell off hard as bond yields begin rising and the markets slowly realizes that the "economic recovery" was the recovery that never came.  The S&P will close down 20% from today's levels by the end of 2011.

7.  Oil and other commodities will see violent volatility as inflation/currency fears battle huge drop offs in demand as the economy slows down dramatically.  This will trigger a giant tug of war on price.  Oil will trade in a range of $50-150 dollars during the year and will end the year at $70.

8.  1-2 states will default and will need restructure their debts.

9.  President Obama's approval rating will fall below 30% as the economy fails to  recover and continues it's downward spiral.

10.  One TBTF institution will need to be bailed out for a second time.  If Congress refuses to approve the bailout then 1 TBTF bank will fail(unlikely scenario).

11.  Housing prices will steadily continue dropping throughout the year and will end up down 20% down from today's levels.  I will end my last prediction with an important graph.

One only needs to look at the chart below to see where home prices are eventually heading.  In case you are blind or can't read let me help you:  Home prices will eventually head back to their 2000 pre bubble levels.  This may take several years but all bubbles revert to the mean.  Just look at where tulip prices are today versus the 1630's!

Anyone involved in housing needs to eat a huge piece of "Reality Pie" and realize that prices are never coming back.  Rates are going to rise and things are only going to get worse.

The Fed has basically thrown everything but the kitchen sink at housing for 3 years and it has done NOTHING to stop the price declines.  Take this chart and hold it as a reminder in your back pocket and make sure you look at it if you ever have any urge to buy a house. 

Now is definately NOT the time to buy:


Anonymous said...

China will encounter severe inflationary issues and will raise rates substantially in order to avoid social unrest and political turmoil.
If you are right, we will end very soon in a deflationary situation. Forget about any hausse in the stock market. The bulls will be slaughtered. So your forecasts are a bit contradictory. But very interesting though. Have a good new year 2011.

Jeff said...


I hear ya. There are a lot of crosswinds.

If inflation keepd rising in China then it likely means we are continuing to print and send more dollars to China.

This will be inflationary over here as well. Eventually we will be forced to tighten and you will see some deflationary panics.

I think we end up seeing both inflation and deflation next year.

GOnna be interesting. We will see how I did this time next year.

Happy New Year!

rockguitarist89 said...

Can someone (maybe THTB) please explain to me why the falling rates on houses is a bad thing for new buyers? I'm very new to this and can't understand why falling rates are bad for new buyers.

For existing home buyers, from what I understand their houses are falling in value. Why is this bad for new buyers? Wouldn't lower, falling rates mean you can get new houses for cheaper than you could before? Maybe I'm looking at this from a "value investing" point of view and don't understand the differences betweeen the two.

Please help me out! Excellent predicitions THTB!

Jeff said...


The only way real estate appreciates is when you buy when rates are high and they drop.

If you buy using low rates and they rise then the value of your house will drop.

Rates are much more likely to rise from here so this will be a huge headwind for u moving forward.

If you are looking for a place to live for the next 30 years and are not trying to buy for investment purposes than go for it.

Just realize you could very well end up losing money as rates rise.

I would not advise anyone to be taking out mortgages right now though in general. Housing is just too risky.

Rent and hang out until the dust settles.