The Financial Physician's 2010 Economic and Financial Forecast

The Financial Physician ^ | January 3, 2010 | Lou Scatigna

[louscat]

Financial Physician’s 2010 Economic and Financial Market Forecast

Lou Scatigna

Although 2009 started off with an economy in free fall and panic in the financial markets, from March on the economy seemed to stabilize and the stock market rebounded in historic fashion.

The Dow, S&P 5000 and Nasdaq finished the year up 18.8%, 23.45% and 44.89% respectively.

The Federal Reserve embarked on an policy of stimulation and quantitative easing (money creation). The mortgage, treasury bond and stock market were all beneficiaries of the Fed’s record stimulus. The Fed bought over $800 billion in mortgage securities, $300 billion in Treasuries and it’s anyone’s guess how much Fed money found it’s way into the stock market thorough The Primary Dealer Credit Facility. Under this program the Fed allowed Primary Dealers to use common stock as collateral for low to no interest loans. It looks like the dealers took advantage of such juicy terms to buy stock, use it for collateral, buy more stock use it for collateral etc. The Fed subsidized buying rallied the stock market over 60% from the March lows, but was the rise in the market justified by economic fundamentals?

The Federal Reserve has recently stated that many of these stimulus programs will end the first half of 2010, and with them a huge source of market liquidity.

Although 2009 did not turn out to be the end of the financial world as we know it, but it just may have been delayed to 2010. The coming year will be a challenging one and in my opinion the worst year so far in the worst financial crisis since the Great Depression. For most of 2009 we were in the eye of the financial storm, the backend of the storm is about to hit us in the months ahead.

[misterrob]

Hard to argue with the conclusions

[Ev Reeman]

I think unemployment in 2010 will increase or remain close to current levels. I think the sotck market will continue its up and down pattern throughout 2010. As all the new taxes hit, look for the economy to come to a grinding halt, exacerbating an already bad situation and throwing it into even worse shape. I do not see American businesses growing much in 2010. I think banks will continue their reluctance to make loans to individuals and will instead beef up their contingency funds even more. The taxes will cause consumers to not spend except on essentials. Inflation will steadily increase. I also predict the fed will have to start raising interest rates this year. In other words, if you thought 2009 was tough, you ain’t seen nothin’ yet.