The Great 2010 Expectation

The title may sound a bit positive while the indicators may not. First of all, the bull run since March 2009 has been the "craziest" since the Great Depression and the current stock prices are considered overbought. Indices around the world are just around 30%-40% to all-time-high. Since I don't have the PE information but I can tell it is quite high as the earnings haven't been much improved.

Today is the last day of 2009. What should we expect for 2010?

Slow recovery? Yes like everyone is saying. Looking at the Baltic Dry Index can give us a good hint:

Compared to the bubble sparked off by the Beijing Olympic sacred fire, the trades are not catching up well in 2009. Trades across countries are slowing and do not show signs of quick recovery as economists predicted. To me, there are two bubbles got burst in 2008 after the Olympics Game: the US housing bubble and Olympic Hype bubble. The burst of these two bubbles sent a huge tsunami across the globe. To see a light to the recovery, companies have to adjust their inventory and earnings forcasts to pre-Beijing-Olympic-bubble level. The expectations were too high. Adjustments are needed to change the mindset of hungry analysts.

Another concern is the USD. The following shows the sudden surge of USD after falling to almost a 2007 level or pre-Beijing-Olympic-bubble level. If the USD carry trade bubble is non-existent, we have nothing to worry about. If there is one, we should be able to see it for the next few months as housing and gold prices will fall followed by commodity prices.

I bet many analysts are following this trend. It could send the commodity prices to a very low level that could bring the equity down substantially.

By observing  both DXY and Baltic Dry Index charts, bulls in stock markets are not going anywhere. The next to watch is the US employment condition. Either up or down, the stock market will be volatile due to the sudden change in the USD strength as well as the uninspiring trade condition. Trade with caution is the key. The best bull run is over and the bear may not come out soon but there are signs that it may finish its hybernation anytime. But I believe US Fed is able to create something to stop. So far Bernanke has been successful in the timing of offsetting all the bad news. Hope he doesn't create a bubble for blocking all these bad news from floating up to the surface of the titanic crash site.

This concludes my blog for 2009. May 2010 be an exciting one and happy 2010!