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Blue Point Trading Market View – January 02, 2013

Crystal Ball

Market predictions 2013. As the year turns once again, many now are turning to a review of the past year, but more importantly try to know where we are going in the future. Many are predicting green shoots and a return to a robust economy. Others are predicting a gigantic collapse – check out the story from Gerald Celente (surprised?) – click here. Here is a more sensible one from Bruce Krasting. So at Blue Point Trading we put together a list of ideas of what we could see for 2013. First, lets review what we said last year at this time and see if we are right. Click here for 2012 predictions.

The 2012 predictions review:

  • Equities will finish unchanged to slightly up, maybe 5% to 7% – a bit too bearish, it actually was 13.57% via the S&P 500 and 9.4% via the DOW. The Fed propped up the market more than we thought.
  • Bonds will end the year flat – actually about 2.1% price appreciation, so mostly correct.
  • Commodities will as well end the year flat – actually -3.90% (CRB index), so mostly correct.
  • The Dollar will remain close to where it starts – actually, -0.63%, so very correct.
  • Corporate earnings will continue to grow moderately, GDP growth will average 2% – GDP growth rate is currently 2.7%, but in real terms about 2.1%. Corporate profits did a little better at about 5.1%. So mostly correct.
  • Obama wins the presidency, Speaker Boehner loses his leadership, and politics becomes even more divided – sort of correct – Boehner is closing in on his way out.
  • Geopolitics, largely stay contained, with small scale coups. But no skirmish with Iran – half correct here – but perhaps in 2013?

For 2013, the three big economic imbalances will continue to build: wealth disparity, trade imbalances and credit bubbles. Policy makers will struggle to find growth as they “dink” with fiscal and monetary policy to fix what only a new industrial economic model can fix. At the close of 2012 we see some green shoot of economic strengthening, but it will not last, as it is all central bank induced. The first half of 2013 will be better (perhaps surpassing the 2012 highs) than the second. This is some what contrary to what I have been hearing. It could be another “sell in May and go away” year. The 2013 year will as well be dominated with financial scandal and corruption, as everyone will do anything to make a buck, in an economy nearly completing its 7 year economic cycle. The trends of the last few years continues – until they don’t in a climatic event (Often the last straw [event] that breaks the camel’s back [economy], has nothing to do with the overall problem.). The following details our 2013 predictions.

Key 2013 themes and risks:

  • Geo-politically I believe Obama will resist any major confrontations – America is tired of war. But of course ongoing skirmishes will continue to occur – Obama continues his secret wars. If pushed, Obama in a second term will start thinking more historically and there is a chance he may act boldly – however only at best a 25% risk factor.
  • The global economy is very linked today. Both emerging economies and developed economies will live and die together – with a slight advantage to the emerging economies (Labor arbitrage continues with off-shoring from developed countries to emerging markets.). Playing off the EU, US or Japan story will as well be difficult. I am not sure it will be a significant winning bet to favor differing regions.
  • The current major market driver, “the fiscal cliff,” will be eventually/partially resolved in a “kicking the can down the road” resolution, as the politics will not allow any significant game changing resolutions. This will add to a dollar debasement story.
  • The big story of 2013 has already happened. It is clear now that the central banks globally will try to debase their currencies to stimulate growth. The biggest risk here is a significant Bond/Dollar sell off on these fears, adding fiscal pressure that will build on governments throughout the year to implement more austerity on populations still suffering from the crash in 2008.
  • Will the people rise? – it is the “Black Swan” that I fear the most and is the hardest to predict. As the financial markets churn in relative peace, the current economic model is playing out its destruction against the populations of the world. It inevitably will drive widening political gaps and social dis-cohesion – even war at some point. One can only imagine how this will manifest itself – but it will happen (10% to 20% risk this year) – is 2013 the year?.

The 2013 market predictions:

  • Equities will finish unchanged to slightly up, maybe 5% to 7%. The negative will be some PE compression and slowing earnings growth. The positive will be dollar debasement.
  • Bonds (price down, rates up) will finish down, maybe 5% to 10%, due to dollar debasement fears.
  • The Dollar could fall on this dollar debasement story – perhaps 5% to 10%.
  • Commodities will finish unchanged to slightly up, maybe 5% to 7%. The dollar debasement story will support prices but slow growth will keep them in check.
  • Real GDP for the US looks to average 2% to 2.5% for the year, but tailing off at the end of 2013.
  • Corporate earnings look to stall, but tailing off at the end of 2013. Fewer growth opportunities and margin contraction, as the personal spending will be slow and not allow pricing power. A lack of investment in new businesses and difficult comparisons to 2012 will curb earnings growth.
  • If a “Black Swan” should occur, of course all bets are off – put your helmets on – the risk is on the downside – not upside. Perhaps Gerald Celente will get the last laugh.

For sure it will be a roller coaster ride as in 2012, so volatility will keep all the traders active on a day to day basis. It looks to be another good year for the trader – as volatility is all we need. Good luck in your trading in 2013.

Daily Market View: (click here for the video)

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