Monday, November 23, 2009

Good Investments for 2010

If you want to make an economist look foolish, just ask him to make a few forecasts. (Or get them to write a book - Books They wish they hadn't written ) So like a fool I made forecasts for 2009.

Having said that, I didn't do too bad. I made two good predictions for 2009 - a rise in the price of gold and a rise in price of oil. Both of these have done well this year on the back of economic uncertainty (gold) and tentative global recovery (oil).

I thought UK house prices would continue to fall. The fact they have risen has surprised many. This rise may still prove temporary, and it hardly reflects a dramatic reversion in the fortunes of the housing market.

In the long term, I feel UK housing is a good investment because of the shortage of supply. With low interest rates, rents are likely to exceed mortgage interest payments. I think the thing to do is invest in housing and not worry about the volatile temporary blips or booms in prices

At the start of the year, there was still a lot of uncertainty about future financial crisis. Thanks to substantial government bailouts, banks have (all things considered) had a relatively good year. This and the prospect of recovery has led to a strong recovery in stock markets.

Good Investments for 2010.

It is hard to pick any really strong investments for 2010. I think oil will continue to rise, due to global growth, especially in the East

Oil. This year, Oil has risen from $60 to just under $80. I think it can rise more. Before the recession, oil was touching nearly $150. This now looks a very speculative rise. But, I think if the global recovery strengthens, oil could prove to be in relatively short supply, pushing up prices.

Chinese Yuan. I don't know how easy it is to invest in the Chinese currency. But, I think there will be a strong pressure for the Chinese government to revalue and allow the Yuan to float upwards. Having said that, there is no guarantee the Chinese will do what makes sense. They have been resisting an appreciation for many years.

Gold. It is true gold has risen substantially in the past year (from around $800, to $1150). But, I think that given the unprecedented nature of this downturn, gold will remain a popular choice for many investors.

Bad Investments for 2010

US Dollar. It is hard to see anything else but a continued gradual depreciation in the US Dollar. - A growing budget deficit, persistent current account deficit and quantitative easing are all ingredients for a weak currency.

Treasury Bonds. After the party, the hangover. The recession led to a (necessary and unprecedented) rise in government borrowing. This has led to the sale of more government securities. This year will see continued record budget deficits, but, the policy of Central banks buying treasuries as part of quantitative easing is likely to slow down. This means there will be a big supply of bonds on the market.

Uncertain Investments

After having had a relatively good year, the Stock Market has already probably priced in an economic recovery. If the recovery proves to be relatively weak and insecure, we could see a correction prices in stock market. But, I've always found predicting the stock market a bit like predicting lottery numbers.

Disclaimer: I'm only an amateur economists, don't rely on my advice and put your life savings in some oil futures priced in Chinese Yuan.


Lee said...

I think gold definitely has more to go. I would invest at least part in gold shares.

Eric said...

Is there any way to profit from the current fiasco in Dubai. The nation seemed to have the right idea of investing in projects since inventually it's oil will run out. Unfortunately they seemed to have bought in to a lot of projects right at the top of the economic bubble. Since that has now collapsed are there any good deals avaible to the average investor from the carnage.