2010 Predictions: Financial

1. Global Markets will continue to resemble casinos, more than mechanisms to allocate capital and manage inter-temporal savings and consumption.
2. Non-market forces will continue to be the biggest determinants of market outcomes for the first 3 quarters of 2010.
3. 2010 will be a stock-pickers market. Global markets will rise and fall 20+% in 2010. US (and other) markets will see an unprecedented number of +-2% days. Many equity markets will close lower in 2010 than 2009.  The critical question for the average person is how significant the role of inside information will be in getting returns -- and can you find such a stock picker?

4. Gold will hit $1400 in 2010. It will also hit $900. These 2 events will happen in successive quarters.

5. Don't be greedy about yield: With rates for savers at historical lows the temptation is to chase a few points of yield -- don't yield to that temptation (unless you have a high risk tolerance, insider information, or are too big to fail).
6. Continuing (near-term) high-correlations across asset classes.  The US Federal Reserve's balance sheet is a horrible mix of risk classes (MBS, Maiden Lane, Treasuries) masquerading as a risk-free rating (remember the real estate market!). In such an environment high-correlations are likely to remain across asset classes.  However, diversification remains a valuable strategy, even if buy-and-hold will increasingly be under attack.