Nine big predictions for markets in the year ahead

It’s that time of year when we look into our crystal balls, nod wisely and pronounce what will come pass.

And this time next year, we offer excuses as to why it didn’t.

Today, I’m going to make some specific predictions for 2013. 13 for 2013 is too many, so I am going to give you nine – nine’s my lucky number.

Perhaps next year we can mark it: two points for a hit; one for a ‘nearly right’; nothing for a flunk.

Most of these predictions are based around my current ‘big-picture’ theory, so I’ll start by giving you that…

The outlook for 2013 – more of the same

‘More of the same’ is my current theme.

The great purging that should have happened after the 2008 crisis never came. Banks were bailed out. Asset prices were propped up. Rates were slashed. Money was printed. Savers were robbed.

That which should have died did not. And so the zombie was born.

One look at Japan tells you how long zombies can ‘live’ for. Only now, 24 years after the bubble there popped in 1989, do things seem to be starting to move. The yen has fallen sharply in recent weeks and stock markets have rallied. I stress ‘seem to be starting’ – those sharp moves could easily reverse.

That’s after more than 20 years. We’re not even fully four years into our Western unravelling. While I can envision an acceleration of this unravelling, I don’t think we’ll see until later in the year, if at all. Almost every policy is about maintaining the status quo.

So my big picture view is simply this: we grind on. ‘Extend-and-pretend’ is prolonged.

For example, I expect the Bank of England base rate to stay at 0.5%. Economic stagnation will continue. House prices won’t fall by more than a few per cent, if that. In London they’ll be flat, and they’ll remain unaffordable to the young.

Public sector workers will continue to feel mistreated. Anger will simmer on and occasionally boil over. There will be more hounding of the rich, demands made for increased taxation, and more exposés on tax avoidance. Lending will remain tight, entrepreneurs stifled and bureaucrats dominant.

Within that rather negative framework – I must’ve got out of bed the wrong side this morning – here are nine specific predictions.

1. No country will abandon Europe this year

Not Greece, not Portugal, not Italy, not Spain, not Germany, not even the UK will drop out of the EU. 

This one may sound obvious. But so many forecasters have been saying for so long that one of these countries will leave, and the economics of the situation are so deeply in favour of several countries defaulting and dropping out of the eurozone, that I actually think I’m being contrarian by saying the union will stay whole.

Why will no country drop out? Because those running the ship haven’t got the courage to let it happen.

In the UK, the coalition will continue to lose votes to UKIP, but Labour will fail to capitalize on this. UKIP will continue to be overlooked by the UK media, loathed in the European Parliament and admired in America.

2. The UK will lose its AAA rating 

Surely one of the credit ratings agencies – Moody’s, Fitch, or Standard & Poor’s – will downgrade us. It’ll be bad for George Osborne’s reputation, and the media will get excited about it, but it won’t make much difference to anything – it’s not telling the market anything it doesn’t know. The long-term outlook for the UK is grim, very grim, but I don’t think we’ll see drastic collapse just yet.

Sterling will fall a bit, but remain within current established ranges. $1.66 will be its high for the year against the dollar, while $1.54 will be the low. The euro will continue its current trend and gain strength against the pound. I expect the low for the year to be 80-81p, and the high 88-90p.

3. The Bank of England to own 40% of UK government debt

Not much to add here really. The Bank will continue with its financial repression. By my calculation, it currently owns about 32% of UK government debt; by the end of the year, that figure will have risen to 40%.

4. Gold will flirt with $2,000 an ounce

One thing I’ve learned from following football – particularly England – is to bet on the opposite outcome from the one you want. That way, when England disappoint, at least you have the consolation of some winnings.

I want gold to go up, as you all know, so really I should be saying here that gold will drop to $1,200. And I’m slowly, and rather resignedly, coming round to the theory that this consolidation period will last for longer than the 12-18 months (starting September 2011) that I originally envisaged. In this case we’ll remain stuck in a range between $1,520 and $1,800 through 2013. That would tie in with the big picture view above.

But shucks, it’s Christmas. Well, it was last week. So to hell with it: gold to break above $2,000 and end the year at least 15% higher.

5. Egypt to experience heavy inflation (20%-plus), if not hyperinflation

The Egyptian pound looks decidedly vulnerable. Inflation and political turmoil are brothers in arms, and unfortunately, Egypt’s new political regime doesn’t look to me to be entirely what the Arab spring was agitating for.

The country is very dependent on tourism, but it’s not currently top of many people’s list of go-to countries. The Treasury is under strain. Those who can are converting their Egyptian pounds into foreign currency. Import costs are rising. It doesn’t look good.

6. Oil – West Texas Intermediate – goes above $100 a barrel

There’s been a lot of hype about ‘fracking’ saving the US. There’s been a lot of talk of oil falling to $50.

Frisby says it doesn’t go below $77, but it does go over $100.

7. Most stock markets are range-bound…

The FTSE 100 will stay stuck in a range between 4,800 and 6,100. At some stage in 2013, both the Dow Jones and the S&P 500 will re-test their 2007 highs, barely 10% above where we are now. I don’t think they’ll get through, but they’ll end the year maybe 5% higher.

(If you want me to be really specific: both will begin the year positively in a reaction to the fiscal cliff can-kicking – in fact, we’ve already seen this. They’ll then have a bad February. Then from March to August there is strength. Weakness returns in September or October).

8. … except Japan

Strength in the Japanese stock market will continue, with the Nikkei 225, currently at 10,395, rising as high as 11,400-700. There will also be more yen weakness. One US dollar currently buys 87 yen. We could see that rise to ¥95 or ¥100 before the year is out.

9. The bond bubble doesn’t burst – yet

I expect the US long bond (the 30-year maturity), currently sitting at $146, to end the year lower than it began, but it won’t yet enter its long overdue, full-blown bear market. $128-$130 is the low for the year.

10. A Brucey-bonus prediction

I know I said nine, but I’m giving you ten – that’s inflation for you.

Manchester United win the league. QPR, Reading and Wigan will be relegated.

What do you think? Am I right? Am I wrong? Post your own predictions below. Time will tell us the answers.

Meanwhile, I wish you all a happy and profitable 2013.

• This article is taken from the free investment email Money Morning. Sign up to Money Morning here .

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38 Responses

  1. 04/01/2013, Bob wrote

    You left out AAPL – you can’t have a financial prediction thread without a bite of the Apple.

  2. 04/01/2013, chris wrote

    The biggest investment story for the professionals will be the discussion of the removal of QE. The last FED meeting notes predicted that this will happen this year. What will be the consequences of this will be hotly debated and for what its worth my view is that the bond bubble will start hissing, equity markets will remain volatile, but with an upward bias and asia will significantly outperform.

    As for your football predictions, I can disagree but the odds wont make you a millionairre!

  3. 04/01/2013, Danny Boy wrote

    I agree with everything apart from UK AAA rating. The UK won’t lose this ……yet.

  4. 04/01/2013, Del Perrin wrote

    QE will not be withdrawn..it will continue because if it did not the economy would collapse. Any talk of withdrawal is a method to bring down the values of PMs.

  5. 04/01/2013, Nick Fury wrote

    I think you are correct, however, to many it looks like sitting on the fence, but in reality you’re correct the big players in finance and government will continue to watch each others backs and close ranks; wringing the remainder of what they can out of us all. Unless ‘en mass’ the public cease spending, revolt or some other panic, then nothing can or will happen, just slow stagnation, business closures, job losses, etc more of the same. Maybe a desperate/ambitious nation will opportunistically try to expand while no one has the financial guts to go to war and prevent it a la Nazi Germany during the War.

  6. 04/01/2013, TQL wrote

    A couple of corrections for you:-

    Prediction no. 2: Sterling will go lower than 1.52, and will do so by April.

    Prediction no. 7: The global stock market collapse will start between March and May. February will allow a more accurate time range.

    Use this information wisely.

  7. 04/01/2013, Romerito wrote

    l not get paid in the years to come;
    Buy silver a year ago coz it was gonna hit $100 an ounce by last December;
    The Euro is gonna come to a messy and miserable end within months;
    House values were gonna crash by 10%+ last year;
    Inflation and the cost of borrowing are both going to soar…

    And so on. All this has been predicted within the last 12 months.

    Now the latest ”predictions” contradict all these ”grave warnings”.

    You are just trying to cover all bases because inevitably ”one” of your contradictions will be right and then you can gloat about it!

    Take this article with a pinch of salt because Moneyweek knows as much about is really going on as the rest of us!

    Comments please…

  8. 04/01/2013, Michael W wrote

    Romerito has a point. I’ve got a note on my desk that you shorted the market on October 9th when the index was about 5800. Not much damage done but a bit a waste of time.

    Better to sit tight in something like Personal Assets Trust, which for the main part only holds high quality equities and gold – covered both ways, eh.

    Even if one doesn’t agree with you, the copy is entertaining.

  9. 04/01/2013, Elo wrote

    i agree that 2013 will be pretty much like 2012 which is bad
    enough. Maybe you forgot that Assat will fall but the civil war
    will go on and “somebody” will attack Iran.
    Please explaine how the BoE, which is owned by the government, can own 32% of our debth? Does this matter
    BoE can just be ordered to write it of so instead owing about
    one trillion we only owe 688000 GBP. On the top of that it will be 688000 bad GBP instead of one trillion relatively good GBP. Wonderful!!??

  10. 04/01/2013, Terry wrote

    Gold will reach $2148 in July/August due to summer unrest in the mid east because of rising food prices and a very hot summer. It will drop back to $1920 range by November.
    Gold miners will get there rising costs under control and the shares prices will rise 30/35 %. The FT100 will end the year at 4670. America will have lots of civil unrest in the large cities. Japan will print money to the extreme and cause high inflation that will kick in Oct/Nov. America will warn countries to stop trying to beat them in the currency wars.
    Silver will go up to $61 oz before dropping back to $56 by the end of the year.

  11. 04/01/2013, BrianT wrote

    Some comments on your comments
    1) No country to leave the EU
    This is a no-brainer. The time for Greec to leave and do an “Iceland” was 2011. As for the UK, “cast-iron Dave” demonstrated yet again that what politicians promise to get into power and what they do when they achieve power are two very different things. Often that’s a wise thing to do as perhaps M Hollande is currently demonstrating (Quiz question: Who is the most famous Russian film start? Answer: Gerard Depardieu)
    4) Gold will flirt with $2000
    Face it. The formula that has worked for most of the last 10 years is broken. The Indian buying season never materialised last autumn. Whenever gold looked like it was ready to breakout some big mystery buyer (the Fed?) stepped in and dumped a huge sell order on the market. Not much will change in the gold market until this entity changes its mind or runs out of gold.

  12. 04/01/2013, BrianT wrote

    7) Most stock markets to stay range bound.
    Good news for dividend/income investors
    9) Bond bubble to stay inflated
    Never bet against the Fed. A lesson the famed Dave Fuller learned a year or two ago when he went short US treasuries for far too long and left a lot of money on the table. Bond prices will stay up as long as governments are propping them up.

  13. 04/01/2013, dlp6666 wrote

    I tend to agree with Romerito and Michael W – this item doesn’t sound at all like 2013 will really end up being the ‘End of Britain’ as effectively predicted in the most recent MoneyWeek special report.

  14. 04/01/2013, BrianT wrote

    My 2 cents on Apple
    Apple To stay range bound between $430 and $600. So, just like most stocks (see 7).
    Apple’s mistake in 2012 was to win a court case to prove that there is very little to choose between the iPhone and Samsung phones … except the price. Mobile phones are becoming a commodity and Apple’s high margins will soon be a thing of the past. Samsung are eating their lunch.

    There are only two ways this can change for the better for Apple.
    1) They unearth a Jobs-replacement who can come up with the next amazing new device we never knew we had to have. Unfortunately Apple is like Microsoft after Gates left. It will go on doing good business but the meteoric growth is over.
    2)Do something with that cash mountain. Higher dividends (must come soon) is one possibility as is share buybacks (not such a good idea) but they both involve large tax bills.

    Maybe start buying up foreign companies? Apple as a new Berkshire Hathaway? I’d buy into that.

  15. 04/01/2013, Steve wrote

    ; and minus three for a ‘miss’. Minus three for the last one rather than minus two, as everyone feels a loss worse than they enjoy a a profit.
    My predictions for the year? Might go up and might go down, but real issue is the massive amount of derivatives held out there by Too Big To Fails. Captial preservation is the main concern.

  16. 04/01/2013, Andy Patrick wrote

    I have to disagree with the prediction 10 as to who will be relegated from the Premier League.

    I know Harry Redknapp said the other day that QPR will not be relegated in May.

    I totally agree with Harry – I think they will be down by the end of April!

  17. 04/01/2013, RP wrote

    Hope you are right about Villa! I suspect that core commodities and gold will drift up in line with continued money printing, increasing population and wealthier populations in emerging markets. Taxes will continue to rise as the only priority for incumbent politicians is re-election – this may also give gold a boost as wealthy individuals seek to hide their assets from the Tax Authorities.

  18. 04/01/2013, MichaelL wrote

    My guess:

    i) S-REITS may reach a top (if they haven’t already) but where else to invest for yield in a reasonable currency?

    ii) Gold go nowhere, there is nowhere else to go … first sign of economic improvement(unlikely but if the Fed raised interest rates…) and Gold is toast.

    iii) Maybe wait and see if there is an Oil price drop, if so, buy, for the long term, Russian equities (HRUB.L – physical ETF from HSBC looks ok). Bit more global warming and the northern sea route opening up could be great for Russia.

    iv) Linkers look expensive, had a look for corp. inflation bonds – but even those funds are stuffed full of linkers.

    v) Current (and future) governments start sniffing around private pensions (SIPPs et al.) for stealing some money.

  19. 04/01/2013, Blueboy wrote

    Aston Villa will get relegated not Wigan.

  20. 04/01/2013, Neil Greystones wrote

    Like your predictions, each and every one. However the root problem for the western world remains: here today gone tomorrow politicians are in charge. To a man/woman, there are no ‘giants’ or even semi giants leading us. They’ll get their pensions no matter what happens. The banks are in their pockets too so they’ll keep going knowing full well when the brown stuff hits the wind machine, they’ll get their bonuses and pensions too. Credit speculation, isn’t it wonderful? Good luck everyone.

  21. 04/01/2013, Rick Pearson wrote

    Why be guarded in opinion is my thought, so….. By mid 2013 we will see the cracks really start to open in the western economies that will end with total collapse by end of 2014. Property values will plummet further and the first country will leave the EU this year. In my opinion this will be great news for all of us as at last we can all knuckle down an tackle the real problems facing our destroyed economies. This should also see the removal of central banks from the system and halleluya to that one. What do I base my predictions on? We are in an unholy mess, we are here due to decisions made by our fiscal advisors and politicians, there is no way on earth they could have made such crass mistakes, which leads to only one possible conclusion – they have destroyed the future of our economies on purpose. There is no other possible feasible explanation, so lets get to the point of collapse and kick them out so that we can start to rebuild without them from the ground up.

  22. 04/01/2013, James wrote

    The World will end but governments around the world will ignore it and carry on as usual. And America will do more quantitative easing as they are sure this is the answer to every conceivable problem even the world ending.

  23. 04/01/2013, PJM wrote

    I predict-:

    1 We will all eventually get sick of reading this rubbish and hit the “unsubscribe” button.

    2 The UK will continue to “huff and puff” about leaving the Eurozone…..and do nothing…….and the ordinary man in the street in Paris or Berlin will continue not to “give one tuppeny damn” as to what the UK does.

  24. 04/01/2013, IJ wrote

    Peripheral Europe also soars but, bar the banks, can’t quite match Greece. Japanese equities and China a shares are among the best too. US underperformance that began in September 2012 continues.

  25. 04/01/2013, Van wrote

    Rising Gilt yields will be one of the big stories for the UK, squeezing Government finances.
    Check the charts and draw your own conclusions.

  26. 04/01/2013, Bill the Badger wrote

    Hey! Great discussion, join in everyone, like the revolution!
    First, your predictions sound like they are straight off the desk of a trader/schyster
    Once we lose tripleA, we lose the lot, overnight. The dealers will have shorted us in anti, so forget the PR antics like “how the US have ignored it for so long.”
    The UK has played above it’s league for too long, since Singapore in ’42, to have any hope of survival this time. Survival is bs.
    and I agree, bs is what the British are good at but it’s a big deception, like god, dog spelled backwards.
    Let’s look at truth and reality.

  27. 04/01/2013, Aff wrote

    I predict Newcastle United will not win a trophy and not be relagated. They might do quite well in the UEFA cup though. Yes i agree with the more of the same analysis.

    At the moment the situation is this, the man behind the curtain has not been noticed and is still quite happily pretending to be the wizard of oz. Maybe next year he’ll be noticed.

  28. 04/01/2013, Jo wrote

    QE will continue until the central banks, including the BoE, hold 100% of the debt. In other words they will own their countries. Then will people realise that the central banks are not owned by the governments, but by a handful of mega rich people.

    Agree @21 Rick and hopefully there will be some action so the central banks will be kicked out for good. In their endeavour to bring down the economies they will kill themselves off for ever. Just be careful of any replacements or “saviours”.

  29. 04/01/2013, fud wrote

    Your 10 picks for 2013……If you get 6/10 you’ll be lucky…BUT which 6?

  30. 04/01/2013, THE OLD FOX wrote

    Super 10 ,,as they say it takes a good man to put !!!!his head in a noose ,,,how ever our uk as you say is on the slippery slope ,,, do you think UNTILL the word BONUS is eliminated from all government officials and that means all that are under government CHEQUES WE HAVE NO NO CHANCE OF GOING FURTHER INTO DEPT ,, THE OLD FOX

  31. 05/01/2013, Arry wrote

    In the email version of this article you predict Reading, Wigan and Aston Villa to go down.

    In the version on this website you predict QPR, Reading and Wigan.

    Presumably you updated your predictions after the Rs fabulous win on Wednesday night.

  32. 05/01/2013, Boris MacDonut wrote

    Prediction one is nonsense as a nation has to give two years notice to negotaite an EU exit. I think Dom means leave the Euro, but even that needs a year.
    I agree with 3.
    4 Gold may hit $2,000 but will fall back again.
    5 is as pointless as the football predictions.
    Dom is not brave enough to venture figures for inflation, GDP, growth or commodities generally. What about unemployment, income growth, house prices and so on ,the real important stats.
    Big deal 20% inflation in Egypt.

  33. 05/01/2013, hello13 wrote

    i know its a bit off topic but how do i make comments on the wealth preservation or end of britain report?

  34. 05/01/2013, hello13 wrote

    a bit off topic,but where can i comment on the end of britain and wealth preservation report?

  35. 05/01/2013, Boris MacDonut wrote

    #33 Just say what you want on another thread. I for one am interested to hear if anyone else found it a poorly researched and sensationalist piece of pap worthy of the Daily Express.
    One prediction from me is a timely fillip to spending courtesy of 670,000 maturing Endowment policies offering windfalls of about £35,000 each to folk who have long since given up on them paying the mortgage. That is £16 billion of extra spending or deposits for FTB’s.

  36. 06/01/2013, FOGGY wrote

    LONDON IS NOT ENGLAND ANYMORE!

    The haulers, farmers and railway workers will blockade central london brnging the rich to it’s knees!

    I read today that Cameron wants to turn the poor north into a shanty area and to ship anyone without the money to pay the conjestion fee to thier new england.

    Disown london now and starve the rich into submission! Afterall what does it do for the real England?

    POWER TO THE PEOPLE

  37. 07/01/2013, hello13 wrote

    Do anyone of the moneyweek readers agree with either end of britan or wealth pres report and intend to act upon the rec’s of the latter?I wanted to mention a couple of things that i found conflicted with one another.Correct me if i am wrong but in the end of britain report it says the government could slap a 25% tax on share dividends if the scenario materialises then in the other report they recommend investing part of your money in uk dividend yielding shares!In the first report they say that japan has a higher debt to GDP of uk therefore it should face the same worse case scenario when the cost of borrowing goes up that would happen to the uk,however they also recommend in the other record to invest in a japanese investment trusts!I would appreciate if anyone could clear this up,i dont know this website but i thought the authors of these reports are supposed to reply to the comments made on their posts/report but then again i am new to moneyweek!

  38. 12/01/2013, Boris MacDonut wrote

    #37 I fear the End of Britain report must have been sponsored by the Bailiwick of Jersey and the Cayman Islands tourist board.

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