Category: News

Oppenheimer banking analyst Chris Kotowski says banks are going to flush a ton of crap off their balance sheets in Q4.  This will make asset trends look temporarily bad–get ready for big write-offs–but it will also clear the decks for a much better 2010.

To this we would add that Bank of America will likely be even more aggressive about this than your average bank. 

The CEO switch gives new CEO Brian Moynihan a chance to clean the books and blame Ken Lewis for all the garbage.  The more Moyhihan rinses out now, the less he’ll have to answer for later.  So expect a veritable Augean Stables move from Bank of America.

Chris Kotowski:

We have been saying since our 3Q09 preview that we expect 4Q09 to be a clean-up quarter. We mean this not just in the sense of special charges that impact earnings, of which there will be plenty, but also in the sense that in order to get as much “reserve building” out of the way in 2009 as possible the companies will be very aggressive in classifying problem assets and this will likely make asset quality trends look poor. To this mix we now add reduced loan volume expectations for 2010 and a more pronounced than normal seasonal slowdown in trading.

We are trimming our 2010 estimates almost across the board with only Lazard untouched. At the investment banks the trims are fairly modest and driven mainly by the fact that our 2010 trading estimates were derived off full-year 2009 estimates, and with these somewhat diminished it has a modest pull-through effect on 2010. We are also trimming our price targets based on our reduced estimates.

At the commercial banks, our estimate revisions are being driven by lower loan volume assumptions (which drove a roughly 3% reduction in our pre-provision earnings estimates) and the assumption that loan losses will remain at their peak 4Q09 levels for two quarters rather than one. This latter change stemmed from sloppy November master trust data.

We view the 4Q09 slowdown in trading as seasonal and believe it has negligible implications for the underlying health of trading businesses, which we consider quite strong. In this report we take an extensive look at long-term trends in the business, which indicate that 2009 results are not far off trendline.

We continue to believe that investment banking and trading businesses are likely to do well in 2010. M&A is just beginning to rebound, enormous financing needs remain, and concern about the sustainability of trading profits (which is reflected more in the single-digit P/E multiples than in earnings estimates) is overdone.

Loan volume and NPA inflow trends will be poor for several more quarters, but historically such times have been good for bank stocks.

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See Also:

• Cramer: "I Like Bank Of America!"
• Bank Of America’s Below $15, The First Time Since July
• Bank Lending Is Collapsing All Around The Globe

Found under: LG, eXpo, AT&T, Windows Mobile 6.5,,

A new Windows Mobile 6.5 phone is available from ATT and its a handset worth considering. The LG eXpo is the phone in question and it will surprise you with some spectacular features. If you already know the phone then youll notice how it lacks the pico projector it was supposed to come with.But lets check out the specs of the LG eXpo -1GHz processor-Quad-band GSM-Tri-band UMTSHSDPA-5-megapixel camera with autofocus and 5x zoom-Slide-out QWERTY keyboard-GPS-Bluetoot

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Don’t be freaked out by the month-long swoon in gold.

CIBC, which has plenty of expertise in mining and commodities, remains very bullish on it, slamming the idea that somehow gold is in a “bubble”, and calling for a price target of $1400 in 2011. Of course, many of the late-stage gold buyers we’ve seen recently probably thought $1400 was a chip-shot by the end of this year, so even this bullish call may be disappointing to them.

Before getting to their reasoning, we’d like to highlight this chart, via PragCap, which also bolsters the case that there’s no gold bubble. Basically, bubbles look a certain way, and gold doesn’t.

 

Via FT Alphaville:

Gold has been exhibiting significant correlation to the U.S. dollar, yet we believe other fundamentals will support continued strong performance of the metal, including stronger investment demand, the market’s need for a safe haven investment, and the absence of growing mine supply.

. . .

The rationale for accelerated reactions to dollar-led gold price movement lies in the additional factors contributing to the strength in the metal. Currency movements may be important but they are not the only factor propelling the price of gold. Uncertainty of many factors has led to strong investment demand for the metal as one of the prime drivers to gold price increases. Whereas jewelry demand accounted for about 82% of metal purchases a decade ago, that figure has dropped with investment demand rising to as much as 73% of total demand in some recent quarters. Aside from the safety protection offered by bullion, we suspect that investors have sought to limit volatility within their holdings by diversification into traditionally counter cyclical vehicles such as gold.

The desire for diversification is not limited investors. In ever increasing amounts, Central Bankers have also joined the party that arguably they were responsible for its demise 12 years ago. Whereas back in 1997, there was selling pressure on bullion brought about first by the governments of the Southern Hemisphere (Argentina, Australia), followed by Switzerland, Netherlands and the United Kingdom, now there is net buying taking place among Central Banks. Key among the buying group of late is China and India. We think this trend to broader purchases by Central Banks will continue leading to a new source of demand that hitherto was a source of supply as Central Bank selling intensified at the turn of the millennium.

In the absence of growing mine supply, we anticipate that bullion will continue to perform well over the next few years and possibly longer. Short-term gyrations however will also be the norm and in the past two weeks we have seen what we consider to be a normal (and arguably healthy) correction to the upward phase of a continued long-term bull market for gold.

Read more at FT Alphaville >>

Join the conversation about this story »

See Also:

• Goldman: Oil Going To $90, Gold To $1350
• China Down Big Overnight, Japan Slips, Gold Back Above $1100
• Gold "Super Spike" Coming In 2010

Until recently, few people would have thought of using “Madagascar” and “Firefox” in the same sentence, but since the latest code name for the latter was released, this no longer seems an unlikely phrase. For those of you who do not know, the 3.6 version of Firefox is called Namoroka, named after a park in the northwest area of Madagascar.

The Mozilla team has already started and maintained a tradition when it comes to promoting free access to software and creative solutions for developing a “health ecosystem of communities” where “a shared space, shared resources or network of ideas, applications and products that are free to use.”

It seems Mozilla developers consider that parks resemble the open source software environment in terms of recreation, collaboration and conservation, not to mention the fact that both concepts are vital ecosystems for their respective fields.

Of course, it is not the first time when Firefox gets its pre-release code named after a park, other examples being Gran Paradiso (Italy), Bon Echo (Canada) and Shiretoko (Japan). Furthermore, the Japanese appeared to be very proud to have inspired the Firefox 3.5 code name that they even created Discover Shiretoko, a website designed for promoting the park with the same name, and to… (read more)

WBZ-TV yesterday shared the story of Charlotte Kelly, a 3-year-old Children’s patient who is battling stage IV neuroblastoma. The chemotherapy used to treat Charlotte’s cancer destroys the platelets in her blood, so she needs regular transfusions to replace them. Her mother’s colleagues from the Tynan Elementary School in South Boston gave the greatest holiday gift this week when they came to Children’s Blood Donor Center to donate platelets for Charlotte.

As you’re giving gifts this year, don’t forget to give the ones, like blood and platelets, that don’t cost a dime but help kids like Charlotte every day at Children’s and places like it around the world.

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Found under: Motorola, Backflip, Enzo, AT&T, Android, ,

Im still waiting for the day when ATT will launch an Android smartphone. ATT is currently the only carrier of the big four U.S. carriers that doesnt have an Android phone in its inventory. Sprint and Verizon already have Android phones and T-Mobile was the first to launch an Android smartphone last year.According to recent rumors ATTs first Android handset will be the Motorola Backflip also known as Enzo. The phone isnt official yet but there are plenty of leaked shots showing t

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Sun-Maid Raisins recently had a radical makeover for its iconic raisin girl found on every box of raisins the company produces. In addition to modernizing the girl, Sun-Maid also appears to have given her a nice boob job.

The new girl is shown up top. Here’s what the old version looked like:

The new 3D animation is kind of creepy and the Sun-Maid girl now looks more like a farmer Barbie. Now if she would only ditch that bonnet for a bikini.

Here’s a new commercial featuring the animated hottie:

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Q: I have a black bottomed dutch oven. But I’ve seen ones that are white on the inside. Is there a difference?

Sent by Christina

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cram writes in to let us know of a filmmaker/post production guy in Uruguay who spent a grand total of $500 to make a 5 minute “robots attack the world” movie that he put on YouTube, and, in response, has now been given tens of millions of dollars by a Hollywood production company to do something more significant:

There are a few things that are a bit unclear from the story, which alternates at points between dollars and pounds, so you may question the validity of the details. However, watching the video is quite compelling, yet again. We’ve seen other top amateur films with amazing special effects made on the cheap, and this is another one to add to the pile. Hollywood keeps insisting that it needs to produce $200 million movies, and studio insiders, who like to hang out in our comments and dismiss amateur special effects as being worthless, will — of course — mock this as being nothing special. And, sure, you can definitely see that the quality of the $500 effort is not the same as a big budget Hollywood film. But it’s not that far off. And what can be done today for $500 couldn’t even have been matched by Hollywood’s bigshots a decade ago. Just think what an amateur and $500 will do a decade from now? And then explain, again, why we’re going to “need” to produce $200 million special effect bonanza movies again?

In the meantime, congrats to this guy, who turned $500 into a chance to play around with a lot more (though, not $200 million). It’s difficult to turn that sort of opportunity down, though it would have been even cooler to see what he could have done on a smaller budget as well.

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Ginger’s Note: Our guest blogger is my co-worker, Sarah, from USA.gov.  She was working on a detail assignment at the White House and she was invited to attend the White House Holiday Reception for the staff. Here is her inside scoop on what the party was like.

I’ll be the first to admit that I’m a sucker for a good party. I’ve never been able to turn down an invitation to a soiree – and my resolve gets even weaker when the holidays roll around. There’s something about holiday parties – the carols, the decorations, the eggnog – that really make the season magical.

This year I had the amazing opportunity to attend the White House Holiday Reception in the East Wing of the White House. This party was being held in honor of White House staff and their families and was hosted by the First Family. It was an unforgettable event!

Throughout the East Wing of the White House, all the ceremonial rooms were open for mingling. We could sit on the historic furniture, use the tabletops for our appetizer plates, and mingle around the fireplace. There was a quartet from the Marine Corps band providing music in the Entrance Hall and a very talented soloist who sang beautiful Christmas Carols throughout the evening.

The holiday decorations were simply stunning. Every room in the East Wing boasted a soaring, live Christmas tree, and each tree was adorned with handcrafted ornaments from around the nation. There were ornaments celebrating Mount Rushmore, the Red River Valley, the Tennessee River, and over 800 American landmarks.

The highlight of the evening was an appearance by President Obama and First Lady Michelle Obama. The President and First Lady graciously thanked the staff for their time and dedication, thanked the families for patience during the long
work weeks and exhausting schedules, and welcomed us all to enjoy their home for the evening. After the remarks, the President spent just a few minutes shaking hands and greeting his staff. I was thrilled beyond belief when I had the opportunity to meet the President and shake his hand.

After such an unbelievable evening, I knew I needed more souvenirs than the embossed cocktail napkins I’d stuffed in my handbag. The next morning I immediately hopped on to USA.gov, where I knew I could find gifts and memorabilia from the White House. I’m so
thankful that years from now, when I unwrap my 2009 White House ornament, I’ll have an unforgettable story to tell my children and grandchildren.

It’s here, finally. According to Moody’s.

24/7 Wall St.: Moody’s Investors Service has raised the bias and outlook on the U.S. homebuilder sector this morning. Its report was titled “U.S. Homebuilding Industry Shows Signs of Stability” and the ratings agency raised the sector’s outlook to Stable from Negative. In short, Moody’s believes or suggests that a bottom has been reached.

…

Moody’s synopsis is that the stable outlook expresses a view that fundamental credit conditions in the industry will neither erode nor improve materially over the next 12 to 18 months.

Moody’s has cited that housing starts, new home sales, and existing home sales have all shown positive trends, and housing affordability is at the strongest point seen in many years. This is on the heels of a November figure showing a 8.9% rise in housing starts.

Read more here.

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See Also:

• Housing Starts And CPI All Benign
• Ken Rogoff: Housing, Unemployment Will Get Worse Before They Get Better
• California Housing Market Continues To Recover, Befuddling Bears

The Economist warns that the recession we just experienced is only a small taste of the pain to come.

While massive government action around the world softened this recession’s blow, to the point that many in the world barely felt it, it will soon be time to deal with the repercussions of bailouts and stimulus.

These include stagnation in developed economies, asset bubbles in emerging ones, and the rise of anti-business sentiment among outraged American and European populations.

The Economist: The bad news is that today’s stability, however welcome, is worryingly fragile, both because global demand is still dependent on government support and because public largesse has papered over old problems while creating new sources of volatility. Property prices are still falling in more places than they are rising, and, as this week’s nationalisation of Austria’s Hypo Group shows, banking stresses still persist. Apparent signs of success, such as American megabanks repaying public capital early (see article), make it easy to forget that the recovery still depends on government support. Strip out the temporary effects of firms’ restocking, and much of the rebound in global demand is thanks to the public purse, from the officially induced investment surge in China to stimulus-prompted spending in America. That is revving recovery in big emerging economies, while only staving off a relapse into recession in much of the rich world.

Read more here.

Join the conversation about this story »

See Also:

• Obama Administration Can’t Decide Whether The Recession Is Over, But It Wants Banks To Lever Up
• Six-Figure Federal Salaries Jumped 46% During The Recession
• John Mauldin: We’re Still Heading For A Double-Dip Recession

Found under: Verizon Wireless, Palm, Pre, Pixi, ,

In case you forgot about it Verizon will launch the Palm Pre and the Pixi at some point next year. Sprints exclusivity deal for the Pre is going to expire soon so thats why Verizon Wireless employees are going to go through online training for Palm and webOS.Nothing is official about the Verizon Palm Pre yet and we have no idea when the Pixi will be sold by Big Red either. But according to some leaked screenshots the company has begun training its employees on Palms newest smartph

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It’s not exactly a secret anymore that Google is pushing hard on translations, constantly updating the tools it built around its machine-translation technology, which is getting more accurate with every iteration. The reason is simple, to make more online content available to more people, which indirectly leads to higher revenue for the company. Now, Google is updating a recent tool that, while not directly related to translations, falls pretty much in the same category, Google Transliteration. The tool enables users to type words using roman characters, and then have them converted to other scripts like Greek or Hindi, and has now launched globally with 17 supported languages.

“Using Google Transliteration you can convert Roman characters to their phonetic equivalent in your language. Note that this is not the same as translation — it’s the sound of the words that are converted from one alphabet to the other… Today we are pleased to introduce a new and improved version of Google Transliteration, available in Google Labs,” Nilesh Tathawadekar and Mohammed Aslam, software engineers at Google’s Bangalore office wrote.

Google launched the tool in Labs with support for just one Indian language. Since then, the team has been hard at work both in the functionality and features, but also adding new lang… (read more)

Popping in a movie while we’re making cookies is one of our favorite holiday traditions. Maybe it’s even the same cheesy movie every year. Do you have a favorite movie to watch while you’re rolling up dough or decorating cookies?

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Sweat is indeed odourless !  It is actually the bacteria which then feeds on the sweat which create a rather pungent odour, because the bacteria actually breaks down the fats (which are in fact sweat deposits)into unsaturated fatty acids.  And the familiar smell of body odour ensues.  

Fresh sweat ie sweat which has not yet been broken down actually contains pheromones which can attract the opposite sex.  But within half an hour or so, this will have changed into a body odour, so the pheromones are quite short lived !

Some people seem to produce body odour very quickly.  This is because if they have not washed for a day or so, then the underarm area will be ‘home’ to an astonishing number of bacteria, which will feed off the sweat very quickly.  Fewer bacteria means that the smell is less pungent… Hence why it is important to wash frequently.

Found under: Nokia, Dual SIM, Smartphones, ,

It looks like Nokia has some interesting plans for next year. Although nothing is official word on the street is that Nokia wants to launch dual SIM phones in the second quarter of 2010. Is that something we secretly crave for Sure we live busy lives and carrying two phones can sometimes be pretty annoying but do we really need dual SIM phones from Nokia Lets say that you need one private line for your family and friends but you also need a professional work-related phone. Wouldn

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‘Going Rouge’ Rounds Up the Usual Suspects to Demolish America’s Sweetheart Sarah Palin

By David M. Kinchen

Ready, aim, fire!  Imagine 47 liberals toting guns — a truly frightening thought — with Caribou Barbie, Hockey Mom Sarah Palin tied to a stake, blindfolded, wearing designer clothes or a Carhartt ranch coat, her $350 designer glasses perched jauntily on her perfectly coiffed hair, bravely facing her firing squad.

That’s what I took away from  Going Rouge: Sarah Palin — An American Nightmare (Health Communications, 336 pages, $15.95) edited by two senior editors at The Nation magazine, Richard Kim and Betsy Reed.
Among the mildest contributions in this compilation of mostly previously published material is that of Katrina vanden Heuvel, editor of The Nation. It’s titled “The Sarah Palin Smoke Screen.” You’ll have to rely on the table of contents to find it because —  like Palin’s own  best-selling Going Rogue  —  this paperback lacks an index. What is it with publishers these days failing to provide something as essential as an index in nonfiction books?

At the other extreme, foaming-at-the-mouth Matt Taibbi of The Rolling Stone drops the F-bomb on Sarah to the point where even I — far from being a fan of the faux populist from Wasilla — began to feel sorry for her, something I didn’t when I read her ghost-written memoir. Mad Dog Palin is Taibbi at his rug-chewing best, to change the metaphor.

The editors literally rounded up the usual liberal suspects from AlterNet, Slate, the Daily Beast, Salon and, of course The Nation for inclusion in Going Rouge, writers like Eve Ensler (The Vagina Monologues), Naomi Klein (The Shock Doctrine), Katha Pollitt, Gloria Steinem, Hanna Rosin, Rebecca Traister, Robert Reich, Christopher Hayes, Joe Conason, Frank Rich and Jim Hightower, who derided — in Sarah Palin’s Faux Populism —  Palin’s alleged populism by comparing and contrasting her to real populists like Mary Ellen Lease, Ida Tarbell, Mother Jones, Molly Ivins, Barbara Jordan and Granny D. Hightower is always a perceptive commentator and he’s worth reading here.

Juan Cole compares  the Devine Sarah to the current president of Iran in Sarah Palin, Meet Mahmoud Ahmadinejad. Cole says both are former governors of northwest frontier states; “both are known for saying things that produce a classic Scooby-Doo double take in their audiences,” Cole writes, adding: “Both appeal to a sort of wounded nationalism…identifying themselves with the common soldier.”

The editors included contributions by Alaskans who rip off the Phantom of the Opera mask they accuse Palin of wearing, but lacking are essays or articles by conservatives who were on record as being opposed to Palin from the start, people like Kathleen Parker and David Frum. Other contributors note the opposition of conservatives to the selection of Palin, but they also comment on those — like William Kristol — who fawned so fulsomely over Palin.

The essays cover in eye-crossing detail Palin’s fundamentalist Christian beliefs,  the Troopergate affair, her lack of geographic knowledge and, her husband Todd’s membership in the Alaska Independence Party, her quitting in the middle of her term as governor and —  in the case of the women contributors — how lacking she is in talent and experience compared with Hillary Clinton or even possible GOP veep candidates like Maine Sen. Olympia Snowe or Texas Sen. Kay Bailey Hutchison. There’s a lot of repetition in the contributions, genuine overkill in the manner of  Maureen Dowd in her 2004 book about George W. Bush, Bushworld.

While many of the contributors to Going Rouge dismiss Sarah Palin, others bring up the specter of Richard Nixon and even George W. Bush, saying we should never underestimate — or is it “misunderestimate” — the ignorance of the American voter.

Going Rouge  preaches to the liberal choir, but independents and conservatives may benefit from reading this book of essays by the nation’s liberal chattering classes. Like it or not, Sarah Palin matters to many Americans and the thought of her running for President in 2012 either delights or frightens, depending on your political views.

Book Review: Decoding The Lost Symbol By Simon Cox

Copyright © 2006-2010, Basil & Spice. All rights reserved.

(This guest post was originally published by Euan Mearns at The Oil Drum. This work is licensed under a Creative Commons Attribution-Share Alike 3.0 United States License.)

Figure 1 Oil supply – demand – price chart, Jan. 2002 to Nov. 2009. See text for explanation. Click to enlarge and open in separate browser window.

In February this year, global oil production / demand hit an interim low of 84.0 million barrels per day (mmbpd) and the average price of West Texas Intermediate (WTI) that month was $39.16 / bbl. Since then, demand has recovered to 85.9 mmbpd in November and the average price was $78.08 / bbl. A rise in demand of 2.3% has led to an oil price rise of 99.4%.

Full explanation of the chart and a discussion of what 2010 might have in store is below the fold.

Every year about this time I meet with an old university friend, who is also a geologist, and we make a bet on where the oil price will be in a year’s time. My “forecast” from a year ago:

My forecast is $80, based more on hope than anything else.

My friend bet $55 and so, with Brent on $71.50 (17 Dec 2009) it looks like I will win that pint of beer this year, based more on luck than anything else. It has always been near impossible to forecast the oil price, but since 2002 we have entered a supply constrained situation where the relationship between supply, demand and price seems to allow a more informed approach to predicting the future. So what does that chart up top tell us?

Supply, demand and price

The chart up top is based on this simple model presented by Phil Hart in this rather excellent post.

Figure 2 Phil Hart’s oil price, supply, demand model.

It remains a source of great surprise for me that the monthly average production and price data for the last 8 years still fits this model. There are a number of wild card variables that one might expect to produce significant deviations, such as variable OPEC spare capacity, changes to global productive capacity, speculation and currency fluctuations. And yet the data fit this simple model remarkably well.

Figure 3 Oil price and supply. Oil price data from Economagic.

The chart up top (Figure 1) is a simple cross plot of the data plotted above (Figure 3). Figure 1 is a time series of monthly average oil price and production volume figures from the IEA (kindly provided to me by Rembrandt). The story starts in January 2002 (bottom left) and wanders a month at a time up to July 2008 (top right) which was the peak. At first the trend is quite flat since below 82 mmbpd supply is quite elastic, i.e. there was ample new low cost supply to meet rising demand. But then, above 82 mmbpd price began to rise with rising production / demand and at 84 mmbpd OPEC spare capacity fell to effectively zero late 2004 (Figure 3). At that time new capacity had to be built to replace production lost by decline, that is roughly 5% of 84 mmbpd = 4.2 mmbpd new capacity per annum just to stand still. The oil industry was working flat out, and with an oil service sector unable to meet demand, rates went through the roof together with the oil price as supply became inelastic.

Eventually in July 2008 the Olympic peak was reached, Lehman Brothers went bust, the credit crunch consumed the world economy and the oil price retraced its upwards path (pale blue line) settling on $39 / bbl and 84 mmbpd in February 2009 as demand fell 4 mmbpd as recession set in.

Since February, the oil price has made a strong recovery to around $80, retracing about half of the losses of last winter. All of this activity can be explained by inelastic demand interacting with inelastic supply, albeit that OPEC spare capacity may be switched on and off at the will of OPEC countries, mainly Saudi Arabia.

So how can this help predict what the future might hold? In simple terms, should the relationship in Figure 1 continue to hold, then the future oil price will be determined by demand and the problem is reduced to forecasting global oil demand – no simple task. Note that from the current position of 86 mmbpd, an increase in demand of 2 mmbpd will take the oil price back up towards last summer’s peak whilst a fall in demand of 2 mmbpd will take the oil price back down towards $50 / bbl. The task boils down to understanding the outlook for the global economy.

Outlook for 2010

The only thing I feel I know for sure about the future right now is that it is uncertain. There is a large degree of sureality here in Aberdeen. The UK is in the midst of the longest and deepest recession for many decades. And yet life seems to be continuing pretty much as normal. The shops are busy and the streets are still lined with Porsches, Mercedes and Audis. But all is far from well. The School where my younger boy is just completing his final year has lost several teachers in the last two years with more cuts to come. My wife works at the University where her salary is now effectively frozen. News of cuts to public spending and capital projects abound. The UK has run up mind boggling debt in the blink of an eye and is printing money like there is no tomorrow (Box 1). While growth has returned to most major economies, the UK is the sick man of the bunch, suffering badly from being top heavy in phantom GDP provided by a terminally ill financial sector.

UK Government chart. I’m uncertain what the left chart shows, apart from the post August 2009 data are off scale. Right side shows net cumulative debt as % of GDP. As GDP has fallen by 4.75% and borrowing has grown out of control to support social programs, the UK debt:GDP ratio has increased exponentially. Symbols show the default situation, line shows actual situation that includes government lending to banks.

Certain events will take place in 2010, all of which are likely to have a negative impact upon the prospects for the UK.

• There will be a general election in May, and leading up to that the full significance of our perilous finances will be on show for the population and the world to see
• Cash for clunkers will end in January, it is hard not to see that this will send the motor industry and all the industries it supports back into a tail spin.
• VAT (sales tax) reduced from 17.5 to 15% in a desperate attempt to stimulate the economy will be raised back to 17.5% shortly.
• The banks, who now seem to run the country, are introducing draconian charges for short term consumer borrowing – £1 per day for overdrafts up to £2500 – that works out at effective interest of 15% for an annual requirement of £2499. Poor people, who have not understood the implications of this will be fleeced, with the blessing of our socialist government.
• UK government spending must fall. This will squeeze wages, raise unemployment, and this will filter down to the retail sector and housing market. The tax take from government spending will fall.
• At some point quantitative easing (QE) must end, and my understanding is that this will send long term bond yields upwards with consequences for the broader market.

You may gather that I am not optimistic about the prospects for the UK in the year ahead. The current stock market rally and resumption of growth in OECD economies has been manufactured to large degree by QE, currently running at around £200 billion in the UK. This is relative to GDP of around £1.5 trillion. QE is like a sticking plaster over a gaping hole in a grossly over inflated credit bubble.

The chart below which shows the relationship between earnings (PE ratios) and the value of the S&P500 is one of the more sobering charts I have seen. Unless there are reasons to believe that the US economy will make a robust recovery next year then some form of equilibrium must surely be restored to the market. Sharply lower stock markets will likely trigger a new round of deep woes for global finance markets. Stoneleigh eloquently summarised the case for a deflationary bust in this interview / post.

Figure 4 S&P 500 PE ratio history, courtesy of Decisionpoint.com. The chart was lifted from an email article by Brian Bloom, author of Beyond Neanderthal. The recent fall in PE curves reflects Q2 2009 GAAP adjusted PE ratio of 148 as reported by Brian Bloom. I cannot vouch for the veracity of this information, perhaps some posters would care to comment?

I believe 2010 will be a year of high volatility, and this makes it difficult to predict where we might be at year’s end. But since I have to stick my neck out, I will predict an oil price of $40 / bbl one year from now with global production / demand running at around 82 mmbpd. This is little better than a wild guess, and there are a multitude of alternative outcomes. In the near term, the oil price may go higher, but the higher it goes, the more stress will be placed on an ailing global economy and this will hasten the next stage of economic contraction. This oil accordion (credit to Nate) was well illustrated in this comic strip by John Kinhart.

If readers wish to post their own analysis and prediction then I will summarise these predictions at the end of this post and we can revisit this a year from now. The prize for the nearest prediction, Brent Blend spot price at the close of 17 December 2010, will be kudos.

Wishing all readers a merry Christmas or whatever festival you chose to celebrate. And its worth recalling the sound advice of Nate – there is a lot more to life than money. Make friends and build social capital.

Euan Mearns
December 2009

Join the conversation about this story »

See Also:

• Goldman: Oil Going To $90, Gold To $1350
• Oil Prices Falling Again
• Gartman: Forget Saudi Arabia, Our Oil Future Is All Canada

In case you haven’t seen this one yet, here’s the latest YouTube sensation. This unknown kid has got some serious guitar picking skills. He nails every note of “I am Yours”, which is pretty darn impressive.

What’s even more impressive is how many people have watched this video. The video was discovered on Dec. 9 and within four days more than 3 million people had watched. Four days after that more than 6 million have watched it. Congrats you unknown ukelele-pickin’ master.

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2. YouTube Carpet Bombed with Porn Videos
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