Tuesday, January 11, 2005

Predictions for 2005

This time of year all of the big investment firms publish their "ten predictions" or "ten surprises" for the new year. Often the forecasts are pretty conservative but occasionally there will be some that are really over the top. I guess when a really outrageous one actually happens they can boast of their omniscience. Here are a few predictions with my personal spin. None of them are very daring, but it should be fun to refer back to them during the coming months to see how accurate they are.

Stocks will outperform bonds and cash. 2005 will be the third year of a bull market and, as such, stocks will not perform as well as in the last two years, but will still lead bonds and cash. We live in an 8/5/2 world where stocks will average 8%, bonds 5% and cash 2%.

The Ten Year Treasury yield goes to 5%. In 2005, the Fed will raise the discount rate at a "measured pace" and push it to 3.5%

Lots of mergers and acquisitions. American companies are sitting on tons of cash and their organic growth is slowing. Look for increasing m & a activity particularly in financial services, technology and healthcare.

Oil stays between $40 and $45. There will continue to be peaks and troughs in the oil market reflecting the news of the day in the middle east. But oil spends most of 2005 in this range.

Large-cap value stocks outperform. The stocks of big companies that pay dividends will be the best performers of the year. The best stocks to own might even be tobacco and pharmaceuticals.

Increasing bickering between republicans and democrats. The vitriolic political rhetoric worsens (imagine that!)


Julie D. said...

I know nothing about anything except the last thing so am willing to believe your predictions. On the last item, I KNOW you are correct! :-)

Jimbobb2 said...

How would real estate as investment fit into your predictions? In my case, rental properties, raw land, etc. Not "big-city", no condos, no ocean-front but single family, mid-range homes?


thc said...

Jim: Higher borrowing costs will cause demand to soften, flattening prices. I look for appreciation to be in the low single digits for residential properties. My clients' interest in r/e has never been as high as it is today, and that concerns me. Reminds me of their appetite for tech stocks in '99.

Anonymous said...

THC: Isn't that (your client's real estate interest)the buy high, sell low strategy that most people subscribe to? I was visiting with a financial advisor and one of his high net worth clients yesterday and the FA's firm ( a nationally known brand owned by a foreign bank, think America's Cup)has predicted a flat year for stocks with 6% being a respectible return. Maybe that is why the FA asked me to visit with his client regarding estate taxes and life insurance!

thc said...

Anonymous: You are quite right. In the late 90s, people who had never owned stocks before came out of the woodwork to "get some of that dot-com stuff". Now, clients have a great interest in r/e. When everyone wants in, the run is over.