Here's a quick recap of the predictions I made last year. I'll never have a better year of forecasting.
All measures of inflation will head higher. Correct. Headline inflation was negative in the final months of last year, and core inflation barely avoided a negative print. The CPI rose throughout the year and was up at a 4.2% annualized pace in the six months ending in November, while the core CPI was up at a 1.5% rate over the same period.
The economy is going to recover sooner than the market expects, with the bottom in activity coming before mid-2009. Almost spot-on. The official pronouncement of the recession's end won't come until later next year, but for now it looks like the recession ended in late June or early July. The economy greatly exceeded almost everyone's expectations.
Residential construction was bottoming, and housing prices would begin rising well before mid-year. Correct. Housing starts hit bottom in April and as of November were up 20% from their lows. According to the Case-Shiller index of housing prices in 20 major markets, housing prices hit bottom sometime around March, and were up 5% from their lows as of the September release.
Treasury yields will be significantly higher by the end of next year. TIPS yields will hold steady or fall as nominal yields rise. Correct. 10-year Treasury yields have risen from 2.1% at the end of last year to 3.6%. 10-yr TIPS real yields have fallen from 2.1% to 1.3%.
Credit spreads have seen their highs and will continue to narrow. Correct. Spreads actually plunged over the course of the year, leading to the biggest rally in corporate debt on record.
Equity prices will lag other risk asset prices, but they will be significantly higher by the end of next year. Correct. To date, the S&P 500 has generated a total return of about 25%, after plunging to a frightening low in early March. Gold is also up about 25%, after earlier posting a gain of almost 38%.
Commodity prices may take awhile to move higher, but they will be higher within 2 years. Oil prices are unlikely to drop below $35. Correct. Commodities rose throughout the year and are now up over 30%. Crude oil has almost doubled this year, after briefly dipping to a low of $36.50 in mid-January.
The dollar is unlikely to make further gains against most major currencies, given the Fed's hyper-easy stance, and is likely to fall against emerging market currencies as commodity prices rise. Almost spot-on. The dollar rallied through April, but so far is down about 5% against major currencies for the year. The dollar fell significantly against the currencies of most emerging market currencies.
I'll have my fearless 2010 forecast out by next week.