As the second part of our preview of the year ahead, James Russell has decided to put his neck on the line, gaze into his crystal ball and attempt to predict the movers and shakers in the murky world of finance… Trivial Pursuits is not responsible for losses based on the information below…
1) Greece will default on its debt obligations, in some shape or form. Merkozy and the banks are trying their damnedest to turn a hard default into a voluntary restructuring, but we all know deep down that Greece is bankrupt and unable to pay back all the money it borrowed. Soft or hard, at least 50% of the money it was lent will never be seen again. The sooner we take the hit and move on, the better.
2) Germany will finally accept the concept of Eurobonds, bringing the eurozone economies ever closer to the final stage of full fiscal and monetary union. National bond markets will disappear over time as Europe funds itself centrally. The European Monetary Union will start to look more and more like the United Kingdom. Same currency, same taxes, same welfare system. Just without a queen.
3) Housing in London and the south-east will remain depressingly unaffordable for most of us. Low interest rates and foreign money will put a floor under the market, meaning the under 30s will be stuck renting for the forseeable future.
4) The US will suffer further economic turmoil as their fragmented political system approaches the November elections. A lack of credible opposition to Obama won’t stop endless bickering and polarised opinion plaguing the global media. The reluctance of Democrats to spell out in detail how they plan to bring their enormous national debts under control will lead to pandemonium in the markets.
5) The stock market will however remain surprisingly resilient. Strong corporate balance sheets and an underweight investment community means slow growth but no meltdown. After all, what don’t we already know? The banks are undercapitalised, Greece is bankrupt, the rest of southern Europe is short of cash, austerity is trending and things aren’t getting better any time soon. That’s all in the price already.
6) People will start to seriously question the valuations of the Web 2.0 giants. Groupon will fail, while Facebook will go public and after initial euphoria will drop sharply in price.
7) Inflation will be higher than expected. Mervyn King and his merry men at the Bank of England expect higher prices to be a thing of the past, as tax hikes and commodity booms filter out of the annualised inflation numbers. But oil prices will stay high, imported inflation will increase and we’ll all feel poorer for it.
8) Imported inflation? That’s the stuff we import getting ever more expensive. The developing world is suffering from higher costs themselves; coal for their factories, food for their children, oil for their cars. So they are demanding higher wages. Put all of this together and the iPads and jeans that we buy are going to cost more. Meanwhile the developing world is doing just that.. Developing. Meaning the cost of western food stuffs is going up. Expect your weekly shop to burn an even bigger hole in your pocket next year.
9) China is a dragon alright, but it has a sore throat. The Chinese property bubble is bursting in front of our eyes and in any normal economy that would mean curtains, but the Chinese government have been saving for a rainy day. They will put their $3trn of cash reserves to work, building millions of new homes as part of a massive social housing programme. This will keep them afloat, and the world will breathe a sigh of relief.
10) The UK won’t go back into recession. Government borrowing figures will be better than expected and unemployment will come down as the private sector starts to rebuild. The Unions will moan and shout and stamp their feet, but the public will see them as barriers to progress and back the coalition policies. The Olympics will be a huge economic benefit to the UK. We will end the year happier than we started it.
by James Russell