Asmus Puhl Finance Blog

Only a few days until Christmas and the end of 2009!

This is traditionally the time for predictions! Predictions about how the financial markets will fare in 2010!

As this blog openly states it is unable to predict the short or medium term moves of the market (and we think no one really can…..) perhaps one element of the coming years becomes very clear:

Rising long term interest rates!

In the aftermath of the financial crisis and the following recession, consumers started to wind down their debt. Private companies were doing the same.

But the governments of the Western world did the exact opposite: They run public deficits up to 10-12% and accumulated debt in an unprecedented way.

After Dubai Greece was the first sovereign debtor which ability to pay current obligations has been questioned. Two rating agency already downgraded the public debt of Greece below the A-level.

This general mistrust in sovereign debt will very likely increase in 2010 and beyond and will – in Europe – put more question marks behind the European monetary union.

As financial markets are recognizing that current interest levels are not compensating enough for the rising risk of public debt, it is not difficult to predict that long term interest rates will rise in 2010.

This must not be bad for the stock market as general wisdom suggests. The world economy continues to improve, earnings will improve too and real assets are becoming more and more “fashionable” (…another move away from „paper money”…).

But please do not expect returns like this year against a rising interest szenario!

The same applies for gold and other precious metals. If the move away from paper money continues gold will likely continue its longterm upward trajectory, after a little pause for profit taking and even against rising interest rates.

A Happy and Prosperous New Year to all our readers!

See you in 2010!

Fitch downgraded the public debt of Greece, a member of the Euro to BBB+

Moody’s and S&P both have a negative outlook for this country.

If the numbers are correct (and this is not always certain in Greece) the public deficit ballooned to 12%,  far above the 3% threshold the Maastricht treaty normally allows. Public debt reaches 120% of GDP.

Yesterday Moody’s lowered its outlook for Spain’s national debt. If informations are correct Portugal is not in a much better situation.

These countries face a serious problem: They cannot devaluate their currency in order to help their economy because they are members of the Euro. This could mean sluggish economy with rising public interest payments as creditors are willing to lend only with higher risk premiums.

For the first time a sovereign debt crisis within the monetary union could be on the horizon.

So far my fears expressed in my previous post begin to become reality!

The Euro weakened against the dollar for the first time after weeks.

Gold currently passes a correction after the huge runup this year but it will be interesting to watch where it will be heading in 2010:

Once again: Will gold rise only when the dollar is weakening or will it rise also when the dollar remains relatively strong?

If the second alternative prevails this could very well be a strong indicator of the beginning distrust in paper currencies Alan Greenspan mentioned earlier this year …. a distrust in all paper currencies, not only the dollar!

We would then be only at the beginning of a multiyear gold bull market!