Retirement Planning Guru and Intrepid Correspondent Paul Terhorst shares his sage retire overseas advice every month in the virtual pages of our Overseas Retirement Letter. For his January issue contribution, Paul takes out his crystal ball. What’s ahead this New Year 2010 for those of us looking to spend our time and our money overseas?
NEW YEAR 2010 PREDICTION #1: Markets up
I believe world stock markets will perform reasonably well in 2010, a continuation of current trends. I doubt we’ll get back to the 2007 highs, or see the robust gains we had in the second half of 2009. But I look forward to an up year, with slow, gradual improvement in equities and the economy.
NEW YEAR 2010 PREDICTION #2: Dollar up
Here I believe we’ll see a change in current trends. Since the market lows of March 2009, the dollar and equities have moved in opposite directions. That is, on days when the market was up, the dollar fell. When the market was down, the dollar rose. Traders refer to risk appetite, meaning that, on good days, investors desire more risk. Money flows into both equities and riskier foreign currencies. On bad days, investors seek safe havens.
I think this inverse correlation between the dollar and equities will end in 2010. At some point, I think the dollar and equities will rise and fall together. Reason: The United States will come out of this recession before Japan and Europe and will raise interest rates first. Higher rates make the dollar more attractive to investors. Traders will see the trend and pile on, riding the dollar up.
I remain concerned about the long-term dollar outlook (more on this in my January Overseas Retirement Letter column). But I think the near-term trend will be up.
NEW YEAR 2010 PREDICTION #3: Oil prices flat, airfares flat
I believe that the current prices of oil and, partly as a result, airfares will remain largely unchanged in 2010. I’m concerned about the long-term price of oil (again, more on this in my January ORL column). But, for now, I see both oil production and demand and airfare supply and demand in equilibrium. As always, we’ll see a summer travel spike, with higher gasoline and airfares, but, overall, I see a tranquil year.
I’m less confident in my oil/airfare prediction than in many others. Oil prices bounce around. Airfares could shoot up if masses of people start flying again, regardless of the oil price.
NEW YEAR 2010 PREDICTION #4: India down, China up
For the past decade or so, India and China have enjoyed rocketing growth. Economists tend to lump the two countries together, as if they’ll move ahead in lockstep. I disagree. I think India’s growth is temporary, Chinese growth more permanent.
I visited both India and China in 2009 and will visit both again in 2010. I saw both urban and rural areas, touristy and less so. In my view, the dictators in Beijing may err, but they’re moving to improve roads, bridges, farms, mines, tourism, and so on. If they had a chance to vote, which they don’t, the Chinese people would vote for markets, growth, and prosperity. In other words, they’d vote for more of the same.
Indians, on the other hand, if given the choice–and they are given the choice, in the world’s largest democracy–vote communist. Or what amounts to the same thing. They vote the Congress party. Instead of supporting growth and prosperity, Indians vote to drain the few productive sectors. The way the Indians look at it, the productive sectors should pay for keeping up the huge state sector.
The staggering weight of the Indian bureaucracy will eventually impede India’s growth. In my view, “eventually” in India’s case will be 2010.
India has many more problems than just a deadweight, communist nightmare. Growth has been limited to high-tech, mainly due to outsourcing from the United States and other countries. So those who speak English, have gone to college, and work with computers do well, while the masses of Indians sink in their poverty.
NEW YEAR 2010 PREDICTION #5: U.S. unemployment high
I’m frankly puzzled by the seeming panic in the financial press about 10% unemployment in the States. Unemployment is a lag indicator, typically reaching a peak six to nine months after the end of a recession. The current recession ended sometime in late 2009, so we can expect unemployment to fall in the second half of 2010, in line with normal trends. Instead of new government programs, all we need is a little patience.
NEW YEAR 2010 PREDICTION #6: Natural resources strong
I’ve said that oil prices will remain pretty much where they are right now. But with a stronger dollar, that means oil and other natural resources will increase in real value. Here I think we’re looking at both near- and long-term trends. Third World economies have entered a period of strong growth, from Asia to Latin America. With growth comes increased demand for more stuff–more cars, refrigerators, tractors, bricks, cement, furniture, motors, and machinery. All that stuff requires more steel, energy, copper, and other metals. As a result, the natural resources used to make stuff should enjoy strong prices for some time to come.
NEW YEAR 2010 PREDICTION #7: Health care done
I think Congress will pass a health-care bill in 2010, no matter how flawed. Most provisions of the drafts I’ve read take effect in three or more years, giving all of us a chance to look over what’s happened. I’ll be optimistic on this one and say that, as soon as a bill gets passed, Congress will set out to try to fix the mistakes.
NEW YEAR 2010 PREDICTION #8: Housing flat
I think U.S. house prices have further to fall as they regress to the mean. But, rather than falling even more in absolute terms, I think housing prices will fall in relative terms. To put it another way, I expect housing prices to rise by less than inflation in the years to come. We should see the housing price weakness when the current tax incentives expire.
Conclusions? If you’re into equities, stay there. If you’re not in, consider investing in growth stocks. Consider moving to Europe, or at least taking a vacation there, as France, Italy, Spain, and Germany should finally become a bit cheaper in 2010. Consider buying natural resource stocks, oil, copper, silver, construction materials, whatever. If you’re trying to sell a house in the U.S., try harder in 2010. Eventually you’ll get your price.
Happy New Year.
P.S. The January edition of Overseas Retirement Letter is in production as I write. If you’re already a subscriber, look for this first issue of the New Year, featuring more live, retire, and invest overseas predictions and insights from Paul, in your e-mailbox on the 15th of the month. If you’re not a subscriber yet, go here now to get on board.
“Kathleen, a friend and I are interested in ex-patting it to Panama in the next year or so. We are thinking about taking you up on the invitation for your February conference in Panama City. However, we don’t want to spend a bunch of money to get pigeon holed as part of a captive audience to a bunch of folks just selling their individual products and services in real estate, banking, etc.
“Can you help me overcome this fear?”
— Tom S., United States
Reasonable concern and fair question. I can tell you, though, that our conferences are not high-pressure sales events. Yes, there will be some real estate agents and property developers in the room, but that’s not what this is about.
This is about information, education, and getting your questions answered. I’ve been putting on conferences for more than 20 years, and I feel very good about the program we offer here in Panama. You’ll hear from bankers, attorneys, international shipping agents, doctors, health insurance agents, representatives from local Spanish-language schools, etc., plus we’ll introduce you to expats living and doing business in this country. These speakers can be the most helpful and useful. We encourage them to tell their stories straight…no sugar-coating. They all have chosen to be in Panama and to stay in Panama for various reasons. However, they (like we) recognize that Panama is not perfect. They have tales of frustration and of hassle…and they share them.
Here’s the most honest reply I can offer to your query: Many of the speakers and others you’ll meet during the conference have products and services to sell. But they won’t be here selling them. At least not overtly or obnoxiously. We’re very selective in who we invite to address our groups. We’ve been spending time and doing business in Panama ourselves for more than a decade. We know lots of people, and lots of people know us. When we put on an event like the one we’re planning for February, we’re approached by dozens of people who want access to the assembled group. They’re all willing to pay us for that access, yet we turn many of them away.
Yes, those with a presence in the Exhibit Hall pay us a sponsorship fee to be there. But my point is that the Exhibit Hall could be considerably bigger than it is, because there are many others who’d happily pay us to be part of it. But, again, we politely turn them away, because we fear they might fall into the category of hustler you’re keen to avoid.
We limit access to people we know and have worked with personally. People whose products and services we’re familiar with and feel comfortable endorsing.
Over the years, many others have shared your concerns in advance of an event. And I know of not one single case when, by the end of the conference, those folks had not been won over completely. Attendees remark commonly on their Conference Evaluation Forms that they came with skepticism but left delighted.
I can’t guarantee you that you’ll have the same reaction, of course, but I can tell you that I would be very surprised if you did not.
I hope to see you in February. Full details of the planned program and speakers are here.