New Year financial predictions

By RAOUL RUIZ MARTINEZ [email protected]

Raoul Ruiz Martinez is a consultant for Finesco Financial Services Ltd., Glasgow and regulated to advise on capital investments in both the UK and throughout Europe under the MiFID regulation.

Once more it’s the New Year and, more importantly, the end of another decade. Yes, let’s do away with the Noughties (and all of those that made it so) and formally bring in the Tens.

Allow me to enlighten you with a few predictions for the year ahead that may have a significant influence on how the Tens will end. As always, I will attempt to avoid an invasion of your personal space with arcane investment strategies and remedies.  

It’s the analysts, experienced investors and their advisers that all strive to decipher the jungle drums of markets and economies to identify those fruitful opportunities.  

Should investors put their money into the stock market?

Yes, yes, yes. Sorry about the repetition but I have not been off my soap box about this for the most part of last year.  

It still remains the case for 2010 as cash will continue to return almost nothing. Without a doubt, this year’s stock market gains will be less spectacular than 2009’s.  

The liquidity that supported this phenomenal rally last year (thanks to good old quantitative easing) will finally ebb away in 2010, i.e. “free” money will stop being printed and interest rates may begin to rise.  Be prudent as the trouble with stock market investments following on from a financial crisis is that there will be a greater risk that companies will go bust.  

Nonetheless, you must be in it to win it today as there are some wonderful opportunities that you can access right across the globe through experienced and innovative investment managers.  Be warned that a comprehensive understanding of your own financial position (what you already own, what your goals and objectives are) really should be assessed before you go shopping in the 2010 stock market sales.

Will an EU member state go bust in 2010?

Greece hit the headlines towards the end of last year, which, in turn, highlighted a few more members that include our beloved Portugal as well as Spain, Ireland and Italy.  My answer on this one is no because none of these countries will be forced into a default, for two reasons: (1) the pressure to sort out the public finances from within continental Europe is at the top of the agenda (denial will invariably turn both the guilty country and its leadership into social lepers), and (2) it is highly unlikely that any government would be allowed to default.

Like the banks, one way or another it would be rescued and then forced to adjust its finances anyway (just as Greece did).  Therefore, as a clean default is impossible, governments will have no choice but to rebuild, however painful the aftermath.

Just as investors got burnt with bank stocks, some rebounded extremely well in 2009.  So maybe you shouldn’t overlook Greek bonds, if you’re feeling lucky.

Will bonuses in Wall Street and the City of London be cut?

No. Executives at the top of banks had to make some sacrifices in response to government pressure and public anger in 2009. Yes, the UK and French legislators imposed 50 per cent bonus supertax on payments made in 2009 bonuses, which is most probably a one off political gesture.

Investment banks are making money hand over fist again with little or no clarity that bonus structures will be stopped forever. Don’t forget that their business model still leans towards high remuneration for big revenue dealers. However, a more sensible approach used in the US will be to stick to paying big bonuses in shares that cannot be cashed for several years. Those involved see this as a way to reduce short-term risk-taking and maybe certain financial stocks are therefore a good long term bet.

Who will win the football World Cup in South Africa later this year?

What’s this got to do with finance or the markets, I hear you say?  Nothing at all but I did promise you less hocus-pocus and a bit more fun.

I have a slight bias here towards Spain so I am predicting that the victory will be theirs.

Brazil is historically the team to produce the necessary results, needless to say that their currency and economy is doing far better than Spain.  However, Spain has never won this cup and having very convincingly dominated and won Euro 2008, my money is with them.

This article is intended to provide a general review of certain topics and its purpose is to inform but NOT to recommend or support any specific investments or course of action.  

Raoul can be contacted at the offices of euroFINESCOs.a. either by telephone on 289 561 333 or on email [email protected]. Raoul also has a regular feature (Raoul’s Rant) on the Owen Gee Solid Gold Sunday morning show on Kiss FM Algarve every 2-3 weeks with the first of the New Year starting on January 17. Finesco Financial Services Ltd is authorised and regulated by the Financial Services Authority (FSA).