William J. Holstein

My 2010 Predictions--Economy and Geopolitics
Jan. 3, 2010--Everybody else is doing it so why not join in the action? First my economic predictions:

Economic growth: I do not foresee a V-shaped recovery, or a return to the prevailing status quo. So I project an anemic 1.5 percent annual growth rate.

Jobs: I do not foresee a surge in hiring. I estimate we'll end the year at 9 percent unemployment, a slight improvement from today's 10 percent.

Interest rates: They have to start rising.

Stock Market: This is a possible bright spot. There is so much money sitting on the sideline that I think many billions will pour into the market seeking gains. I predict we end the year with the Dow at 13,000, up from roughly 10,500 now.

Real Estate: This is very complex because there are so many regions and so many different categories of real estate--commercial, new homes, existing homes, condos, etc. I expect big pressures on commercial real estate. There are a lot of bad loans out there. So commercial real estate prices decline further. New home construction has slowed so much that prices could stabilize, for houses costing less than say $500,000. More expensive homes will still be under big pressure. Existing home sales and prices will remain about where they are, on a national average. Condos and apartments will retain value because the baby boomers are retiring and trying to reduce the complexity of owning houses.

Auto sales: The last minute surge in December 2009 was an aberration. I can't see sales in 2010 exceeding 11.5 million, way below the 16 or 17 million that the industry once considered healthy. In that environment, Chrysler will fail this year. GM will stabilize market share at around 20 or 21 percent, before starting to gain. Toyota is wounded and will lose ground this year. The biggest winner in my view will be Hyundai. They've made huge progress in quality and design.

Emerging markets: overall, they will continue to outperform the United States and Europe.

Now geopolitical:

--Iraq: we continue to make our exit.

--Afghanistan: we recognize that our surge is not going to work. We recognize that President Karzai is not really a president of a nation and that Afghanistan is not really an integrated nation. It's unwinnable. That recognition sinks in.

--Pakistan continues to implode; Yemen and Somalia are increasingly on our radar screen for terrorism. Overall, we remain bogged down in the war against terror. There will be more attempts against U.S. targets. We continue to expend too much money and blood fighting in the wrong sorts of ways.

--Trade: virtually no progress will be made on any trade agreements. Multilateralism is all but dead.

--China: its internal problems continue to grow, but it manages to keep a lid on the unrest because of the government's massive stimulus spending. The contradictions intensify between urban and rural, Communist Party elites and the masses, coastal and interior, etc. Relations continue to warm with Taiwan. There will be no military conflict between China and Taiwan, not now and not ever.

That's how I see the United States and the world in 2010.