Over the next seven days starting tomorrow I shall publish my seven share tips of the year for 2013. But before starting that exercise tomorrow I consider first my macro assumptions and predictions for 2013. There is no point making an oil stock a tip of the year if you think the crude price is heading to $20. Not that I do but you get my point.
Six of the tips will be published on a range of UK websites. I shall send out a twitter alert when they go live – you can follow me on twitter @tomwinnifrith
The seventh tip going live at 9 AM on January 2nd will appear on no website. Instead it will be the first free share tip sent out by ADVFN’s new venture onefreesharetip.com – on 3rd January you will get the tip of the year from Steve Moore, formally senior writer at t1ps.com. On The 4th January Zak Mir will be serving up his tip of the year for 2013. And on 7th January ADVFN boss Clem Chambers will be serving up his tip of the year for 20-13. Thereafter there will be one ordinary share tip each working day from a panel of around 20 share tipsters, bloggers and experts. You really should register here at once for this free share tip service.
And so to the macro babble. I mean forecasts. As a bottom up stock picker this is not really my forte but I shall try to do my best. And so the themes for 2013 are:
1. Debt. As you may have noticed there is rather too much of it at a Government level across the globe but oddly not so much at a corporate level. There is, in the UK, also far too much personal debt. There is pretence at a Government level that debt can somehow be managed via austerity. But the reality is that Governments across the West are still running vast budget deficits and making no meaningful inroads into that. As such at some stage the pretence will stop. Some Governments will default. Others (Greece) should have thrown in the towel a while back. But my assumption is that the “way out” that will be chosen in due course is to shrink the real value of debt via inflation. As such…
2. The bond market is clearly a bubble. Why on earth should one lend to Governments heading for bankruptcy at 0.5%. I would have thought that Spanish type yields are pretty much where yields across the West should be. As such, at some stage the great bond bubble will burst.
3. It goes without saying that inflation, the debasement of fiat currencies, will be helpful for prices of a basket of commodities but notably gold. The yellow metal has wavered in recent weeks but the reasons that it has been so topical for a number of years are still very much in place. I expect a gold price of $1700-$2000 to be in play during 2013. Silver, at $30 looks an even better bet. I would expect it to trade at $35-40 during most of the year.
4. Increasing prices of basic commodities started the Arab spring. The genie is out of the bottle across the Middle East. In Syria we will see regime change with Assad replaced by the Islamofascist FSA. The next domino… Jordan. The Hashemite regime was imposed by the British and speaks for only a small percent of the population on ethnic grounds. When, not if, the King and has family flee to the West to be reunited with their vast personal wealth ( we tolerate kleptocrats if they are “our” kleptocrats), then a) Israel will be surrounded by hardline Islamofascist regimes and b) the next dominos in the “ swap a kleptocrat for Islamofascism” game are in the Gulf. As such we have three potential regional mega-flashpoints. War with Iran, Israel finding itself at war with its neighbours again and revolutions in the Gulf. My call is that you will get at least two out of three in 2013. As such I cannot see crude trading much below $100 on fundamental grounds but I could see it spiking ( temporarily) towards $180 when all hell breaks loose in the Middle East.
5. From one area where there is little democracy to another: the EU. The leaders of the Evil Empire will continue down their increasingly authoritarian path. They will do all in their power to keep the Euro alive, imposing austerity programmes on Countries that simply cannot afford it ( Spain). So the Euro will struggle on. It should be split into two ( the soft Southern Euro and the hard Germany + the Lebensraum countries) but it will not. The price that Europe will pay is increasing calls for countries to either leave the Evil Empire ( the UK) or countries will split into two ( Spain, Belgium). It will not be pretty.
6. In the UK I predict that Christmas will have been a weak one for the retailers. And that will set the tone for 2013. I do not expect UK GDP to increase by much, if at all, over the next 12 months. And consumer spending will remain very subdued as folks try to pay down debt in the face of economic uncertainty. Credit will remain hard to come by. As such, until inflation starts to take off – probably not a 2013 phenomena – house prices should fall or tread water.
7. The China bubble will carry on deflating at an alarming rate although official statistics will continue to show how the country is booming. The problem here is, again, debt. The Chinese banks have since 2008 leant an extraordinary amount of money to enterprises which are either marginal or fraudulent. Or to sectors ( solar) which the State determined would be growth sectors. Somehow this bad debt issue has to filter through the Chinese banking system. As the level of corporate failures accelerates this could become a vicious circle. I would be retaining zero China exposure.
8. In the USA there will be a fudge agreed on the Fiscal Cliff issue. But there will be no meaningful progress on tackling the budget deficit. As a result, by the end of Obama’s second term the US Federal balance sheet will resemble that of Greece three years ago in terms of debt/GDP. At some stage this is going to impact on US growth prospects.
9. The New Media bubble will burst. The ability for preposterous start ups to secure funding for business plans with no chance of success is frightening. This is reminiscent of the dotcom boom. The valuations of business that have managed an IPO are simply not justifiable in value investing terms. I am not sure what event will trigger the bubble to burst but it surely will.
10. The percentage of AIM companies involved in the resource sector will shrink rapidly. There s simply not the funding available to support a sector where almost half the listed enterprises need to raise capital within twelve months. A good number of companies need to merge or go bust or, more likely, be turned into cash shells to preserve what little cash they have left. Returns can be made but at the smaller end of AIM a bloodbath is already underway. It will continue.
11. Does that sound gloomy enough for you? Sorry. My final call is on the FTSE 100 ( 5,954 at Christmas). My year-end target is 5,500. Against a backdrop of minimal global and especially UK GDP growth why on earth should corporate earnings race ahead? I cannot see that happening and as such I do not see 2013 being a great year for equities.
Of course some companies will do well. Those which even against a harsh macro-background have great visibility of earnings should prosper. If you can buy such stocks on a modest rating you will do well. Over the next week, starting tomorrow, I shall serve up seven such ideas. To catch them all
I wish you all a prosperous 2013.
Tom Winnifrith writes for eleven US and UK websites and his work is aggregated on his own blog at TomWinnifrith.com. Register HERE to receive a bi-weekly newsletter with links to all his articles plus exclusive newsletter commentary.
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