My 16 Predictions for 2011 (and Beyond)

Happy New Year!

I know that this picture doesn't have anything to do with investing, but I think it's a cute picture. I have a soft spot for things that make me smile.

You didn't click to hear me explain my picture, you want to know my predictions (maybe not MY predictions but just predictions in general).

So without making you wait any longer, here are MY predictions for 2011 and beyond:

1. The US Dollar will get weaker.

I am not making any breakthrough prediction here.

The US prints money without exchanging anything for it. It's almost like a legalized form of counterfeiting, but that's another topic that is not part of this blog.

It's as simple as this. If you don't bake another pie, it doesn't matter how many pieces you cut into that pie. There is still just one pie. The person cutting that pie might get more of the pieces, and you're still stuck with getting just one piece. Unfortunately, that piece of pie YOU are getting just keeps getting smaller.

That is what is happening to our dollar. You still have the same number of dollars, but the government gets more pieces of the pie. Your piece of that pie became smaller and has less value. In fact, everyone's pie piece became smaller, and their "pie" dollars become less valuable--weaker.

How can it not?

2. Other countries will challenge the US Dollar more.

As our dollar becomes less valuable, the US government printing money doesn't only affect United States citizens. People in other countries have to spend less money to get the same thing from the US.

However, many countries bought bonds from us. (Read: They bought US debt.) However, owning US bonds is becoming less valuable.

The US Dollar running the world economy show benefits just one country today, and the bigger world powerhouses are starting to realize this. As recently as this year's G20 Summit in Toronto, there was some talk about China possibly using its own currency, independent of the US Dollar.

The US is probably safe from that specific thing happening, because China is so heavily invested in US Bonds and in its manufactured exports to the US. They are probably not a near-future threat to pulling the plug on the US Dollar.

However, there are other countries that do not have as much invested in the US. Those are the countries that might start making noise about the US Dollar and their seemingly needless dependence on it.

3. US exports will increase.

The United States will export more products in 2011.

The US Dollar is becoming weaker and more affordable for other countries to purchase things from here.

The extended US economic downturn really began to beat down labor wage prices. Plus, there is genuine competition from other parts of the world where shipping costs are higher but wages are lower.

4. Many US workers will make less than 5 years ago.

This is addressed within the above point, but many workers will gripe about making more money yesterday while things cost more today.

Many of them will be right, but most of them will be powerless to fight and will be forced to adjust.

More US workers will have jobs.

The US economy is beginning to adjust in most parts of the country, and paired with cheaper labor and more exporting opportunities overseas, there will be more jobs as a result.

There will be many people with forced mid-career changes, though.

5. Banks that lend will do a lot better.

The banks have an awesome opportunity to get richer right now.

The interest rate on money loaned from the feds to the banks is next to nothing.

It's true that banks are offering loans at historically low interest rates, but they are lending them at higher rates than they borrow them. Plus, they get to charge even higher interest rates to people with bruised credit, a suddenly large market segment.

Add to that, the banks get to lend over ten times (10X) the amount people deposited into the bank. THAT is the formula to make a lot of money.

6. Banks that do NOT lend will do a lot worse.

If you're in business, you only stay there IF you make money.

The bank's business is to make money through loans.

If they aren't loaning out money, then how are the making their money?

The answer is...SERVICE FEES.

Banks that are making money through loans do not have to depend upon making money from service fees. So they will be more attractive to customers than the banks that ONLY make money from service fees.

That will separate the "good" banks from the "bad" ones, and the rich will get richer, and banks that do not loan will get poorer.

7. The price of gold will rise.

It pains me to type this, because I still think that investing in gold is based upon a few good points but is fundamentally silly.

However, since the US Dollar is weakening, gold will continue to rise until enough people stop to ask what price is too high.

There is so much press being generated about gold now that it will rise in the short term. In fact, it might jump to nearly $2,000/oz within a year or two.

(As I mentioned in a previous post, I will not be one of the investors playing this game, though.)

8. The price of oil will rise.

The only prediction requiring less guts than this is the US Dollar weakening.

There are several reasons that the price of oil barrels will rise.

The US Dollar is weaker and requires more of those weaker dollars to buy it from other countries, where we get nearly all of our oil.

US Oil production is staying at a certain level, because of federal demands to force alternative energy sources to develop more quickly. This might be a good long-term solution, but it's going to whoop our behinds today and in the next few years.

US Oil supply decreased. With the BP oil leak and other recent oil spillages (like the one in the Kalamazoo River), the stage is set to charge more for oil. It doesn't usually take oil companies very many excuses to raise the prices--not nearly as many as it does to lower those prices.

The US population is conditioned for higher gas prices. We'll complain about it, but we've seen the price of gas hit $4.00 in 2008. We weren't ready for it then, but now we're fearing about $5.00/gallon prices.

I don't know whether we will see $4.00/gallon before 2012, but I would not be surprised if we were paying $3.50/gallon or more before then.

9. Residential Real Estate prices will rise.

The economy is (largely) rebounding, and more people are getting jobs. More banks are lending.

Simply put, there will be more buyers. More buyers mean more money will be flowing into that industry, which is real estate.

There are exceptions. Severely blighted areas will not rebound, but that has more to do with isolated neighborhoods than large regions.

10. Commercial Real Estate prices will stabilize.

In areas with slowing economies, apartment values will increase, because fewer people will be able to afford living in houses. Office building values will decrease, because there will be fewer businesses in position to rent them.

In areas with growing economies, the reverse will be true.

In both cases, commercial real estate values were downtrodden for good reasons, but the prices were more depressed than the actually economic conditions explained.

11. REITs will have another good year.

Many REIT stocks pay dividends, which caters to people who want income. There are several on the market paying really high dividends, even if they are not making a great profit.

Some of these might struggle in the near future, but they are doing a good job of attracting money from people who are sick of getting next to nothing for their US Bonds. This should keep money flowing into these companies, which will help drive up these stocks.

Also, commercial real estate has been getting a lot of bad news from a lot of places. So the values of the stock are ridiculously low for many of these. For these REITs (some of which are not paying any dividends recently), it still provides room for price growth, because they're priced too low.

12. US Population will shift from the Midwest to the Great Plains and Texas

The reason for this prediction is pretty simple.

People go where jobs are going.

Right now, there are a lot of jobs in suddenly emerging markets. Many places in Texas have been growing the last several years. Kansas, Oklahoma, Nebraska, and Iowa are places that are less glamorous; so companies have been moving to these places where land is cheap and so are the people willing to work there.

In the manufacturing rust belt Midwest? Not so much. Fewer jobs equal fewer people wanting to live there.

13. The Euro will become closer to extinction.

There are a lot of countries in Europe that have huge debt, but they don't have the same power to print their own money.

They depend upon Germany, the central decision maker for the region. Germany happens to be one of the only countries attached to the Euro that does not have a huge debt.

Essentially, many of these other countries are looking to Germany (indirectly) to bail out their economies.

Unemployment is really high in many places, and it does not seem to be positioned to improve soon.

Germany is in a tough position, which places the existence of the Euro at risk.

I predict that you will see more news surrounding this topic throughout 2011, especially later in the year.

14. China will grow but slowly.

There is still room for China to expand within its own country. However, it seems like its economy still largely revolved around exports, which is nice, but that market seems to be shrinking.

China is really concerned about holding the bag on a bunch of potentially worthless US Bonds that they bought. They own so much of the US, but so much of their economy depends upon the unhealthy US economy that China's economic foundation is not fully stable.

They have the luxury of being in expansion mode, but the prices of things within their country started to rise more quickly than was sensible, hence the potential bubble.

I do not know whether China's bubble will pop in 2011 or later, but it will be interesting to see how the country responds once it does.

15. India will become the new trendy investment.

During the last several years, China has been the "in" place to invest.

Why not? They are well organized. Many people there are hungry. Opportunities are expanding there.

When so many people put money into an investment, prices tend to get higher than their real promise, and a bubble is formed.

India has not been as popular, because they don't have as many people as China. Actually, the real reason is that they don't get nearly as much news coverage as China.

So the mainstream population does not know to invest in Indian companies. As China's bubble becomes more widely reported, people will be looking for another place to invest.

India has plenty of room for growth, and they have a strong technical base. Like the Chinese, they are known to be a largely hungry population, which will lead to a lot of productivity. Plus, their currency, the Rupee, is still cheap by US standards.

So opportunity is there, and I predict that more people will be investing in India before the end of 2011.

16. Ford (F) and General Motors (GM) stocks will continue to rise.

Disclaimer: At the time I am writing this, I hold NO shares in either Ford or General Motors.

Both Ford (F) and General Motors (GM) stock prices will rise.

They both benefit from improved operations. Both companies have taken significant steps to reduce their costs.

Both companies are making cars that are getting acclaim for higher quality than Toyota, previously the standard bearer of car quality.

Mostly, it's just trendy right now to think that the Auto Industry will improve from its dismal days of the past couple of years.

During 2011, the stock prices will reflect these things.

I predict that Ford will see, at least, $25/share during 2011.

I also predict that GM will see, at least, $45/share during 2011.

Those are my predictions. We'll have to take a look in 2012 to see how well I did.