2010's Craziest Market Prediction...And Why It Could Come True

Paul Tracy's picture

Thursday, December 31, 2009 - 2:45pm

by Paul Tracy

One year ago, we were laughed at.

You see, in December of last year the research staff for Market Advisor -- one of StreetAuthority's most popular investment advisories -- released our "11 Surprising Investment Predictions for 2009."

We predicted big moves in nanotechnology... that the Dow would rise to 11,700 by the end of the year... that an unknown group of "sci-fi" companies would see large gains despite the recession... along with a number of other forecasts.

But when you go out on a limb with your predictions like we did -- especially when still in the middle of one of the worst recessions in market history -- some people just laugh.

That's OK. Those that invested alongside each of our predictions gained +65.6%, more than triple the S&P 500's performance.

Our nanotech play, Starpharma (OTC: SPHRY.PK) started the year at $1.31 per share. It ended up 2009 at $6.25 for a gain of +377%.

The Dow didn't quite make our 11,700 target, but ending the year near 10,500 isn't far off. Especially when you consider that it has soared from a low near 6,550 in March!

And the "sci-fi" companies we discovered? Our picks -- Digital Angel (Nasdaq: DIGA), Checkpoint Systems (NYSE: CKP), and VeriChip returned +44%... +57%... and +362% (before merging with another company) in 2009.

Of course, not every one of our predictions came to fruition. But imagine how much better off you'd be today if you used our market predictions to profit last year.

That's why we want to tell you about our craziest prediction from our newly released "11 Surprising Investment Predictions for 2010." (You can read the entire report here.) You might not believe this prediction -- heck, you might not want to believe it -- but given our past record, we certainly think you should pay attention:

"Treasuries will crash as interest rates skyrocket from 3% to 7% in a year. The Federal Reserve will raise rates aggressively in 2010 to fight inflation. Bond investors will lose trillions. But shrewd investors who position themselves in "reverse-bond" securities will clean up."

PIMCO's "bond king" Bill Gross calls U.S. Treasuries the "last, great financial bubble" and "the most overvalued asset in the world, bar none."

We're not going to argue with the man who manages more bond money than anyone else in the world. And we can certainly see his logic...

Under breathtaking spending, the federal budget deficit will jump to an all-time high of $1.5 trillion this fiscal year. The national debt is now above $12 trillion. Believe it or not, the government's annual expenditures ($3.5 trillion) are running at 167% of its tax revenues ($2.1 trillion).

As the global economy recovers, inflation -- and then interest rates -- will rise sharply. Under no scenario are today's historically low interest rates on U.S. Treasuries sustainable.

We understand why the Fed is trying to clean up the mortgage-backed securities mess. But in trying to save the financial system by snapping up these toxic securities, the Fed has simply created another dangerous credit bubble. You can't cure a problem caused by too much debt by issuing more debt.

Bottom line: Bond investors are being presented with a once-in-a-lifetime opportunity to get their money out of U.S. Treasuries at a generational top.

But how can you actually profit from a fall in Treasuries?

If you can stomach the volatility, the leveraged UltraShort 20+ Yr. Treasury (NYSE: TBT) is designed to prosper under just these conditions.

This special fund is actually designed to rise twice as much as Treasuries fall. So if long-term Treasuries fall -5%, this fund should rise +10%. If we see a crash in Treasuries, TBT should be in a strong position.

P.S. -- An Israeli airstrike could send oil soaring... Microsoft might buy a chain of 5,264 stores... the world's 8th largest economy may legalize marijuana...

These predictions and more make up our "11 Surprising Investment Predictions of 2010." Visit this link to read the rest of our predictions for the next year.

Paul Tracy does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.