NEW YORK (Commodity Online): When Robert C Doll, Vice Chairman and Global Chief Investment Officer of Fundamental Equities at BlackRock, Inc (NYSE: BLK) predicts, the world listens as he has a track recording of getting his forecasts right.Doll has been publishing his annual “10 Predictions” for the year ahead in the financial markets and the economy for over a decade. Sure, he has come up with his set of predictions for the year 2010 and for the decade ahed. He has said that equity market rally that began in March 2009 will continue in 2010 but the market's rise will be less steep than in 2009. As regards his 2009 predictions, Doll assures us that all of them have turned out to be `correct.'

In 2010, in the wake of the “Great Recession,” the economy will continue to grow and US GDP should come in at an above-trend rate. “On balance, we believe the US recovery is for real -- but the economy will grow at a pace slower than that of a typical recovery,” he said. The US economy, after contracting by 2% to 3% during 2009, will experience real growth of somewhere in the 3% range.

Doll said his overall economic/market view for 2010 is positioned somewhere between today’s most bullish observers -- who are calling for a strong rebound -- and the most bearish -- who are predicting that the nascent pickup in growth will fizzle and that the United States is headed for the type of stagnation that plagued Japan in the 1990s. “Ongoing deleveraging and the credit overhang make it unlikely that a rapid expansion could occur,” said Doll. “At the same time,continued aggressive support from policymakers should prevent a ‘lost decade’.”

Predictions for 2010
Here are Doll’s predictions for 2010 with his full commentary on the key trends. “In summary, 2010 is likely to be a year of continued modest cyclical recovery, countered by the structural problems that continue to face most of the developed world,” Doll said.

1. The US economy grows above 3% in 2010 and outpaces the G-7. We believe that positive cyclical stimulus forces will prevail over structural problems that face the United States, permitting the economy to grow at above a 3% real rate. That would be above the long-term trend, but far below the normal cyclical recovery pace. The only G-7 country likely to challenge the U.S. in terms of real growth in 2010 is Canada. The main contributors to growth should include a swing in inventory, exports and business capital spending. We expect state and local governments and consumers to be a drag on growth. Also on the positive side is the steep yield curve, punctuated by very low short-term rates. We expect consumers to spend modestly more, even as debt paydowns continue.

2. Job growth turns positive in the United States early in 2010, but the unemployment rate remains stubbornly high.Unemployment and employment statistics are traditional lagging indicators and this cycle will likely prove to be no exception. As we believe the recession ended in the third quarter, we also believe that unemployment will peak and job growth will turn positive early in 2010- -most likely the first quarter. Monthly non-farm payroll surveys and weekly initial unemployment claims support this assertion. Our slower than normal economic recovery expectations are consistent with a view that job growth will be moderate, and will therefore cause the unemployment rate to remain high. It may be several years before we see unemployment fall below 8% in the United States. Aiding job growth in 2010, however, is the intention of the Federal government to hire 1.4 million temporary census workers during the first half of the year. This will provide a temporary but psychologically important boost.

3. Earnings rise significantly despite mediocre economic growth. Corporate America was quick to cut costs, including payrolls, in the downturn that started in the second half of 2008. Additionally, remaining workers became increasingly productive as shown by the strong productivity growth that occurred even during the depths of the recession. Therefore, our view is that modest top line improvement will lead to a significantly leveraged bottom line improvement. Inventory restocking and the weaker dollar (providing translation benefits) will aid profit recovery. It is possible that the sub-par economic recovery can still lead to robust earnings improvement. We would point out the increasing disconnect between the US economy (heavily dependent on US consumption) and US stock market profits (increasingly dependent on non-US activity). Longer term, US manufacturing unit labor costs have been roughly flat since the mid-1980s while non-US equivalents are up significantly.

4. Inflation remains a non-issue in the developed world. Inflation vigilance always makes sense, but our view is that inflation worries are premature, especially in the developed world. This view is supported by the high amount of excess labor and manufacturing capacity that exists today, the absence of the normal functioning of the financial system (which would otherwise lead to the high-powered money transmission mechanism that increases the velocity of money), and the fact that inflation typically falls for some time after a recovery begins. A careful watch on inflation is key. It has been said that “a falling inflation rate is the financial markets’ best friend and a rising inflation rate its
worst enemy.”

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