david.fm

Unemployment claims in the U.S. didn't meet the expectations and yesterday we have seen a very weak market across the board that translated in Asian markets opening lower today. This week the Greek Sovereign debt was downgraded by S&P to BBB+ fueling a dollar rally that contributed to a 40$ /ounce drop in Gold and impacted the U.S. stock exchange too (a weaker dollar usually favors US equities as foreign investors will have an implied lower price).

Given the current environment we don't know how 2010 will start and I would add in the portfolio some of the things that we can't really live without: food & beverages.

In my recent study I have compared the performance of a broad index, like the S&P 500, with a number of U.S. shares. In a basket of US and Swiss shares these companies did far better than the S&P 500 in a difficult year like 2008: the food & beverages basket lost 18.44% in 2008 vs a 36.92% of the S&P 500 TR (Data: Morningstar). This simple basket included some of the most famous food & beverages U.S. and non US brands like Campbell Soup, Coca-Cola, General Mills, Del Monte Food, H.J. Heinz and Kellogg.

This year the basket raised 20.46%. In a five year period they returned a 4.01% annualized vs a 0.37% annualized of the S&P 500.

If we add to the basket some Swiss food shares too, like Nestle, the performance raises to a 4.88% annualized in 5 years and a 2008 loss of 17.77% - not as dramatic for a shocking year like 2008. In 10 years we would have had a 23.5% total or if you prefer a 2.3% annualized vs. a -0.79 of the S&P 500.

Here are some of the graphics:

View the full GIS chart at Wikinvest

General Mills

View the full K chart at Wikinvest

Kellogg

View the full NSRGY chart at Wikinvest

Nestle

I would also add the Gold, that I previously fore-casted at 1300$/ounce, can still reach this level but not in an environment with a strong Dollar and weak Euro.
As Gold is becoming a speculative play to many hedge funds it could even drop under the 1000$ mark to then rebound in 2010.

Oil is different: as the International Energy Agency forecasted a 1.5 million a day increase in demand for 2010 and no increased supply I don't see it going under the 70$ mark and potentially re-reaching my previously predicted (and reached) 80$ target.

The best way to play the commodities in 2010 is through a widely diversified commodity index like the Powershares DB Commodity Index Tracker

View the full DBC chart at Wikinvest

This would serve as an excellent hedge toward inflation.

As in my interview I think that in 2010 we hope for a drop in unemployment in the USA and a rebound of the economy hopefully aided by banks that should start re-lending to small and mid size companies that are the essential to guarantee economic growth. The fact that some of the banks returned the TARP - Government money is positive put more has to be done in the real economy - main street - and not solely in Wall Street. China and India will continue to grow, and so will many Asian economies, but I do not see this alone, without any positive sign from the U.S., as a driver for returns in equities in 2010.

In summary I maintain a positively cautious view on equities and commodities for 2010. I also think that the U.S. economy might positively surprise in 2010 and, if earnings will surprise wall street, we can hope for a year as good as the March-December rally of 2009.

To all my readers my best wishes for some happy and relaxing holidays and a lot of success (and why not, money) in 2010.