What the pundits say

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What this pundit says: The biggest gainers in commodities during 2009 have been lead, copper, zinc, nickel and crude oil. Those likely to shine the most in the next couple of years include coking coal, oil, and potash, Ms. Mohr says.

The annual contract price for western Canada's premium-grade hard coking coal is likely to rise 32 per cent as supplies tighten. Consumption of crude oil will be driven by growing demand in China and India, supplemented by some recovery in demand from the G7 countries after a steep drop between late 2008 and the middle of 2009, she says.

Potash prices are likely to end 2009 on a downward note but to rebound as next year unfolds. "2010 will be a transition year for potash on the way to stronger market conditions in 2011."

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The troubled lumber sector, meanwhile, could prove "genuinely profitable" as prices recover alongside an increase in U.S. housing starts.

Copper is likely to "stay quite elevated through the first half of 2010" and rebound strongly in 2011, while Canadian iron ore producers should benefit from firmer prices. Uranium, which has lagged other metal prices this year, should see "significant price improvement" in late 2010 or 2011.

However, natural gas prices will remain soft because any rally in demand will quickly spur higher supply, keeping prices steady.

Over all, commodity prices should continue to rise in 2010, moved by four factors: China's growth, some restocking of basic materials across the G7, additional interest by investors in commodities as an "asset class," and a weak U.S. dollar.

What this pundit says: There has never been a better time to favour Canadian-dollar-based investments over their U.S. counterparts. Why? Because the economic, fiscal, financial and political downside risks are as low - and the upside potential as high - as he has seen them, on a relative basis. Mr. Rosenberg says the nearly 2,000-basis-point gap between the TSX and the S&P 500 should be seen as just past the halfway point of a secular, or 16- to 18-year-period, of out-performance. "Northern exposure never felt this hot."

Mr. Rosenberg, the former chief North American economist for Merrill Lynch, believes the dominant focus this coming year will be on capital preservation and income orientation, in bonds, hybrids, and hedge fund strategies, along with a consistent focus on reliable dividend growth and dividend yield. He sees an "extremely wide" range of outcomes in the financial markets and the economy. "But one conclusion I think we can agree on is the need to maintain defensive strategies and minimize volatility and downside risks as well as to focus on where the secular fundamentals are positive, such as in fixed-income and in equity sectors that lever off the commodity sector."

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What this pundit says: The battered greenback will rebound in 2010, rallying alongside U.S. interest rates, Mr. Chadha says. He notes the U.S. dollar's current down cycle has been in place since early 2002, running slightly longer than the historical seven-year average of past cycles. In his mind, the U.S. dollar is cheap and at its recent low stood 17 per cent below fair value. "From the perspective of both duration and magnitude, therefore, the dollar down-cycle would appear to have run its course," Mr. Chadha said. A combination of the dollar's cheap valuation and the Fed rate-hiking cycle should stem the dollar's down-cycle, he said, or more likely, trigger a significant rally. Mr. Chadha's forecast is for the greenback to close 2010 at $1.40 to the euro.

Despite a clear negative correlation between Wall Street equities and the U.S. dollar, his bullish view for the greenback does not spell trouble for the U.S. stock market. Instead, Mr. Chadha says the correlation between changes in the dollar and S&P 500 returns has reached a 35-year high, which suggests it will revert. Among the sectors, energy and materials are most vulnerable to a U.S. dollar rally while consumer discretionary stocks could benefit.

What this pundit says: The key theme for 2010 will be managing expectations, specifically the extent to which earnings can meet expectations. Given that a jump in valuation has made up most of the gap to normal, investors will need time to confirm that growth that has just turned positive can be sustained, and is not just be a result of the unprecedented levels of stimulus that have been injected into the system, Mr. Vasic says. The absence of any new financial market tremors is a must, in order to sustain lower credit spreads. If these pieces fall into place, Mr. Vasic and his UBS colleagues believe there is upside to their 2010 TSX target of 13,500.

The UBS target reflects a 36 per cent jump in earnings from 2009's lows, however valuations that remain below historic norms. Even at 13,500, the value of the TSX would still remain below historical norms. In fact "if earnings growth were zero in 2010, normal historical relationships would still indicate a TSX level of about 12,750," Mr. Vasic says.