Perhaps the best way to find out whether there is any validity in these sorts of year-end predictions is to look at the one made about this time a year hence.

I referred to 2009 as an “Even Tempered Reconciliation”.  Wondering how we might survive was not the issue.  I knew we all would just we all survive a the ride through the haunted house.  Sure we come out changed but we are still very much the same people we were when we went in.

I wondered what economic nationalism would bring.  Banks in major countries all were faced with unprecedented decisions, conundrums of epic proportions and no real template in which to test their theories of recovery.  Fingers can still be pointed (mostly by the GOP, which had more than a heavy hand in the development of the crisis over the first eight years of this past decade) at such figures as Ben Bernanke, who in 2009 received the nod for another term as Federal Reserve Chairman and Tim Geithner, who was accused by numerous lawmakers and pundits as not only sleeping with the beast the banks had become but continuing the relationship after he was appointed Treasury Secretary.

Both of these men let the barn door open and both, without admitting they had done so, found all of the stray animals.  For Mr. Bernanke, his participation in the fall of the economy was handcuffed by the same thing that gave all of us the hope that nothing would ever go wrong.  Some voices rose in criticism but the vast majority simply remained silent. It will be interesting to see whether this will force Congress to do something about reforming the Fed.

In June of this past year, President Obama suggested that the Fed have greater power in regulation of more than just banks, proposing that the power of the Fed be extended to the whole of the financial system.  With this expansion, the Fed would move beyond its control of interest rates and inflation (both of which were kept abnormally low and will begin their gradual uptick in 2010)  to the role of financial police.

By the end of the year, the Fed had made moves against credit cards and executive compensation, the former has yet to completely wring itself out and the later will be shielded behind stock deals.  The Feds rules on banks cash reserves will continue into 2010 and this is where Tim Geithner will need to step in.

There is no doubt that without the Troubled Asset Relief Program (TARP) this economy would be in much worse shape than it is.  Mr. Geithner suggested in a letter to the House that the program been extended until October of 2010.  The embattled Treasury Secretary was often accused of too close of a relationship with the very banks he was to oversee.  In a recent NPR interview, he defended that relationship as one of necessity but also added that banks, in particular the biggest three institutions still don’t get it.

Cash reserves are required but not at the expense of the customers they serve. Smaller banks and small businesses have yet to see the trickle down effect that was promised by Geithner.  Until these institutions begin to play a more active role in the recovery, something that the largest banks have made difficult, housing will continue to slip in a great many parts of the country, the pressures of  unemployment, not only among those who are counted but among those who have found the necessity to return to whatever sort of work they can find will continue to mount, and the general reluctance of business to innovate and/or create the next economic upturn will hamper many of these efforts. He admitted that the big banks “don’t get it”.  Perhaps in 2010 they will.

The cost of the recovery has yet to be determined.  Not in real dollars but in the benefits they will provide.  Just as all cash infusions, the immediate response to such actions often takes much longer than expected.  And despite the egg-hurling one political party has engaged in with the support of one “news” organization, the results will begin to bear fruit by mid-summer.

Most of us will feel a bit more comfortable in our own personal economic skins. We will have built up a small cash reserve, know what the future of our jobs are, and if we were smart, done what we could to readjust how we view the world of credit.

There will be a great deal of hand-wringing over the health care reform bill but it will prove that some reform, even if it falls short of what it should have been, will be an economic stabilizer for those on the fringes. It was those people that were driving up the overall costs for all of us.  Too bad about the public option.  It would have, once and for all, limited the overreach of insurance companies. 2010 may just be the beginning of reform.  Expect it continue as the Democrats retain their majorities in Congress.

From an investment point-of-view, equities will level off in 2010 in large part to investor’s reaction to businesses reinvestment practices.  Many companies will be called out over enormous cash reserves that are not needed and more importantly, not shared. With cost cutting and efficiency improvements having mostly run their course, businesses will be expected to explain why their profit margins are slipping and their forecasts are becoming more muted. (I predicted a third quarter recovery in employment spurred on by these business moves but I did not expect that businesses would refrain from any and all risk.) Despite this, you will still find the equity markets on the rise in 2010 with the S&P500 gaining between12-15% and the Dow Jones Industrial Average moving up a healthy 8%.

I also wrote: “recovering markets do not end a recession”.

This will have little effect on the company match, many of which were reduced or eliminated.  If this happened to you, the best recourse would have been to increase your contribution by the amount that was cut. If this happens, the markets will continue to recover as they are historically the first signs that this mess has begun to ease.  I have spent much of the year trying to persuade people away from too conservative of an investment plan in favor of one where risk might play a larger role.  If you failed to follow that advice, 2011 will find exactly where you were at the beginning of 2010 – wrapped in the arms of another lost opportunity.

Housing will begin to show signs of recovery even as interest rates begin to rise.  This will be the result of government bond sales no longer supported by rampant Treasury purchases.  This will put a damper on some sales but not for everyone.  There are, and still will be, incentives for the homebuyer.  Builders and developers will continue to offer these incentives and this will act as the catalyst that will make you feel somewhat wealthier.

2010 will be the year of stabilization.  A year where, if you have a job, you will probably still be working at the beginning of 2011 and if you are not, you may find employment; one where if you are prudent (and by that I mean not-so-conservative but cautious), you will find the equity markets still performing better (but not better than expected); one where we have learned lessons that should not be soon forgotten.

Looking back, a bull market emerged in July of 2009.  When we look back on this year, we will be feel much more comfortable, with a deeper pool of savings on hand, a firmer grip on our personal finances, and the previous decade as a tutorial for what could go wrong.

Paul Petillo is the Managing Editor of Target2025.com