Byron Wien, chief investment strategist at Pequot Capital Management, was eerily spot-on in his 2009 predictions, which included:

• The S&P 500 will rise to 1200 (close – it ended the year at 1115)
• Gold will hit $1,200 per ounce (it surpassed that, hitting $1,226.30 an ounce on Dec. 3)
• Oil will return to $80 per barrel (missed it by mere cents: oil closed at $79.36 a barrel)
• Low interest rates and huge borrowing by the Treasury will send the dollar into a downward spiral [He called it right.]

So, he might be worth listening to. With that, here are Wien’s 10 surprises for 2010, as reported by Edward Harrison on Credit Writedowns:

1. The U.S. economy will grow faster than a 5% growth rate. Unemployment will drop below 9%.

2. The Feds decide that the economy is strong enough to move from the zero interest rate policy. In a series of successive hikes beginning in the second quarter, the Federal funds rate reaches 2% by year-end.

• Vanguard Short-Term Bond (NYSEArca: BSV)
• iShares Barclays 1-3 Year Credit Bond (NYSEArca: CSJ)
• SPDR Barclays Capital Short-Term Corporate Bond (NYSEArca: SCPB)
  

3. Heavy borrowing by the U.S. Treasury and some reluctance by foreign central banks to keep buying notes and bonds drives the yield on the 10-year Treasury above 5.5%. Banks loan more to corporations and individuals and pull away from the carry trade, thereby reducing demand for Treasuries. [What the yield curve means for you.]

4. In a roller coaster year, the Standard and Poor’s 500 rallies to 1300 in the first half and then runs out of steam and declines to 1000, ending where it started at 1115.10.

• SPDRs (NYSEArca: SPY)
• iShares S&P 500 Index (NYSEArca: IVV)
  

5. Because it is significantly undervalued on a purchasing power parity basis, the dollar rallies against the yen and the euro. It exceeds 100 on the yen and the euro drops below $1.30 as the long slide of the greenback is interrupted. [Gold, the dollar and the Federal Reserve in 2010.]

• PowerShares DB U.S. Dollar Bullish (NYSEArca: UUP)

6. Japan stands out as the best performing major industrialized market in the world as its currency weakens and its exports improve. [20 years after the bubble: The state of Japan's ETFs.]

• iShares  MSCI Japan (NYSEArca: EWJ)
• WisdomTree Japan SmallCap Dividend (NYSEArca: DFJ)
  

7. Believing he must be a leader in climate control initiatives, President Barack Obama endorses legislation favorable for nuclear power development. This helps job creation and development and reduces costs. [ETFs to play Obama's policies.]

• Market Vectors Nuclear Energy (NYSEArca: NLR)
• PowerShares Global Nuclear Energy (NYSEArca: PKN)
• iShares S&P Global Nuclear Energy (NASDAQ: NUCL)
  

8. The improvement in the U.S. economy energizes the Obama administration. The White House undergoes some reorganization and regains its momentum.

9. There is greater consumer protection, more transparency, tighter restriction of leverage and increased scrutiny of derivatives, but the regulatory changes for investment bankers and hedge funds are not onerous. [More on the financial sector.]

• Financial Select Sector SPDR (NYSEArca: XLF)

10. Civil unrest in Iran reaches a crescendo. Ayatollah Khameini pushes out Mahmoud Ahmadinejad in favor of a more public relations adept leader. Economic improvement becomes the key issue and anti-Israel rhetoric subsides. Talks with the United States and Europe begin, but the country remains a nuclear threat.

We made our own predictions for 2010, as well. Check them out here.

The Democratic Party of Japan (DPJ) plans to support small- and medium-sized businesses, a major shift from the former Liberal Democratic Party’s inclination toward big businesses, comments Patricia Oay for Morningstar. In addition, Prime Minster Yukio Hatoyama is proposing stronger trade relations with neighboring Asian countries, which would further benefit Japanese businesses.

Potential investors seeking some allocation in Japan may consider broad market ETFs or small-cap ETFs, depending on where your interests happen to be.

• iShares S&P/TOPIX 150 Index (NYSEArca: ITF): up 0.2% year-to-date

• iShares MSCI Japan Index (NYSEArca: EWJ): up 1.2% year-to-date

• iShares MSCI Japan Small Cap Index (NYSEArca: SCJ): up 6.1% year-to-date

• WisdomTree Japan SmallCap Dividend (NYSEArca: DFJ): up 5% year-to-date

• SPDR Russell/Nomura Small Cap Japan (NYSEArca: JSC): up 7.5% year-to-date

Note that consumer discretionary sector accounts for around 20% weightings in broad market and small-cap Japan ETFs. The broad market portfolio includes global auto manufacturers and consumer electronic firms, whereas the small-cap portfolios contain domestic-oriented restaurants, retailers and apparel manufacturers. Industrials, materials and information technology are export-oriented. The small-cap ETFs available have similar weightings except SCJ may be more exposed to financials.

Before the economic recovery can freely come about, the DPJ has to deal with a complex bureaucracy and large budget deficit. Another potential problem is the appreciating Japanese yen against the U.S. dollar. A higher yen may be better for local businesses, but it also means more costly exports. The biggest concern is the country’s rapidly aging population.

For more information on Japan, visit our Japan category.

Max Chen contributed to this article.

The Democratic Party of Japan (DPJ), the new leading political party in Japan, wants to increase spending at home, which would help small businesses by stimulating domestic consumption, writes Roger Nusbaum for TheStreet.

Fortunately for ETF investors, iShares MSCI Japan Small Cap Index (NYSEArca: SCJ), SPDR Russell/Nomura Small Cap Japan (NYSEArca: JSC) and WisdomTree Japan SmallCap Dividend (NYSEArca: DFJ) can provide access to Japanese small-cap performance. Their expense ratios range between 0.53% to 0.58%.

Sector weightings are more or less similar for all three ETFs: industrials are around mid-20%; discretionary is about 20%; materials are mid- to low-teens. The more notable discrepancy is that SCJ has a higher weighting in financials with 18%.

Japan is still grappling with the burden of high debt, an aging population and reliance on foreign oil. The positive aspect of the country is that Japan is the world’s second-largest economy that has a high-wage work force and a well-educated populace.

• iShares MSCI Japan Small Cap Index (NYSEArca: SCJ): up 12.4% year-to-date; dividend yield is 1.55%

• SPDR Russell/Nomura Small Cap Japan (NYSEArca: JSC): up 14.1% year-to-date; dividend yield is 1.40%

• WisdomTree Japan SmallCap Dividend (NYSEArca: DFJ): up 10.2% year-to-date; dividend yield is 2%

For more news on Japan, visit our Japan category.

Max Chen contributed to this article.

The defeat of Japan’s long-standing conservative party, the Liberal Democratic Party (LDP), by the landslide victory of the opposition Democratic Party of Japan (DPJ) brings hopes that the political system will become more competitive, democratic and dynamic, according to BBC News. The DPJ will help steer policies away from bureaucratic and business interest that plagued the previous leading party.

The DPJ will keep committed to strong relations with the United States and may develop more friendly, long-term Sino-Japanese relations.

Major media report that the DPJ won more than 300 of 480 seats in lower house of parliament, which is more than enough to choose the next prime minister and control the national agenda, writes Tomoko A. Hosaka for The Associated Press. The Democrats vowed to expand the social safety net and reshape the economy with proposals, including a monthly $280 handout to families with children, toll-free highways, higher minimum wage and tax cuts.

Japan is currently dealing with a record 5.7% unemployment rate and spending is on the decline, compounding worries about jobs and wages. The new party also needs to address the problem of a rapidly aging and shrinking population.

• iShares MSCI Japan Index (EWJ): up 7.3% year-to-date

• PowerShares FTSE RAFI Japan (PJO): up 5.7% year-to-date

• WisdomTree Japan SmallCap Dividend (DFJ): up 9.8% year-to-date

For more information on Japan, visit our Japan category.

Max Chen contributed to this article.

The Japanese government upgraded its overall economic assessment for the second consecutive month on more positive news from two key sectors.

Both exports and industrial production, two engines that will help the economy get back on track, are finally on the mend. There are still outside factors that Japan cannot control, but the upgraded situation of the economy is enough to begin the upward climb, reports The Economic Times.

Takashi Mochizuki for The Wall Street Journal reports that the government’s report adds to a slew of data and analytical reports that are predicting that Japan’s economy has likely hit bottom after going through its worst recession since World War II.

The beginning of the good news has led to a small-cap rally, as the value aspect of these companies has led to better performance. Small-caps companies have more room for growth than their more established large- and mega-cap counterparts. Small-cap also companies tend to adapt to the shifting market conditions with greater ease than the much larger companies.

Will Japan remain strong, though? There are lessons to be learned from the crisis for years down the road. Forex Traders on Seeking Alpha notes that while Japan has been working hard to heal its shortcomings (some of which include nepotism, factionalism and cronyism within its political system), there are still other problems to contend with. Those include a huge public deficit, an aging population and heavy competition with China in the export sector.

• WisdomTree Japan Small Cap Dividend (DFJ): up 19.2% over three months

• iShares MSCI Japan Small Cap Index (SCJ): up 22% over three months

• SPDR Russell Nomura Small Cap Japan (JSC): up 23.2% over three months

• iShares MSCI Japan Index (EWJ): up 25% over three months

For more stories on small-caps, visit our small-cap category.

As the market continues to flounder, the meticulous and perceptive investor may have noticed that there are bargains to be had on broader based indexes, writes Gary Gordon for ETF Expert. It is noted that some ETF “themes” may catch on and garner more attention when the markets recoup.

Japan. It’s the world’s second largest economy, and it’s struggling with faltering exports and low domestic consumer confidence. But a looming shift in demographics could place Japanese consumers smack in the middle of their peak spending years: 2009-2018.

Once things begin looking up again, Japan-focused ETFs to watch are:

• iShares MSCI Japan Fund (EWJ) for its large companies.

• WisdomTree Small Cap Japan Fund (DFJ) for smaller corporations that may improve more quickly.

• NETS TOPIX Index Fund (TYI) for the purists.

Telecom. Stocks have lost 50% of their values in 2008 but now they collectively have the lowest price of any economic section. Shares Dow Jones Telecom Fund (IYZ) and iShares Global Telecom Fund (IXP) both are seen as having potential opportunities for long-term investment in the next decade or so.

Shipping. The sector may be considered risky with the ETF Claymore Delta Global Shipping Index Fund (SEA) plummeting more than 50% since its introduction in September, but the those who look at the big picture will recognize that worldwide trade still relies on the shipping industry. When the markets eventually turns around, shipping will once again gain strength as countries export and import goods.

So far, the ETFs that are tied to worldwide market indexes have gone through a rough patch. According to Lipper data, 36 funds out of a total of 745 have managed positive one-year return, reports Andrea D. Murphy and John J. Ray for Forbes. All but four of those were focused on short-selling.

ETF investors still have hope for the day when this turmoil settles. When markets rebound-which they eventually will-these low-cost, tax-efficient and easy-to-trade investments will rise in step along with their underlying market indexes.

Using the price-to-book (pb) metric as a guide, Forbes looked for beaten-down ETFs that appear to be good value propositions (besides real estate and financials, which still need time). Price-to-book compares the market’s valuation of a company to the value of the company as indicated on its financial statements.

Here is a sample:

• WisdomTree Japan Small Cap Dividend Fund (DFJ): down 24% year-to-date; 1.2 price-to-book ratio
• PowerShares High Yield Equity Dividend Achievers Portfolio (PEY): down 40.9% year-to-date; 1.3 price-to-book
• iShares MSCI Japan Small Cap Index Fund (SCJ): down 28.4% year-to-date; 1.4 price-to-book

Our own strategy for getting back in will be using the 50-day moving average as our guide in the short-term.

Most funds are far below the 200-day moving average, meaning it would be a long wait before a signal to buy is reached. We haven’t been so far below the long-term trend lines in decades. As a result, we have a short-term plan for getting back into the markets if the rebound is real:

• When a fund crosses above its 50-day moving average, put 25% of the value of your portfolio.
• When the fund goes up 5%, put another 25% in.

By the time this happens, the 200-day moving average should be well within sight, and things should begin operating in line with our normal buy parameters once again.

For the first time in four years, Japan’s exports fell year on year. The economy in Japan is dependent upon domestic consumption to sustain growth, and with exports down, a recession may be in the near future for the islands. Edward Hugh for Seeking Alpha reports that exports decreased 1.7% in June 2007, and were down 15.4% year on year in June, the 10th-largest drop since November 2003.

Central banks across Asia have been raising interest rates to fight inflation, which has slowed economic growth as well as lessening the demand for Japanese exports, reports Mayumi Otsuma for Bloomberg. The price of food and gas is putting the squeeze on household budgets.

Meanwhile, Japan’s stocks dropped after concerns overseas markets will shrink after Canon reported profits declined on a stronger yen with slowing sales in Europe and the United States.

Canon derives 80% of its revenue from abroad and stocks fell for the third straight month after reporting a third drop in a row in earnings.

ETFs that could feel the pinch:

• iShares MSCI Japan (EWJ), down 7.1% year-to-date
• PowerShares FTSE RAFI Japan Portfolio (PJO), down 11.1% year-to-date
• SPDR Russell/Nomura PRIME Japan (JPP), down 6.5% year-to-date
• WisdomTree Japan Small-Cap Dividend Fund (DFJ), down 4.5% year-to-date