Predictions for 2009: Who Will Be the Winners and Losers?

The year 2008 is coming to a close. Good riddance! 2008 will be remembered as the year that the chickens came home to roost for America's brand of “elitist capitalism” and will long be remembered as the year where the greed of so few penalized so many.

In 2008, the vast majority of pension plans and retirement accounts incurred losses of one quarter to one half of their value because of the greed of Wall Street. To me what is most sad is that Wall Street's greed not only devastated the savings of a generation of Americans but has also shackled future generations of Americans with the bondage of enormous amounts of debt.

Echoes of History

Human greed and financial bubbles are, of course, nothing new. History has many examples of manias and bubbles such as the South Sea Bubble. To me, most striking is the parallel between today's hedge funds and the investment trusts of the 1920s.

Investment trusts used leverage as do hedge funds. Investment trusts were able to get away with revealing little about their portfolios because the equity bubble of the 1920s conferred an aura of omniscience on their managers. Sound familiar? Their managers, by the way, were also very highly compensated.

Reputations inflated in the bubble of the 1920s promptly evaporated in the 1929 crash and the 1930s bear market. The 1930s bear market also exposed numerous outright swindles by Wall Street. Some of the swindles were all too reminiscent of Bernie Mad(e)off and his Ponzi scheme. I believe that, as in the 1930s, many lofty Wall Street reputations will be washed away.

Recently, the Financial Times had an interesting article about 19th century Victorian England and its literature. Financial crises were part of everyday life at that time, which greatly affected their literature. The article spoke of authors such as Charles Dickens, Anthony Trollope, Elizabeth Gaskell, and William Makepeace Thackeray.

A character in Charles Dickens' Little Dorrit – Mr. Merdle – whose schemes initially offered his investors huge returns before wiping them out definitely reminds me of Bernie Merdle, I mean Madoff. The literature of those times definitely echoes in our times.

A Penny for My Thoughts?

Obviously, at the end of last year no one predicted the dire straits that we would face in 2008. This just reinforces in my mind one thought. Why does anyone still watch CNBC and listen to what any of those shills has to say? The only person on CNBC that has some brains is my paisano - Rick Santelli. The rest of the people on CNBC are absolutely worthless.

Since at the start of a new year everyone seems to like to make predictions, I thought I would throw my two cents out there for readers to ponder. Please contact Oxbury Publishing for your comments on my predictions or feel free to make your own predictions about the upcoming new year.

The Biggest Loser(s)

Picking the biggest losers for 2009 is relatively easy. You simply find the assets that have the most fat. I believe that in 2009 we will actually have two biggest losers. Which asset classes?

As I said – where the fat is. The fat is where the Wall Street money managers have run to hide and cower in fear for their jobs. That is, of course, the US Treasury Market! As I stated in my previous article – the HMS Treasuries – the “pirates” of Wall Street have loaded all of their ill-gotten booty onto the ship called the HMS Treasuries. I firmly believe that this ship will follow its predecessor, the HMS Titanic, into history and sink below the waves. Remember – both ships were considered to be ultra-safe and “unsinkable”.

A close second 'biggest loser' will be the US dollar. The US dollar has been strong in 2008 because of the perverse reaction of Wall Street money managers. An analogy I used in previous articles was that a nuclear blast went off right in the middle of Wall Street.

Even a rudimentary knowledge of science would dictate that you get as far away as possible from the blast. Yet, Wall Street money managers ran full speed toward the nuclear blast – nobody said that Wall Street money managers were smart. Most of them sold all of their assets overseas and moved the assets into dollars.

I believe that this move will prove to be “radioactive” in 2009, as overseas investors seem to be waking up to the fact that the US will need many trillions of dollars to bail out the US economy. Overseas investors may not sell the US dollar outright, but they will not be anxious to add to their positions.

Predictions

My first prediction is that in 2009, 'bombs' will continue to go off up and down Wall Street. I predict that the Bernie Madoff $50 billion Ponzi scheme will be just the first of many such major swindles that will be revealed on Wall Street.

I predict that the government will be forced to inject many more trillions of dollars into the black hole laughingly called bank balance sheets, inflating our government's deficit to levels undreamed of only a few years ago.

However, I also predict that the amount of money sunk into banks will be miniscule in comparison to the amount of money that will be created out of thin air by the Federal Reserve in 2009. This money creation will puncture the balloon of the deflationists.

In astronomy, when talking about the distance between stars, astronomers don't measure the distance in trillions of miles. Astronomers use light-years as a convenient measure of distance. So instead of trillions of dollars, perhaps some similar measuring stick will be adopted as a measure of how fast the Federal Reserve will be create funny money.

I can hear it now – “yes, in the last light-second the Fed just created $10 trillion of funny money”. Instead of the Big Bang Theory, perhaps there will be the Fed's Big Buck Theory. This theory will describe how out of deflationary nothingness, the Federal Reserve created a rapidly expanding inflationary economic universe.

Winners?

Will there be any winners in 2009? I guess I have to predict some winners, huh? Which asset classes?

I am looking at the asset classes most beaten down by the forced liquidations of hedge funds and other Wall Street fools.

One such asset class is corporate bonds. Corporate bonds are priced right now by the Wall Street numbskulls for conditions to become worse than the 1930s and a 25% default rate. I predict that corporate bonds will have a very good year.

Another asset that has been sold off by the Wall Street numbskulls who have bought fully into the deflation myth are TIPS or Treasury Inflation Protected Securities. When the Fed's Big Buck Theory becomes apparent, I predict that TIPS will be a huge winner.

I also predict that most commodities will stage a decent comeback. I believe that gold will have a decent year and re-visit the $1000 per ounce level. I also believe that oil will rebound to a more fundamentally sound price of between $71 and $87 per barrel.

I also predict that the best of bad equity markets will be in the countries that actually have cash and/or assets and do not have to borrow enormous amounts of money. Sovereign debt will become two words that are not spoken in mixed company. I don't believe it's a wise economic policy for a nation to rely on the kindness of strangers. Examples of the “better-off” countries would be China and Brazil.

Comments

[NOWHEREMAN:]

Tony: good for you, you went from Back office to Front office. I know what a blank it was to keep everything running smoothly in those days sans electronics and networking.

May all of your predictions come true.

In regard to gold and oil, are they middle or end of year numbers? Ditto Corporate Bonds?

Current expectations call for massive Commercial property bankruptcies in the New Year. If these come to pass early in the year, what will happen to Gold, oil and Corporates?

Brazil and China, EWZ and FXI. IMO

2008 Dec 31 10:28 AM

[GMiki1:]

Sounds right to me. Except, too bad we don't have the same respect for literature they had in Dickens' day (though they probably didn't, either). The publishing world is another example of dumb ideas carried out stupidly by mediocre and go-along-to-get-along brains. (It's another industry I follow). Best to all in 2009. Hold onto those precious metals!

2008 Dec 31 11:51 AM

[genco:]

I agree with the CNBC comment, however, viewers should watch it for the real-time quotes and keep the sound on mute. These commentators have the potential to do a lot of harm to the average person watching. They should turn the sound on when it's Santelli's turn to talk. GA

2008 Dec 31 11:57 AM

[Dana H.:]

Oh for Pete's sake. It wasn't the "greed of Wall Street" that was the problem. Wall Street has always been "greedy" -- i.e., interested in making money. And what's wrong with that?

The chickens that came home to roost are those of massive government intervention, from the CRA to Fannie/Freddie to SarbOx to, most importantly, the Fed's supply of cheap money to the economy that gave rise to the housing bubble. Please, let's not continue to repeat the bogus claim that this was a failure of capitalism rather than a failure of government.

2008 Dec 31 02:29 PM

[Jack K:]

Your article is really good and is such common sense. Sometimes common sense approaches take some time to show up but they usually eventually do. I agree about Rick and wish the rest of them thought more like him. But those young ladies are nice to look at!
Dana, you hit the nail on the head. Socialists want Top down planning and all citizens to follow the anointed ones' rules. Because they know what is best.
You can't cheat. Eventually you get caught. They guys who broke the already established rules are in jail. More rules and rules weaken our economy.
Want to get the economy growing? Cut income taxes dramatically. Or eliminate it. Remove layers of bureaucracy, and lay off millions of federal employees so they can produce something in the "private sector". But this will never happen as there are so many vested interests. From the workers themselves to accountants and lawyers, and so many who receive something from nothing.

Jan 01 09:32 AM

[Pauly B:]

Wall Street, the FED, and the government was no different than the car makers, they just delivered what we all wanted, instead of huge SUV's they gave us credit. Credit in unlimited amounts, credit without restriction or regulation.

Max out our credit cards, no problem, qualify for homes we could never afford, no problem, take equity out of our homes to buy betting our asset will increase, no problem, run up huge deficits that will never be paid, go for it, invest with under-regulated hedge fund managers that were allowed to leverage with incredible risk, sounds great, We asked for it we got it.

We totaled out Dads car going to the prom here folks and we all learned a painful lesson in the process. Danna H I agree with you, it was not failure of capitalism, it was a failure in us.

Jan 01 09:36 AM

[EUARTE:]

Yes, indeed there was Wall Street greed. They should not get off the hook. Return to the sensible bank restrictions of the 1930's is a must. Thanks to Bill Clinton these were abolished. We see the result of that stupidity (greed again).

There was also moral failure on the part of our Congressional representatives. Barnie Frank and Christofer Dodd come easily to mind. Numnuts like the theologian Nancy Palosi tried to fix our problems with more of the same left wing verbal garbage. She should not get off the hook. As for Harry Reid, he may get away with it because he has kept quite. Nonetheless, his inaction should also be noted.

We should also remember the Republican Congess of only a few years ago who spent like drunken sailors. This should help the present Federal Reserve and the President to understand that mindless spending may not be the answer. They have learned nothing.

No one should forget Alan Greenspan for his low interest rates. College students who take Economic's 101 new better than this successful self promoting hack.

Then there is George W. Bush. He was a true failure of incredible rank. He succeeded at nothing and caused economic chaos on his countrymen.

The main problem today is there is no one out there, in power or about to be in power, who has workable and sound ideas. This, alas, includes "the One".

In the end it is we the voters who are to blame. We idiotically resend the same hacks and morally reprehenseable hacks to Congress. We have our reward.

We will get out of this to be sure. In what condition is impossible to know. But I will bet it will take many years. Those predicting 2009 as turn around time are deluding us.

Happy New Year.

Jan 01 12:56 PM

[NOWHEREMAN:]

Thank you for the compliment User 30121.

I like boring. Boring means being happy with the situation and most of all being happy with my selections.

I'll put forth my expected scenario for you: Dollar up say to 92, gold down to low $600's and oil back down to low $30's taking Nat. Gas down to $4.00.

Dow back down to 7,000, S&P to 700. Lots of backing and filling in the stock sector with the Internationals faring best.

Accelerating increases in Bankruptcies outside of Housing, Corporate Bond defaults, State default scares, etc. just your normal, run of the mill Deep Recession which just started as far as the consumer is concerned.

I'm prepared for a worst case Scenario. I won't be surprised if everything goes to Hell in a Handbasket.

BGZ, TZA, ERY, FAZ because of the Triple nature of these ETFs, I have been able to insure my entire portfolio at a fraction.

Meanwhile, if something bad were to happen on the Oil front, well I've still have my Canroys and recent acquisitions of TNK, MHI and MAV.

I'm prepared and will continue to accumulate under the radar infrastructure plays. Which will rise regardless of what happens elsewhere as Obama's stimulus packages start.

In a Bull Market, you go with the flow. In a Bear Market, you abandon ship. The tide is still out. LOL

Jan 02 02:03 AM

[NOWHEREMAN:]

One other thing Tony, did you ever get your Series 7? I passed as an Independent, took two tries. I then went looking for a House to work at.

I even went the Money Management route in the early 80's, no certification needed as long as all of your clients had a net worth above a Million and you had no more than 5.

Its been over 25 years since those good old days. Time flies when you are having fun.

Jan 02 02:17 AM