2009: What to Expect - And What Not to Expect

2008 had been a watershed year in the history of global business and will stay permanently etched in common memory for a long time to come [at the very least]. It reminds me of the first lines of Dicken’s novel “A Tale of Two Cities”:

It was the best of times, it was the worst of times; it was the age of wisdom, it was the age of foolishness; it was the epoch of belief, it was the epoch of incredulity.

Indeed, in which other year have you seen a single individual trumping the rest of the world in a single performance niche and bag all of the recognitions [Michael Phelps]? In which other year have you seen the symbols of American opulence and prosperity crumbling, all in haunting synchronicity over the course of the year. When else have you seen bailouts becoming a keyword in a free market system and, in the same breadth, the first ever black President, elected to the highest office of the world democracy, thus ending a war which started centuries back? History repeats itself, no doubt about it. But its ferociousness took all by surprise.

2009, thank you, should see a change. The following is what I am expecting over the course of next 12 months. Predictions might be too confident a word to go forward in times like these, but my trades will, more or less, take place in direction of these ‘hunches’.

• Bailouts, Handouts and Obama: Barack Obama will undoubtedly take out all stops and all pins to bring the US back on track. Obama knows that this is a war and he is prepared for it. But, unfortunately, he is no God and has very few resources at hand. If 700 billion dollar TARP was anything of a rip-off for the taxpayers, then, undoubtedly, we should get prepared for the grand daddy of thefts. Bailouts, TARP, handouts might be the words to watch out for in the first half of the year. Obama will hand out a lot of money. And it will be a lot of money.
• Second Half of Housing Mortgage Failures
• The Spreading of Crisis on the American Life: 2008 had been a year to thank for in this part of the scenario. Given the magnitude of the crisis, it’s a surprise that very few job losses have happened; general economic spending may have slowed, but in effect bucked the trend [refer to holiday shopping statistics]. This will change in ‘09H1. The first big wave of auto loan defaults, then secondly credit card defaults [~40b] and then student loan defaults will enter the national consciousness.
• Credit Default Swaps: With the credit defaults catching momentum, can CDS default stay far away?
• Eco-Political Circumstances Will Worsen: Crises like this one give an unprecedented rise to tension and conflicts. News to watch out for Indian-subcontinent, Middle East, Russian-Chechnya and also Africa. This might prove to be a bad thing for oil.
• The China Saga: China’s race to keep its yuan undervalued during the good times is commendable, but it has come back to bite it during these times. With the dollar strengthening, the yuan has become uncontrollably undervalued. And this will affect [if it is not already affecting] the economy in an adverse way. And the general political developments. If the intensity increases, then riots will break out and people will undoubtedly get shot. Quite dramatic, but a distinct possibility due to the tense political situations. But by 09Q2, China should start making a good recovery.
• The India Chapter: India had not been untouched by the global mayhem. Its bourses have tumbled like nine pins and stimulus package has entered the public lexicon. 9% GDP growth rate now is being considered too high and 7-8% is the downgraded expectation. The crime in India might see an increase and terrorism might take a turn for worse. But at the risk of sounding biased, I am bullish on Asian stocks.
• Web 2.0 Stocks Will Tumble: With credit cards and the online ad revenue as the mainstay of the Web 2.0 companies, Google (GOOG), eBay (EBAY) and Amazon (AMZN) might see their balance sheet suffering. An exception is Amazon with its low cost web infrastructure offering which will find its takers with the remaining startups.
• Entrepreneurial Activity Will Increase: The general entrepreneurial activity will rise due to the job cuts in US and India.
• Credit Cards, India, China and Consumption: Credit cards will penetrate even deeper in the traditional savings based Asian societies. This will form the bulwark of the next consumption based global economic cycle.

Overall, I am seeing global economy bottoming out by 09Q3. And, as such, I am pretty bullish on the general economy thereafter. Asian stocks should see a good recovery by 09Q2.

But today is the beginning of January. So it’s a new year and a new day. I wish my readers the warmest of season’s greetings and the best of wishes from the Indian subcontinent. I truly believe the ambience darkens just before the dawn. Let's hope it turns out right.

Disclosure: None

Comments

[Greg Pinelli:]

With as much respect as I can muster here it goes...
1. Obama has NO resources at hand? He has a Congress at hand that's virtually a rubber stamp for administration programs...
2. An Obama Adminstration can strong arm ITS Fed into ANY off balance sheet activities it wishes! I've actually heard "analysts" on CNBC and Bloomberg talk about the Fed having used all its "bullets." That hilarious! They haven't even STARTED!
3. Few job losses??? You must have been isolated in Tibet recently.......
how does millions strike you?
This MIGHT have been a decent bit of prognostication 4 or 5 months ago...but it strikes me as rather useless......

Jan 01 11:24 AM

[Moon Kil Woong:]

Have you been to Asia recently? Asides from Korea's bad default bout giving away credit cards to teenagers there is little appitite for debt in asia except in buying overpriced homes. Japan saw what happened when that happens. I guess Greenspan doesn't read up on recent economics. He's been too stuck on the early 80s I guess.

As for the new President, I tend to agree but not because of your logic and reasoning. Basically, spending thus stimulus and the right to print money thus regulate commerce and manage the economy was given to Congress. Congress passed on all the authority to the fed leaving themselves the bitter dregs of taxing their population and spending uncontrollably by running budget deficits. Thes actions, amazingly are a drop in the bucket compared to Fed's powers over interest rates and expanding the base money supply by blowing up their balance sheet.

The fact the fed couldn't or wouldn't do anything so far doesn't bode well. The fact that Congress has been Democratically run for over 2 years and hasn't had the strength to lift a finger against a hugely unpopular President to even regulate how a unpopular bank bailout program will work is also disheartening.

Because of this, we know sadly that another $800-1 trillion over 3 years won't be anywhere close to digging us out of this mess. And anything more than that will not make any treasury bondholders feel comfortable buying more at a low rate. Raising interest rates on treasuries will only compound an already unstable situation.

I do agree that geo-political instability is in the cards as the global recession sweeps the world. So I am not that optimistic. More like hunkering down and weathering the storm like everyone else.

Don't look to China and Asia to bail anyone out of this mess (China in a depression is basically asking for another revolution and communist style purging.) So far they have failed to grow their consumer base in good times. How will they do it in bad times. I can't rightly say they are wrong to want to live within their means. It's something we should be seriously considering too.

Jan 01 08:20 PM

[Soham Das:]

I guess, time is validating me nicely.[which doesn't serve much except ego smothering]

1. Obama again, I reiterate has very few resources at hand, and bailouts, TARP/CRAP/TRAP are all ways to say "Alright, let me see, if this works....oops!" [Bailouts: Check]

2.Job losses in 2008, was staggerring but nothing compared to the ones we will have in 2009. [Job Loss: check]

3. Auto Loan Default mode is already on. GM annoucing possible bankruptcy. [Loan Defaults : Check]

4. Housing Mortgage Failures [Partial check]

5. I am wondering if India will turn by '09Q3 or not.[Cross]

There are a few developments which are rolling in right now. The year is still young. And I am shorting [for disclaimers and disclosures]

Mar 07 11:58 AM