Market and Economy Predictions for 2009 15 comments
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Here's hoping that next year is much better to all of us. Above all, I hope that Obama does a fantastic job. Here's what I think will happen to the economy and the markets:
Inflation: Headline inflation has gone down, but core inflation hasn't; once oil prices bottom (which I think is happening), all measures of inflation will head higher. I don't see a hyperinflation yet, but I do see inflation that is significantly higher than what is priced into the bond market. The main driver of higher inflation will be the Fed's inability to withdraw its massive liquidity injections in a timely fashion. They will prefer to err on the side of inflation rather than risk a weaker economy.
Growth: The economy is going to recover sooner than the market expects, with the bottom in activity coming before mid-2009. The recovery will be sub-par however, due to the drag of increased fiscal spending and slowly rising inflation.
Housing: The bottom in construction activity has essentially arrived; whether construction drops another 10% or not is at this point immaterial; housing prices are rapidly approaching a bottom, which should come well before June '09; mortgage rates are now low enough to make a huge difference.
Interest rates: Treasury yields are essentially at their lows and will be significantly higher by the end of next year. TIPS yields will hold steady or fall as nominal yields rise.
Spreads: Spreads have seen their highs and will continue to narrow.
Equities: We have seen the lows in equity prices; equity prices will lag other risk asset prices, but they will be significantly higher by the end of next year.
Commodities: Prices are essentially at their lows; whether they drop another 10% is immaterial; prices are beginning a bottoming process; oil prices are unlikely to drop below $35; commodities may take awhile to move higher, but they will be higher within 2 years.
Dollar: The dollar is unlikely to make further gains against most major currencies, given the Fed's hyper-easy stance, and is likely to fall against emerging market currencies as commodity prices rise.
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www.gmo.com/America/My...
Jeremy Grantham holds a strong record of accurate foresite.
On Jan 01 10:41 AM PastTense wrote:
> Why doesn't someone do a set of predictions for the next 10 years?
> While I think the OP's predictions may be roughly correct for 2009
> and that the government's massive bailouts and fiscal stimulus will
> temporally improve the situation this year, these policies are going
> to lead to catastrophe a few years from now.
On Jan 01 12:31 PM javnnf wrote:
> This is one of the most useless article conveying information that
> can be found by flipping a coin!
On Jan 01 11:44 AM Loganbrew wrote:
> See the GMO 7-year forcast.
>
> http://gmo.com/America...
>
> Jeremy Grantham holds a strong record of accurate foresite.
>
>
> On Jan 01 10:41 AM PastTense wrote:
On Jan 01 04:12 PM wise wrote:
> here we go again with one pundit over another, when the best is a
> consensus of top qualified people
The Fed can print money til the cows come home, but:
- which bank is going to freely lend it out to people who can't afford to pay it back?
- which bank needs to retain capital to offset bad assets?
Let's face it, rates might be looser, but lending criteria is tighter.
Add that to reduced consumption, frugal being the new black, and you have a positive feedback loop that won't be easily beaten by helicopters.
One way or another, assets are going to deflate a lot more before a recovery appears on the horizon.
I really wonder what causes you to predict house prices will bottom in less than six months. If you have an analysis that leads you to that conclusion, perhaps you could come back with a comment to share it. Most of what I read has a much longer time expectation to reach a bottom. Prof. Shiller, Yale, has projected a bottom could take as long as three years. I don't think that is his prediction, just the outside time limit.
How did your predictions for 2008 come out?
"I bought my home at/around the peak for $1.5 million, it's now worth $800K... it can't go lower, because near half off is cheap enough already! the bottom is in, the bottom is in!"
And...
"Interest rates are at an all time low ! (broken record realtard mentality), surely THAT will motivate ppl to buy !"
Notice how he says, "housing prices are rapidly approaching a bottom, which should come well before June '09".
Before June, right. Only because that's when housing is strongest. I'm sure it was really difficult to make that call. Next year do expect him to say, "Before June of '10", then Before June of '11, and so on. Eventually he'll be right.
When you make a call based on cyclic observations, you should at least state it. Otherwise you're being mildly deceptive. Everyone wants to be a Messiah nowadays. What a cheap prediction. I'll buy that for... 50 cents on the dollar!
This guy is making the same mistake everyone else is: he believes once the technical problems are resolved (frozen credit markets, you know the rest) everything will go back to normal. It will not happen. We are on the verge of a huge shift in consumer behavior. If you want to make wise investments for the next 30 years. Stop looking at the macro economic picture, and start looking at the micro side of things. There may be thousands of financial advisers, but there are hundreds of millions of common folk that have been spooked by what has happened, and frankly, don't care for all the pork in the end. Hint: sometimes the simplest things in life are the best.
What made perfect sense in '06 through '07 might make no sense at all in '09 and into the next several decades. Start with a clean sheet.
He's on the right track. Everyone says to buy now because everything is "half-off."
Consider this:
Housing values had quadrupled in the last 20 years before the current CRASH. What if housing values were inflated before they started on their exponential journey?
We may have to correct to 1985 prices before the bottom is reached.
Now, look at the Stock Market- It more than tripled from October of 1993 (around 3300) to August of 2000 (around 11,000). Since then, the market has been correcting.
Sure- we had a huge "Sucker's Rally" that peaked near the end of 2007.
It is possible that we will correct to 1993 levels.
Keep cash on hand. Don't put any extra money into the Stock Market.
What we are going through now is only the beginning.
Abby Joseph Cohen predicts DOW @ 14750
www.pbs.org/nbr/site/o.../
BTW, I cashed out in '07 and speculated on Yen and gold. I made some and lost some but I am way ahead if I had listened to these pundits. Their prognostications are useless.