10 Predictions for 2009

After a year like the one that has just concluded, it is more difficult than ever to see clearly into our dark and murky future, but that doesn't seem to have stopped people from making predictions of one sort or another about what might lie ahead.

Such is the case here, despite the brightly glowing orb to the right.

After taking a close look at last year's predictions the other day, it's pretty clear that things would have been a lot easier to call if it was known in advance that Armageddon was finally going to arrive.

Discounting Armageddon has been a profitable investment strategy up until last year.

The question today is whether what happened in 2008 was Armageddon - Part I, or just plain Armageddon. As you'll see below, from my vantage point, it looks more like the latter.

Off we go...

1. Another Bad Year for Housing

Once again, more pain in housing seems inevitable with liar loans and option ARM products reaching their critical years. If it already hasn't, that second home/investment property that seemed like such a good idea back in 2004 will turn into a nightmare in 2009.

As was the case last year, only real estate sales types will be predicting a rebound for home prices in 2009 though home sales will probably make a lasting bottom. Late-2009 and 2010 will be the time to start looking to buy property again, but there will be no need to hurry - contrary to what real estate sales types tell you, prices are not headed back up anytime soon. They may not go too much lower in 2010, but, except for places like Washington D.C. where the bailout business is booming, prices will be mostly flat through 2011 or 2012.

Next year, housing prices will fall another 10 percent nationally, based on the year-over-year change to the 20-city S&P Case Shiller Home Price Index for October 2009 (this report gets released at the end of December and showed an 18 percent decline last week.) It seems that home price declines have to ease up. For example, based on their current trajectory, by the end of next year the median home price in Los Angeles would be below $200,000, down from a high of $550,000 in 2007.

2. The Dollar Will Go Down

The trade weighted U.S. dollar rose in 2008, but that was an anomaly. There are many bad currencies in the world (most of them are bad, actually, the pound now probably the worst) but the greenback will have a hard time looking good on a relative basis after big negative GDP numbers are reported along with even bigger job losses.

The source of most of the world's financial market troubles over the last year or so will finally be appreciated by those who've been buying U.S. Treasuries and, despite the best efforts of the big players at the Comex, many of these people will buy gold instead.

By year-end, the U.S. Dollar Index will be at 70, after dipping into the 60s briefly, and economists will again marvel at how the trade deficit is shrinking due to higher U.S. exports, helping the U.S. economy to recover.

3. Broad Equity Markets will Rise

The Dow (DIA) and the S&P 500 Index (SPY) will gain 10 percent and most investors will be happy about this, not realizing that it would have to repeat this performance for the next four or five years to make up for the losses seen in 2008. It won't.

Foreign stocks will do much better than U.S. stocks - up about 20 percent on average by year end - and stocks in China will rise 30 percent. Here too, most investors will fail to appreciate the cruel nature of large declines and advances expressed in percentage terms - this will leave Chinese stocks 55 percent below where they began 2008 (i.e., before last year's 65 percent decline).

Gold and silver mining stocks will outperform all other equities in 2009 (this process is already well underway) and many retail investors will add gold stocks to their portfolio for the first time only to sell in a panic during the first correction.

4. Short-Term Interest Rates Will Stay at Zero

Short-term interest rates in the U.S. will end the year where they began - at zero.

Instead of the Fed funds rate, the new metric that will be used to gauge what the Federal Reserve is doing will be the Fed's balance sheet. Now at $2.2 trillion, this will grow to over $4 trillion by year-end, by which time the weekly H.4.1 report will become a major news event.

Ben Bernanke aged five years over the last twelve months - over the next twelve months he will only age two years.

5. Energy Prices Will Rebound

After dipping below $30 a barrel in the spring, the price of crude oil will rise to $100 by the time Hurricane season is over (hey, there's no election in '09) and end the year at $85.

Just when people were getting used to $1.50 gasoline, taking advantage of dealer incentives to buy Suburbans and Escalades again, the price at the pump will be back up over $3 and they won't be happy about it.

6. Gold and Silver Will Soar

The price of silver will double before ending the year at around $20 an ounce and gold will again surpass the $1,000 mark, finishing the year at $1,150. Inventory at the SPDR Gold Shares ETF (GLD) will increase to over 1,000 tonnes and there will be 10,000 tonnes of silver in the iShares Silver Trust ETF (SLV). We still won't be sure whether the ETFs really have the metal, but no one will care.

An increasing number of retail investors will buy gold and silver for the first time and they'll sell in a panic during the first correction they encounter. They'll look back and think, "Precious metals are no more volatile than that S&P 500 Index fund I sold last year. Why did I sell in a panic again? Maybe I should just invest in Hummels."

People will start talking about junior mining stocks at cocktail parties - just like internet stocks in 1997. (As noted the last couple years, I'm going to keep saying this until it's true).

7. The U.S. Economy and its Consumer Engine will Hit Rock Bottom

The personal saving rate will rise to four percent and both layaway programs and Christmas savings clubs will grow in popularity. This won't be good for the U.S. economy which will contract during the first two quarters and post anemic growth rates in the last two.

Much of the Christmas savings money will be raided late in the year as many consumers will think they've served their penance and, with money gushing out of the government and central bank, they will regain their spendthrift ways before year-end making for a spectacular Christmas shopping season as compared to the one that just concluded.

8. Reported Inflation will Dip into Negative Territory

We'll hear lots of talk about deflation as the overall Consumer Price Index dips into negative territory on a year-over-year basis by mid-year. At this point, we'll all be bathing in a virtual government money shower as policymakers desperately try to avoid the ignominious honor of being the first group to ever cause real deflation within a fiat money system (no, what Japan had was not real, hard-money style deflation - that was just baby-deflation).

The policymakers will succeed.

By the time the leaves start falling, we'll all be talking about inflation again as energy prices rise in what will look like an inverse, smaller magnitude version of what happened last year.

9. Four Million Jobs will be Lost

Nonfarm payrolls will decline by three million in 2009 and there will be downward revisions of about one million to prior years' payrolls data as the Labor Department grapples with its birth-death modeling once again, publicly confessing that it has utterly failed to provide any meaningful statistics about the labor market in real time.

Health care will be the only employment sector that adds jobs in 2009.

Teenagers all across the country will become disillusioned after having lived their formative years during the biggest financial bubble in the history of Mankind and then seeing it come to an abrupt end as home equity withdrawals are relegated to the history books. They will actually go out and seek work, though few will find any this year.

10. Websites will not Wise-Up

A growing number of websites will continue to annoy readers by automatically playing video clips when the page is opened (didn't we already go through this process about four years ago?). They'll believe their marketing staff that this really is an effective advertising technique, but they will fail to understand just how many readers are leaving, never to return, after having to search so many times for that damn Pause button.

Comments

[donzelion:]

Egads - I was prepared for everything until I saw "#10: Websites will not Wise-Up"...frightening thought. Perhaps Google will save us from Madison Avenue's "great ideas in web-based advertising."

Jan 04 08:56 AM

[Beelza Bubbly:]

....after absorbing the message of le persistence of the ancien regime ( a la Francais..... ) My reflections written here .......... ..... and after our debt ridden federal, state/provincial, municipal levels of government continue to meet their obligations with inflated currencies, some of their very owned luminous mandarins will proffer programs for thier same debt didden governments to sell off all their assets, ie; parks, forests, mineral rights, crown land, monuments etc to those same, ancien, private interests who engineered the collapse of the banks to begin with. So no citizen will any longer have any legal right to complain about uranium mining oil drilling etc for it will all be done on a privatized planet owned by those same ancien, private interests.
So the ancien regime will persist unless we citizens awaken to this biggest ponzi scheme since Carter's Little Liver Pills................
Beelza sez; "Awaken Yo 2009'ers Awaken!"

Jan 04 09:16 AM

[ArtfulDodger:]

Tim, I like your opening statement:

"After a year like the one that has just concluded, it is more difficult than ever to see clearly into our dark and murky future, but that doesn't seem to have stopped people from making predictions of one sort or another about what might lie ahead."

But you have made a well-thought-out stab at what may happen in the coming year.

Thanks for your effort. Good work. And best wishes on your predictions.

Jan 04 10:31 AM

[notsosmart:]

the dumb-dumbs never wake up.but they know the sports scores & thats what matters.LOL

Jan 04 11:54 AM

[henarl:]

I predict that approx. 50% ( plus or minus 40%) of all predictions will come true - sometime in the future. Count on it !!

Jan 04 12:08 PM

[TA:]

I love #10 - thank you for pointing out how annoying it is

Jan 04 12:22 PM

[futurestrader:]

I sure hope most of what you say will in fact come to fruition, but I cant be that optimistic. I will have to disagree with the equities rising 10%. I believe a lot of the banks have shrugged some of this stuff under the rug, and really havent deleveraged to a point where losses wont swallow them up. I foresee another wave of mass foreclosures coming about with the job losses that we are seeing today and still the burden of an illiquid housing market. Much of what we saw was due to ARM resets and plunging home prices...Throw job losses in there and you have yourself a doozy. We will see another panick in the financial markets and with that we will see equity markets sell to at least 6500 - 7000 DJI or even lower. And a rebound above where we are today is unlikely by year end....Most bear markets typically last at least 2 years from peak to bottom and we are only a little over a year into it...the only thing is we did come down a lot in a short amount of time, so nice bounce up could be possible before the bottom falls out again...wherever this timing will fall this year or next is tough to get a handle on, and if I knew, I would be a wealthy man...I am playing for more bad news, and would just offer 1 piece of advice, that being not to get caught up in a bear market rally and think you missed the bottom, because I think we will have plenty more opportunities to buy...Good luck

Jan 04 04:27 PM

[Gre:]

Tim, nice job on most of your predictions last year. Remarkably good, except for this one (but you got the headline exactly right and the downward direction which is very, very good):

3. It Will Be a Bad Year for U.S. Equities

The Dow and the S&P 500 Index will decline by 5 percent and the Nasdaq will gain 1 percent. Foreign stocks will continue to do better than U.S. stocks, but there will be fewer high-flyers than in 2007.

The Chinese stock market will gain more than 50 percent by summer and then lose most of the gains by year-end. The Japanese stock market will be one of the top performers in the world.
__________
You have made a valiant try again this year, good luck. I appreciate your efforts and your cite to last year.

Jan 04 06:38 PM

[Teutonic Kn...:]

Tim (Author),

I concur with your No. 9 Prediction that approximately an additional 4 million jobs will be lost in 2009. Late in last year a reputable SA author predicted when the current malaise is finally over a total of some 7 million jobs will have been lost, including a lion share from the financial sector.

As known, approximately 1 and 1/2M jobs were lost in 2008. Your figure of another 4M for 2009 would add up to about 5.5M to the tally by 2009 year's end. Give and take, 2010 will add up for that 1.5M for a Grand Total of 7M.

Unrelated with your No.9, however, I do have an observation on your assessment that "Healthcare will be the only sector adding jobs..." As the U.S. Healthcare system is primarily employment-based, meaning that most if not all employers pay the lion share of its employees' healthcare premiums, and so as employment drops so will its support base. It was predicted elsewhere in a survey that by the time the current recession is over, about 20% of hospitals around the country will have to be closed. The coming predicted closing of hospitals will have devastating effects on the medical suppliers. Consequently I believe that employment in this sector will be flat at best.

Aside from the 10 Predictions, I would like to venture to add that our college education sector will be hit in 2009 and a few years thereafter. This sector had in my view been oversupplied and been feeding itself on the supply of foreige studnets, a primary source of which from China. However, as that nation will undergo its own financial crisis, there will be a sharp drop in the supply of paying foreign students for this "Smokeless Industry"

Jan 04 10:11 PM

[Roman_Fiddler:]

Yes, I wondered about Healthcare jobs rising for same reasons Teutonic Knight mentions above.

Other than that, it all sounds pretty spot on to me. Actually, I'm hoping it will be as mild as this :)

Jan 04 11:58 PM