I have seen a lot of people posting on predictions for 2009, so what the heck, let me give it a stab. Let me warn you in advance, this is not going to be warm and fuzzy.
- Housing will continue its decline, probably for most if not all the year. Why? Well, for one thing there are a lot of adjustable rate mortgages (ARMs) resetting in 2009. Now you might think the low rates will allow them to reset lower, and in some instances that is likely correct, but the wonderful lenders came up with a nice product called an option ARM that lets the buyer chose among various payment options, which can include paying interest only or even less than that. Moreover, while rates are low now, ARMs almost always start with artifically low teaser rates well below where the reset will go, despite low rates today. Accordingly, there will be a host of new foreclosures adding pressure to prices, along with unemployment and other factors. Some markets are near a bottom already, like parts of California, but overall, I suspect housing will continue its decline throughout 2009.
- Credit will continue in a nearly frozen state for the year. The banks we look to for lending are simply in a horrendous situation and will not be looking to lend their money any time soon. Housing declines will continue to pressure them, as will CDSs, off-balance sheet vehicles and their debtors going belly-up. Some local and regional banks might be more willing to lend, but increasing problems in commercial real estate will impact them too. Continue to look to the government (federal government only) as the lender of only resort.
- The stock market. I am going on the record here and predicting that the market in the U.S. will be lower at the end of next year than it is right now, and I expect a good 10-20% lower. Not many people are predicting this direction for the market, so you are asking why. After all, doesn't the market typically start to rebound six months or so before a recession ends? Well, the problems we are facing are deeply entrenched and so far we are not doing the right things to fix the problem. I have ranted here enough about the TARP and other moves being taken, so I will not repeat it again. It is possible the next administration will make smarter moves, but I fear even the right moves will not avoid a few years of pain. Yes, a few years of pain. We are in some rather severe spirals that will take a long time to escape.
- Bankruptcies, and lots of them. And I am talking the Chapter 7 liquidation kind becasue debtor in possession (DIP) financing is very hard to come by right now, which means Chaper 11 reorg is near impossible. For the shareholders and creditors of those that go under this is bad news, but overall for the economy it is a healthy move. We no longer have the massive debt-driven consumption that enabled all the companies to exist, much less the easy credit that let them make ends meet when they probably should have folded instead. Time to thin the ranks.
- Unemployment over 8%. Even using the government's bogus unemployment numbers I anticipate unemployment going over 8% by year-end 2009. The real unemployment rate is already above that but the government plays games with the numbers to keep them artifically low.
- Crime will be on the increase as desperate souls seek to make ends meet. Not a surprising call, but often overlooked. Lock those doors.
- Political instability. A number of countries will become increasingly unstable over the next year. Riots and public protests, like those taking place in Iceland and Europe, will increase. What is truly troubling is the prospect that countries will increasingly turn to military action as political frictions escalate between countries.
- EU with no U. The strains on the EU have never been greater and Germany's reluctance to play ball with the rest of the union will, in my opinion, cause a rift that cannot be fixed. I doubt the EU will disband in 2009, but pressures will reach a critical point and it may well happen in 2010.
Well, there you have it, for better or worse (actually no better here). I am first in line to hope that all these predictions are dead wrong.
Disclosures: None
2 comments:
I would just like to comment on point 10. Like most english-language commentators you are very aware of the difficulties facing the EU, the Euro, and Europe in general. I am sure you can make a long list of arguments that support the view that EU and Euro are doomed. And I would even agree with most of the points you make.
But the reality is that within the EU (and within the Eurozone) there is hardly any serious opposition against the EU or against the Euro in the Eurozone. The one exception being the UK, which, coincidentally has the only widely read european media outside Europe.
How do you explain that all the flaws of the EU are all too apparent to the english-speaking world while none of the forces that keep the EU together seems to take any notice? Same story with the imbalances in EU. Everyone laughs their socks off (and rightly so) about the political dis-union and no-one takes notice of the accomplishments of the last 40 years.
I, like you, am convinced there will come a time that EU is no more. And it may be closer than most think. But the same is true for China, US, etc. That may sound ludicrous to you, but all countries are somewhat artificial and have imbalances that sometimes get larger and sometimes disappear. I would argue that the imbalances in the US are larger than they are perceived to be and growing. The european imbalances are probably a little smaller than perceived and they are slowly getting smaller.
Something to think about.
Re marc's disintegrations, this one from a KGB analyst turned professor has been making the rounds: http://www.philly.com/philly/blogs/attytood/I_swear_on_Lincolns_Bible_a_new_civil_wars_a-comin.html
It's highly unlikely, especially in this form, but it's an interesting twist on the breakup of the Soviet Union.
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