Financial Market Forecasts for 2009
Stock-Markets / Investing 2009 Dec 30, 2008 - 10:21 AMBy: Oxbury_Research
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 air 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 bailout 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.
Tony D'Altorio
Analyst, Oxbury Research
Tony worked for more than 20 years in the investment business. Most of those years were spent with Charles Schwab & Co., both as a broker and as a trading supervisor. As a supervisor, he oversaw, at times, dozens of employees. Tony was trading supervisor during the great crash of 1987 and was responsible for millions of dollars of customers' orders.
Oxbury Research originally formed as an underground investment club, Oxbury Publishing is comprised of a wide variety of Wall Street professionals - from equity analysts to futures floor traders – all independent thinkers and all capital market veterans.
© 2008 Copyright Nick Thomas / Oxbury Research - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
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