2009 Predictions

[Marc]

By Roger Wiegand Dec 22 2008 1:23PM

"We think we now have enough data from both the fundamentals and technicals to make some serious forecasts and predictions for 2009. While 2008 was a nasty year when lots of things imploded, they are far from being repaired. Treasury Secretary Paulson told us this week there are no more surprises, which tells me we haven't even discovered but a small portion of this monster derivative mess. His ripping-off of the taxpayers to the tune of $700 billion is only a warm-up. However, the larger question for traders and investors is what could happen next and when.

In the following report we take the key global economic points and suggest the outcome for 2009." -Traderrog

The most important news for 2008 was the destruction of the big global banks' net worth and their badly wounded ability to conduct normal business and make market-moving loans. Ben & Hank's bailout only helped the bad-boy banks reliquify themselves to remain somewhat solvent and stay in business. They are doing nothing to extend credit to any business enhancing western or global economies. The 2009 result will be no significant banker lending, taking more bailout money and sweeping additional bad loans of all stripes under the banker's rug and hiding the rest in back rooms.

The largest surprise in our view was the massive disaster at insurance giant AIG. Despite numerous injections of bailout billions, AIG remains in very serious trouble hanging on by their proverbial fingernails. The 2009 result will be a surprise crash and failure of AIG frightening the world at large causing ripples of failures throughout western and Asian nations unable to conduct business without mandatory insurance policies. Most folks have no comprehension as to the monster fallout this will create. It is in our view literally immeasurable, and this is why Paulson handed them so much money.

Our new president is determined to hand out $860 Billion to One Trillion dollars in a Herculean effort to literally buy a new economic recovery. While some of his ideas are noble indeed the overall plan
will have little effect and Great Depression II shall take hold in 2009 with crashing stock markets in May and September-October 2009. We think the worst of the worst hits in later September 2009.

During the spring of next year we see:

(1) A second larger wave of residential housing mortgage failures; (2) The first big wave of auto loan failures and repossessions; (3) Over $40 billion in credit card defaults, smashing the bank lenders; (4) The first wave of commercial mortgage failures and foreclosures on shopping malls, office buildings and other commercials; (5) And finally, the grand smashing finale of CDS Credit Default Swaps originated with No margin money or down payments! We heard today the total is 500 trillion! I cannot even fathom that number. These five converging train wrecks could take the Dow from a dead cat bounce of 10400-10800 back to 7250, or even 6600, or 5600.

Shares traders and investors have one more solid quarter, in our view to regain some stock market losses on the forthcoming Obama Trillion Dollar handouts. We think the rising share markets will help most all sectors gain some recovery and provide the illusion the bottoms are in and new bases found. The stark reality hits home after shares peak in April or early May taking an unprecedented selling high dive scaring the wits out of Americans and the watching world.

Even with these events and rising unemployment and social problems, economic observers and analysts could continue to plead the worst is over, the bottoms are in and a fine, new, shiny world of trading and investing in our bright economy lies just ahead for the fall of 2009. Then, in later September and early October, the New York, London, Tokyo and Asian markets take a monster crash. How low is low and how bad can it get? We think the Dow could end-up on November 1st, 2009 anywhere from 5,600 to a low of 3,000 or even 1,500. One guideline will be a falling overshoot of PE's on our largest, so-called international corporations posting lows of 4 to7. Today, many of them are near 18. What does this tell us about the severity of our projections?

Unemployment nationally in the USA is now touching 16%. The officially posted number is somewhere near half of that. By the fall of 2009, American REAL UNEMPLOYMENT WILL BE NEAR THE ALLTIME 1930'S DEPRESSION HIGH OF 25% UNEMPLOYED. SADLY, THAT IS NOT THE WORST AS IT GETS MORE DIRE. WE PREDICT REAL, USA UNEMPLOYMENT REACHES 30-40%. IN THE RUST BELT STATES OF MICHIGAN AND OHIO, WHILE 40% IS NOT UNREALISTIC.

Several European nations have larger, more established social safety nets for the unemployed. In the USA, local, regional and national authorities are not nearly as prepared. The American federal government departments for food stamps and the job of providing welfare provisions will be overwhelmed. This will be a Katrina event for the hungry citizens of the United States. Urban areas will see skyrocketing crime and in parts of some cities, life could become totally uninhabitable.

The last report we've seen on those receiving food handouts and related welfare amounted to 11 million USA citizens with 700,000 children going hungry each day. We suspect the true amount of those needing food help will rise to 35,000,000 with an untold tragic number of them being little, defenseless children. Governments remain in denial and are not prepared for this national emergency whatsoever. As things worsen, food riots and others with violence aimed at the "haves' are common.

The number of bank failures over the next three years will be in the thousands. In addition, the US Dollar's valuation could break recent lows near 70.00 on the index, dropping to 46.00 by 2011 or 2012.
Inflation or potentially hyperinflation is quite real as the Federal Reserve and US Treasury strain to print and circulate cash to prod our stalled economy. It is simply not working even with the dramatically lower interest rates of late. Benny Bernanke is out of rate cut running room.

Consumers are broke and going broker. Households of interrelated families are doubling and tripling up even with several employed members being under one roof. Basic costs of rent, mortgage payments, health care, food, utilities and taxes are too much to bear on stagnant and in some cases falling wages. In some areas of America, there are entire subdivisions of homes totally abandoned or existing with only a hand full of occupants. The millions thrown at lenders for new mortgages are not getting through to buyers, as there are fewer of them. We are witnessing system breakdown.

Municipalities and states are sinking into a spending, debt-ridden morass. It was reported today that 22 of 50 USA states are in serious budgetary trouble. California is one of those in terrible condition and Michigan is already technically broke as are many of her cities. Detroit will file bankruptcy in 2009 and there will many other surprises as well. There will be a cascade of bond defaults and the outcome will cap the ability of these cities, states and counties to borrow ever more.

The shining light through all of this is the faster we find the bottom the faster we can recover. Sadly, the recovery process will take years. Futures and commodities traders should continue to earn steady profits as the stock markets slide into oblivion for years. We see no recovery until 2015.

Roger Wiegand
Editor Trader Tracks Newsletter
& The Rog Blog at webeatthestreet.com

Source...

Cheers

Marc

[Dean@Massiveaction]

And then there's the bad news.

[sarahd]

bloody hell should I go and slit my wrists now?

[Dean@Massiveaction]

Sadly I think they are basically on the money so maybe keep a warm bath filled anyway.

[Marc]

Hey! Be happy Bernard is from Interest.co.nz

Click here

Cheers

Marc

[muppet]

And then there are all the other countries.

[eri]

it must be pointed out that this guy has an expressed interest in people buying gold

[Marc]

it must be pointed out that this guy has an expressed interest in people buying gold

Hello eri,
Do you mean he has authored it for selling/plugging gold?

Cheers

Marc

[eri]

it seems to me that we are in a vicious downward spiral

but not of the financial mechanics

but of confidence

this falling confidence drags the economy down

and as it is really still to sink in, for the majority of consumers, we are a long way from seeing the worst, or end of it...

ok, nothing new there really

what i feel is new, for me anyway, is where it will go from here and how it will most directly effect property talk members

the usual tool for controlling the economy is interest rates

and the gov. lowers them to stimulate the economy

but that only works with a "rational" economy that is running with enough "business as usual" momentum that is over-rides the normal bumps that happen. like wars, mini-crashes etc.

however, as we are learning, in an "irrational" economy driven by human sentiment, (ie fear) interest rate drops can't create enough greed to balance the falling confidence levels

this is because the bubble that years of speculative borrowing and spending has created has reached it's invisible limit

so now that interest rates are as low as they can go, (the fact that nz rates can be dropped further doesn't really help as confidence levels are increasing being driven by overseas news where they are zero and the markets are still stalled), the gov. has to move to "quantitative easing"

ie basically printing money to support our modern, overblown, useless, consumer culture at the level that keeps everyone employed. the famous dropping money from a helicopter to keep people spending

this is going to be hugely inflationary

ok, again....nothing really, really new here either

what i'm worried about is the only way to avoid this bubble bursting is to deflate it over many years

in other words the saving sheep have to have their money redistributed to the over loaded borrowers, for the "good of all"

this might be done by many years of HIGH, (not hyper) inflation

what i think might happen is after the markets reach a stable bottom that the central banks move from the 2% inflation targets they have had for years to 20% inflations targets. even at that high level it could take 5?-10? years, or longer, to unwind this mess

so anyone with term deposits will start getting good return again, ON PAPER, but inflation will be eating away at those returns faster than they grow

people who have mortgages will find their interest rates climbing to 25% while rents climb 15% and land values only climb 5-10%

and this for years and years and years

so as someone with money in the bank i will buy property as almost my only way to hedge against inflation but anyone who has to borrow money to buy property will end up going backwards

hope i'm wrong, because the social dislocation this will all cause is almost unimaginable, say goodbye to cents, coins will be made up to $100

and after that we'll get merged currencies etc. (like the euro) that hide the amount that inflation is slaughtering our currencies

[ecoeco]

... and then there's the bad news.

What is scary is that this is all so plausible. There is a fantastic book by Micheal Rowbotham - The Grip of Death (excellent review here). Basically predicting most of this and indicting that a debt based economy is not sustainable in the long term.

Basically Rowbotham predicts the massive disruption which are facing as a possibility now. Even if somehow the financial system is able to get back on track eventually the debt spiral will catch up with us all.

[eri]

thanks ecoeco

and that book was written 10 or more years ago

so rather than saying about this recession/depression
no one saw it coming it's more like the sec and madoff

rather than rain on the parade and actually look hard for wrong doing, that may collapse everything, we decided to do nothing and hope for the best, as, after all we were making lots of money for doing nothing and didn't want that to stop

cut from the pdf review

It is not consumers, but the debt-based financial system which makes a techno-marvel, disposable, wasteful, junk-product ‘consumer’ economy inevitable, he states. The consumer is ‘completely subordinated to the process.' Industry and consumers are also completely subservient to the regular booms and slumps of the business cycle which he contends is entirely monetary in origin, shape and effect.

[eri]

However, Obama will still face a daunting task - explaining to Americans who behaved responsibly during the housing boom that their taxes should subsidise those who took on too much risk. Despite the inevitable backlash, consumer advocates and some in the real estate industry argue that it is still in everyone's best interest to avoid as many foreclosures as possible because they drag down the value of neighbouring properties.
"It's not a matter of fairness," said Mark Goldman, a mortgage broker who lectures on real estate at San Diego State University. "It's a matter of protecting the value of your property."


and if you don't have any property? guess you're just dumb


how will people feel about their taxes being used to subsidize mortgages on investment properties

http://www.nzherald.co.nz/world/news/article.cfm?c_id=2&objectid=10557499

[ecoeco]

It is not consumers, but the debt-based financial system which makes a techno-marvel, disposable, wasteful, junk-product ‘consumer’ economy inevitable, he states. The consumer is ‘completely subordinated to the process.' Industry and consumers are also completely subservient to the regular booms and slumps of the business cycle which he contends is entirely monetary in origin, shape and effect.

Yeah Rowbotham is a contributor to the view that the majority of people are essentially caught in debt slavery - which is artificially created by the economic system which requires that we pay multiple times for the same items.

I agree with his overall premise, that an economy based on debt cannot be sustained in the long term - but I think he does not give enough credit to the decisions and actions of individual consumers. Getting into debt restricts options - no doubt about it. I have to work to pay my mortgage therefore I don't have the choice to just go on holiday forever and not work. However, it is my choice to get the mortgage in the first case and I trade off my requirement to work for the satisfaction of owning the house I live in. Likewise it is my choice if I spend up to the limit of my credit card, etc.

To much of the current issue we all face seems to come from the lack of people's financial self-control. As a nation we have all spent to the limit and relied on other people to say no, rather than spending within our income. Eventually all the bills come home to roost and we have to pay for the things we have brought.

[tpr2]

You have bought up a good point ecoeco, another reason you don't just swan off on that holiday is that we still need to pay for the goods and services we use, now on a day to day basis it's easy, we go to work, we get paid and then we pay for our goods and services.
Who does the work though when we reach age 65 and still have 20 plus years of our lives left over?
We still need to pay for our groceries when we are age 70 but now we are not working so we are supposed to either live off our investments or live off the pension.

Now who believes there will be a pension in 20 years time? After this debacle do you think there will be a government around who can afford to provide any assistance to its' elderly?

Not sure if I have a point there but reading your post ecoeco prompted those thoughts.

[eri]

http://www.economist.com/world/unitedstates/displayStory.cfm?story_id=13145239&source=features_box_main

NO PART of the financial crisis has received so much attention, with so little to show for it, as the tidal wave of home foreclosures sweeping over America. Government programmes have been ineffectual, and private efforts not much better. Now it is Barack Obama’s turn. On Wednesday February 18th he pledged $75 billion to reduce the mortgage payments of homeowners at risk of default. Lenders who help people to refinance their mortgages will receive matching subsidies from the government. These could reduce a borrower’s monthly payments to as little as 31% of their income, and last for up to five years.
Firms that service mortgages held by investors will also receive fees for successful modifications. As a stick, Mr Obama reiterated his intention to alter the bankruptcy code so that courts can reduce mortgage principal. The details will depend on negotiations with Congress.


Some 5m homes have entered foreclosure in the past three years. Credit Suisse estimates that over 9m more will enter the process in the next four years. (In normal times, new foreclosures run at fewer than 1m a year.) Mr Obama predicts his plan will prevent up to 4m foreclosures. In a separate initiative, up to 5m borrowers will be able to refinance their mortgages at lower rates even if their equity is less than the 20% usually required by Fannie Mae and Freddie Mac, the now nationalised mortgage agencies.
Previous, less ambitious, efforts have flopped. George Bush’s first plan aimed to help up to 240,000 delinquent subprime borrowers refinance their debts into government-backed fixed-rate mortgages. Only 4,000 did so. A Democrat-inspired $300 billion plan to guarantee up to 400,000 mortgages attracted just 517 applications, as lenders balked at the requirement that they first write down the principal. Private-sector programmes have achieved higher numbers, but their success is mixed. Of 73,000 loans modified in the first quarter of last year, 43% were again delinquent eight months later (see chart).
Mr Obama’s chances of being any more successful depend on whether his team has correctly diagnosed what is driving the wave of foreclosures. Is it that homeowners cannot afford to pay; or is it that they are declining to do so, because their homes are now worth less than their mortgages, the phenomenon known as negative equity?
Both factors play a part, but economists are divided on their relative importance. One school thinks that, even in cases of negative equity, most homeowners will not default if they can afford the payments—not least because defaulting will wreck their credit records. A second school believes that once the home is worth less than the mortgage, homeowners have a significant incentive to walk away even if they can make the payment, since in many states lenders cannot then pursue them for the shortfall.

Mr Obama’s advisers were drawn to the first school, in part by a Federal Reserve Bank of Boston study that found that when home prices fell by 23% in Massachusetts between 1988 and 1993, only 6.4% of borrowers with negative equity ended up in foreclosure. The authors concluded that most such borrowers felt what they got from their home was still worth the payment. The advisers were also influenced by the Federal Deposit Insurance Corporation’s apparent success in reducing the payments of delinquent customers of IndyMac, a failed bank. In a matter of months, 10% of the bank’s 56,000 seriously delinquent borrowers had their payments reduced to 38% or less of income.
But others question the likelihood of success without reducing the principal. Edward Pinto, an independent financial industry consultant, estimates that 20% of borrowers with negative equity went to foreclosure in the past three years, in part because they started out much less creditworthy than their counterparts in Massachusetts two decades ago.
If negative equity is the real problem, principal will have to be reduced to stem the foreclosures. But lenders are reluctant: they worry that many homeowners who can afford their payments will choose to default, or that investors in the loans will sue them. With house prices still falling, many borrowers would soon have negative equity again. And the write-downs, whether voluntary or court-ordered, could destroy the lenders’ capital. Aggregate negative housing equity is thought to top $500 billion. The government could absorb some or all of this, but at an astronomical and politically unpalatable price.
In truth, both lower payments and lower principal would help reduce foreclosures. At present, banks aren’t doing much of either. Last month Communities Creating Opportunity, a non-profit group in Kansas City, Missouri, invited representatives of Bank of America and Countrywide to negotiate loan modifications with local customers. Damon Daniel, an organiser, says none of the 16 who applied got a write-down, though some might have their mortgages converted from an adjustable to a fixed interest rate.
Leslie Kohlmeyer and her husband fell behind on their payments two years ago when his construction business dried up. He eventually found new work and they resumed payments, but could not pay their arrears. Three days after Christmas, Countrywide notified them of foreclosure. Ms Kohlmeyer went to Mr Daniel’s event, where a Countrywide official arranged to suspend the foreclosure; her arrears were added to the loan balance, and her monthly payment went up by $20. She thinks she’ll be fine. Unless either she or her husband lose their jobs.