Economic Tsunami of 2009
Before you ask" "why should I give any credence to this article?" Please take a couple of minutes to read my 2008 assessment - written in Dec 07: Ushering a new Economic Era.
Though I hope that I'm wrong in my bleak 2009 outlook below, these are my expectations as I see things today. Ultimately, the data (12 months from now) should tell us whether or not I was close.
Economic Tsunami of 2009
The US is still in the early stages of a growing global economic crisis, combined with a tectonic monetary transformation, yet many Americans are merely in a daze and struck with surreal disbelief - like a group of tourists wandering the beach in Phuket, Thailand after the waters receded... This awe inspiring event has never been seen before and most are oblivious to the fact that this is just the breathtaking precursor to a disastrous outcome, so the ignorant masses stay put - trying to grasp the unreal - incognizant of the devastating consequences of their inaction...
The waters started receding in 2008 and as the year comes to a close, the tide is now fully pulled out to sea... 2009 however will likely cause mother nature to reverse these forces quickly, and the first wave of this massive economic tsunami, building on the horizon for over a year now, will finally come crashing ashore with quite destructive results.
My personal 2009 expectations:
- US Job Market to get much worse and will be the "hot topic" discussed in the mainstream media; The BLS officially published and severely understated U-3 unemployment rate will easily cross the 10% threshold in 2009. (link to the real US unemployment picture)
- Housing market will continue to crater while prices fall unabated - due to increasing unemployment, resetting ARMs, inability to refinance, and more people (who CAN afford their mortgage) merely "walking away" - out of disgust/exasperation that banks refuse to work with them (the responsible borrowers/homeowners) while they continue to reward the irresponsible. Home sales however, may likely start to pick up, as those who 1) have a job and 2) can qualify, take advantage of lower mortgage rates and homes become more affordable - but the number of new buyers will significantly lag behind the pervasive increase in foreclosure rates, so home inventories will continue to build while prices fall.
- Bailouts Galore; we're already $8.6 Trillion into this bailout mess (link to 2008 bailout figure)), so what's several more trillion in unpayable (aside from inflation erosion) taxayer dollars? I anticipate we will see bailouts for California, Michigan and others; more money for AIG, the Bond market, Infrastructure improvements, additional stimulus checks for the masses, etc. link to the money hole
- DOW to test the 6,000 range; though we will see a few nice bear-market rallies before and after, the 6,000 range will likely be tested - but don't think this will be the "ultimate low", as that should come later. link to DOW, where's the floor?
- US Dollar to fall to lowest levels in history; with all the new bailouts and increasing debt levels of the US Gvt, the dollar will lose its prestige as a global monetary safe haven and will ultimately test the 65 level (and possibly lower) on the US Dollar Index - sparking a new round of consumer inflation for the masses. The US dollar won't lose its reserve currency status in 2009, but it will in due time. link to Dollar: faltering foundation of US economic strength
- Treasury bubble pops - a flight to safety ensued in late 2008 and Treasuries were the vehicle used. High demand caused rates to fall while face values rose. When the Treasury bubble bursts in 2009, traders will be crushed as rates rise and face values fall. As this happens, the buying price of the bond drops and thus, traders will have to sell currently owned bonds for less than what was paid.
- Derivatives unwind; over a quadrillion (a thousand trillion) dollars in derivatives existed at the height of this economic bubble - part of the reason for our "slowed and controlled" economic implosion. Our monetary masters (AKA: The Plunge Protection Team - PPT) have thrown everything - including the kitchen sink, at our banks, markets and economy - to prevent a massive unwind of this monsterous derivatives complex. From what I understand, much of the froth in these notional derivatives have already expired/bled off, yet we are still stuck with about $700 Trillion outstanding. If the PPT can keep our house of cards afloat for another 18-24 months, these too will expire and the biggest threat to our global economy will have blown over, but I think we're going to see some fireworks first. If AIG, Fannie/Freddie, GM, Citigroup or a big someone else implodes, they will likely set of a chain of cascading counterparty derivative dominoes - insurance bets that can't be paid, but that which are needed to pay off other counterparties, who in-turn, can no longer pay off others, etc.
- Complete US Banking System Nationalization and/or Banking System "Holiday" (shutdown); hundreds of new bank failures will likely lead to public panic, banking runs and gvt imposed withdrawl limits; which will ultimately lead to nationalization and/or a banking system holiday. If a holiday IS imposed, ATM machines, banks and electronic commerce will be shut down across the nation (as the government tries to figure out what to do). People will grow anxious as their credit/debit cards don't work and they're unable to buy food, gas - anything. It may be wise to keep some cash under the matress (just in case). link to banking system shutdown?
- Gold crosses through $1,200 on it's way to meet its 2010 or 2011, one-to-one ratio with the DOW.
- US Economic Depression is declared; it took a year of looking at backwards data for the "experts" to finally declare that we've been in a recession the whole time - a year now! If we experience just four more months of the same, it will be an economic downturn and predicament not seen since The Great Depression. Well folks, the ingredients are already baked into the cake...
Ultimately, 2009 will be quite bad as that first tsunami wave crashes ashore, but it's only the first of many and once the waves end, we've still got flooding, carnage, destruction and cleanup to deal with. Let's just hope that these events don't lead to a complete breakdown in society. link to Social Implications of a Significant Economic Downturn