We began the tradition several years ago that each year on the radio we give our broad predictions for the market and the economy for the following year. The following are our predictions for the 2009 fiscal year.
- The stock market, a leading economic indicator, will have a strong first quarter or quarter-and-a-half. After a recovery the market will trade within a range for the balance of the year.
- The overall economy will begin to see improvement by mid-summer, led by real estate. With low gas prices and cheap financing, manufacturing shouldn’t have a problem picking up once consumer confidence stabilizes.
- We believe that the real estate market is currently at or very near its bottom for price declines. Mortgage rates are at all-time lows, which will help the sector recover. With prices 40 percent off their highs and mortgage rates under 5 percent, there is absolutely no better time for buying a home.
- We maintain our stance that inflation is going to be the problem in 2009 as the economy begins its recovery. The Fed has created massive amounts of money by expanding its balance sheet, but velocity is still so low that the public hasn’t seen this cash. When velocity does pick up, inflation will go on a tear. Unlike the Depression, everyone is going to have money. The question is what it will buy.
- Employment, being a lagging indicator, probably will not begin to recover until after the economy as a whole. It may see some improvement in late 2009.
- Oil prices, having reached unsustainable lows, will trend higher over the next year. Crude oil prices have been driven lower through speculative futures trading. It was this same speculation, oddly enough, that drove oil all the way up to $140/barrel just mere months ago. We see $2/gallon as a reasonable average price of gas for 2009 after the market resumes some degree of normalcy.
- Interest rates will begin to rise as the economy recovers and the Fed is forced to try to rein in the inflation that will be ripping through the global market. Unfortunately, the policy of free money can’t be long maintained without serious consequences.
- The worst investment that we see for 2009 is in treasuries. With yields at historic lows, having gone negative on several occasions in short term bills, prices have nowhere to go but down as investors begin to take notice of inflation and bargains to be had in the stock market and oversold corporate debt.
This past year has been an abysmal year for everyone, and we are all too happy to put it behind us and look to the future. There are some very interesting changes taking place in the investment world, and there is plenty of money to be made by those who do their homework. We believe that gone are the times when investors could pick stocks from a hat, buy on Monday, and wait until Friday to tally their profits. The old saying goes “Never confuse brains with a bull market,” and the coming times will certainly separate the brains from the bull. The name of this new game is diligence.