Thursday, January 1, 2009

2008 Predictions Revisited

Thanks for all the great New Year's comments last night. I hope everyone had a good time. I watched a bunch of the New Year's specials on TV and I had this observation: get out of the past already! I mean Elton John and Lionel Richie? The 70's were a long time ago. I would have preferred an 80's glam/heavy metal theme with Poison, Ratt, Iron Maiden, and Judas Priest but that's just me.

Buy Stock in Piggy Bank Makers
I hate to do individual stock suggestions here, but I have a sure fire money maker! I want you to go out and identify a company whose sole purpose is to make piggy banks and buy their stock. Yes, piggy banks! Think I am crazy? Well you are probably right but here is my supporting evidence:
Piggy banks fly off shelves in freshly frugal U.S.
By Alister Bull Alister Bull – Wed Dec 31, 2:34 pm ET
WASHINGTON (Reuters) – Recession-wary Americans embraced the virtues of thrift this Christmas, with stores reporting a clear rise in the popularity of piggy banks.
"We have been selling coin banks really well," said Laura Kellner at Kikkerland Design Inc. in New York City, whose stylish chrome pig is priced at $31.
"We definitely noticed a trend with the piggy banks," said Erin Mara at Homebody, a design store in the Capitol Hill neighborhood of Washington, DC.
"People were very upfront about the need to save...the pig is very symbolic of that sentiment," she said.
Personal saving as a proportion of U.S. disposable income rose to 2.8 percent in November compared with zero back in April, but remain well below the 10 percent range it occupied back in the early 1980s.

How ironic that it was pig-like gorging on debt that has now led us to the recognition that we need to actually save a few bucks. I predict a huge upswing for piggy bank makers. Get in while you can.
Full Disclosure: I have no position in any piggy bank maker nor do I even know a firm that sells just those items.

2008 Predictions Revisited
While I try to formulate my thoughts about how 2009 may unfold, it seems smart to look at what I thought might happen for 2008 first. The 2008 forecast post was posted on January 1st 2008 of last year. Full link here.

So let's take a look.

Last January this is what I wrote:
The still high sales numbers will begin to be a problem about mid year when price data is showing declines nationwide accelerating. Throw in the wave of ARM resets in the first quarter this year along with the most recent buyers being instantly underwater on their mortgage, and I think that the June-July time frame is going to be a real mess for housing. The serial bottom callers and regular people that think buying a home is a good idea will be faced with the worst spring/summer sales market in history. It is at this junction that finally the myth of home buying as a sure bet to riches will be cracked. It is only at that point that we will get a real reading on just how many homes are going to be foreclosed. Only at that point can banks start making even remotely believable loss estimates.
The June-July reality dose will set up housing for a real collapse into year end. I expect a summer "credit event" that will make this past August rout look tiny. The shock to the banks will basically stop new lending after the summer, and the process will feed on itself. As far as numbers go, I hate to predict exact figures, but that's why they pay me the bug bucks (HAHA). Keep in mind about 80% of my predicted numbers will be done before August, with very little activity throughout the fall:
New Home Sales 2008: at or under 3.5 Million
Existing Home Sales 2008: at or under 4 Million

Wow! I said there would be a summer "credit event" and I was right! Even a stopped clock is right twice a day! As for my number guesses, the latest numbers I saw were for new home sales to be at around 4 million and existing home sales to come in at around 4.7 million. Those were two pretty great estimates!

General Economy
Here is what I said last year:
General Economy predictions are thus:
Real negative growth (ie recession) for the last 2 quarters of 2008 going into 2009.
Unemployment ends the year at or above 6%
It is my belief that the powers that be will goose the numbers and/or increase government spending to avoid a technical recession in an election year. It may or may not work, but 2009 will not be denied regardless.

While the dust has yet to settle on GDP numbers, it seems my last two quarter call going into 2009 is solid. Unemployment is also currently above 6% so that was another easy one. Not too shabby so far!

The FED and the Dollar
My take on the FED and the dollar last year was thus:
The FED will be on a slash and burn policy with regards to interest rates. Expect rates to make it as far south as 2% by the summer, and down to 1% by 2008 year end. The FED will also unveil some new kind of "special market operations" to bail out a broken banking system.
Paradoxically, the dollar will catch a bid all year and I see the dollar climbing up to around 90-100 on the dollar index. This will cause problems as huge exports due to the weak dollar have propped up GDP until now, and thus the recession call for late year. Impossible with rates being cut you say? Maybe. The problem is the world cannot allow the dollar to be accurately priced because they cannot allow the fact that they are never, ever going to be paid back by the US to be "priced in". Its a shell game of fake confidence and phantom assumptions, but the game will go on.

The FED indeed went to 1% by year end, and then went into ZIRP at 0%. I never thought they would go to zero, but I was wrong on that call. My idea of the dollar catching a bid seemed good 2 weeks ago, but the dollar seems to be cracking again. Two not so great calls.

The Stock Market and Gold
I had this thought last year:
The DOW stands at 13,264. The Nasdaq is at 2,652. The S%P is at 1468. I predict that all will be within 5%, plus or minus, of those numbers at years end.
Gold will have a solid if not spectacular year. How so with the FED cutting rates so much? The dollar will be in rally mode, hurting gold. The forced sale of liquid assets like gold and all precious metals will cap any upside for the sector. Gold is at around $833 an ounce today, and by the end of 2008 I see it in the $750-$850 range.

Wow, what a total blown call on the stock market. Last year I felt that the game could be extended and played into 2009 before the silly Wall Street types gave in to a market decline. Could not have been more off. My gold call still looks solid though!

Odds and Ends
Looking back at some random predictions:
-New England Patriots barely survive a rematch vs. the Colts and go on to win the super bowl. (I still cannot believe they lost!)
-Asteroid 2007 WD5 will strike the planet Mars, and the martians living below the surface will finally be revealed. (Still hidden from us!)
-Hillary Clinton will win the presidency. (missed this one)
-Economic Disconnect will get linked to by Mish and Calculated Risk (No dice)
-Countrywide Financial will go bust and be taken over by the FED. A full investigation will uncover just how silly loans made by this company where. (they did go bust, but still no detective work)
-At least 2 major homebuilders will go bust (Not yet)
-States across the US will enact enormous tax increases to pay for shortfalls in all kinds of funding due to bond defaults and lower property fee/tax collections. California will face a credit default moment this year. (2009 will make it so)
-It will be clear that Russia and China are not really our buddies. (Clearly)
-A new law will pass making walking away from a home both easy and with no long term financial burden. (Not as yet)
-Deflation vs. Hyperinflation will have to wait for 2009 for a final debate. (looks like this will be the case)
-Britney Spears will make a pornographic film as she has no other career options. (Britney now has the number 1 album in America; what a comeback!)
-Economic Disconnect will not have annoying ads nor a tip jar, its all free baby. (Always free!)

All in all I would give myself a grade of B or B+. I got most of the macro stuff called right, but I was so sure that things could be delayed into 2009 that I missed the stock market drop. Oh well.

I will be working on the 2009 forecast post and hope to have it up this week.

Have a good night.

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