Sunday, November 15, 2009
Tuesday, October 27, 2009
BEARISH GOLD
Gold did a double top failure last Friday at $1068.50
Today gold broke the hourly 50 SMA.
And at 10 AM did a failure of the hourly 50 SMA on a rally retest of the average, that took it to new week lows.
The daily charts broke the 20 SMA.
I am bearish gold now.
Gold broke the MOBO bands to the down side on the daily, four hour, and hourly charts Monday.
Tuesday should/could see a bounce.
Opportunities to short gold, or exit any longs in the physical metal, or in the equities will be in this bounce.
ABX, NEM, GG, and others broke their daily 50 SMA.
Rally resistance levels are now at $1046 and $1054 for the metal and back to the 50 SMA for the stocks.
My new low targets are now in the $1007 to $1010 area. A break of that target would send us to the $975 target.
All this downside projection will only happen with a continued rally in the US$ that started mid-day today. Too many are on the short side of the US$ canoe… it is likely to flip the shorts out before going lower.
After this next major pullback in gold I see new market highs for gold, and the US$ dropping to the 72 -70 range.
Printing money has not stopped and will not stop. Hence my longer term outlook after our gold flush out of the late entry longs on gold, and the weak hands give up.
__._,_.___
Today gold broke the hourly 50 SMA.
And at 10 AM did a failure of the hourly 50 SMA on a rally retest of the average, that took it to new week lows.
The daily charts broke the 20 SMA.
I am bearish gold now.
Gold broke the MOBO bands to the down side on the daily, four hour, and hourly charts Monday.
Tuesday should/could see a bounce.
Opportunities to short gold, or exit any longs in the physical metal, or in the equities will be in this bounce.
ABX, NEM, GG, and others broke their daily 50 SMA.
Rally resistance levels are now at $1046 and $1054 for the metal and back to the 50 SMA for the stocks.
My new low targets are now in the $1007 to $1010 area. A break of that target would send us to the $975 target.
All this downside projection will only happen with a continued rally in the US$ that started mid-day today. Too many are on the short side of the US$ canoe… it is likely to flip the shorts out before going lower.
After this next major pullback in gold I see new market highs for gold, and the US$ dropping to the 72 -70 range.
Printing money has not stopped and will not stop. Hence my longer term outlook after our gold flush out of the late entry longs on gold, and the weak hands give up.
__._,_.___
Monday, October 19, 2009
A PREDICTION OF HOTTO
I've discussed the 2003 Bull market Leg several times since May, 2009. It's helped with some Timing and Direction. Most recent was the "Slam Down" decline in late Sept - just before start of Earnings Season. In 2003, the corresponding Slam down decline - ended on 9/30/03 - a Tuesday. The rally after that - went up to a Gap -Up Open on Wed, 10/15/03 - during Options Expiration Week in Oct. 2003. The big Averages ended down that day - and the next 2 days -- into Options Expiration day on 10/17/03 . Then came a bounce on Monday - after Options Expiration Friday-- then down for the rest of the week - to Friday, 10/24/03. Then came another bounce - from about sma50 -- back to UBB early November, 2003-- Then one more decline -- to Just before Thanksgiving Week, 2003. From Thanksgiving Week, 2003 to January 2004 was another Monster runup-- just as the Bears were all sure we had seen "The Final Top" in Oct / Nov. We were there. : ) I remember some urgent Sell signals came out that weekend before Thanksgiving Week in 2003. It was really sweet - to be among very few who got that one right : ) May we be so lucky again in 2009 : )
Wednesday, October 14, 2009
FROM OD
OptionDragonGuru | October 13, 2009 1:56 PM -->
Raymond James' chief investment strategist Jeffrey Saut is back with his weekly Investment Strategy. Last week, his piece 'Octobered?!' looked at returns during some of the market's historically worst months. This week's piece definitely caught our eye because Saut calls the passage below "two of the most important paragraphs I have ever encountered in more than 40 years studying markets."
Taken from Stock Profits Without Forecasting by Edgar S. Genstein, here are the two paragraphs he is referring to, started with the following quotation: "The absolute price of a stock is unimportant. It is the direction of price movement which counts.”
“During major sustained advances in stock prices, which usually occupy from five to seven years of each decade, the investor can complacently hold a list of stocks which are currently unpredictable. He doesn’t worry about the top because he knows he is never going to sell at the top. He knows that the chances are overwhelming in favor of the assumption that he will get far better prices by waiting until after the top is passed and a probable reversal in trend can be identified than he will ever get by attempting to anticipate the top, and get out on the nose. In my own experience the largest profits we have ever taken have come from stocks purchased while they were making a new high in a market which was also momentarily expecting the top.
As I have already pointed out the absolute price of a stock is unimportant. It is the direction of the price movement that counts. It is always probable, but never certain, that the direction of the price movement will continue. Soon after it reverses is time enough to sell. You should sell when you wish you had sold sooner, never when you think the top has arrived. That way you will never get the very best price – by hindsight your individual transactions will never look daring. But some of your profits will be large; and your losses should be quite small. That is all that is necessary for a satisfactory, enriching investment performance.”
Definitely food for thought and especially relevant given the massive rally we've seen from this year's March lows. Embedded below is Saut's market commentary for this week, "Direction Dictates": www.marketfolly.com i love this blog, you should have it sent to your email.
Friday, August 21, 2009
SUMMER TIME UPDATE
The shows a likelihood of a turn in the market is due shortly. Been waiting for a market pullback since we visited Viet and his family on Whidbey Island. I've sold most of my positions the past week. I plan to buy back once the pullback is finished. However, it has to begin first...and that's what I've been patiently doing. today is OPEX. We'll see what Monday brings.
Thursday, August 20, 2009
Monday, May 4, 2009
Thursday, April 30, 2009
1ST 100 DAYS
Here's a comment after last night's Obama's speech. Today marks this presidents 100th day....
Regarding the Fed’s statement of policy yesterday (which were pasted in yesterday’s Afternoon Note), David Rosenberg, an economist at Merrill Lynch (now part of Bank of America) published some interesting comments late in the day.
Mr. Market is to be respected, but he is not always correct
We find it rather difficult to square today’s Fed press statement with the amazing reversal in investor sentiment towards euphoria over the past several weeks. The equity market is, as we all know, a forward-looking barometer, and now seems to have gone further than merely pricing in “green shoots”, to discounting the righthand side of the ‘V’. Mr. Market is to be respected, but he is not always correct.
Fed has a more somber forecast than Mr. Market
The Federal Reserve does possess the largest US macroeconomic model on the planet, and although the central bank acknowledged the obvious today (that “the pace of contraction appears to be somewhat slower”, which was hardly a resounding endorsement for the second-derivative viewpoint, in our view), it seems to have a much more somber forecast of the economy (that “economic activity is likely to remain weak for a time”) compared to Mr. Market.
Disconnect between Fed & market’s ability to sustain rally. Although the “outlook has improved modestly since the March meeting”, the operative word is “modestly”. In addition, the “remain weak for a time” quote resonated with us even if the market has largely shrugged it off. The Fed certainly does not have a perfect forecasting track record , but let’s just say that there does appear to be a disconnect between the central bank’s choice of words to describe the economic backdrop and Mr. Market’s ability to sustain this vigorous rally.
Never in the past 60 years have prices dropped this much
As for Treasuries, the selloff continues unabated, and comes on a day when real GDP contracted at over a 6% annual rate with confirmation of a deflationary environment with the gross domestic purchase deflator (GDP deflator ex trade) declining at a 1% annual rate on top of a 3.9% annualized slide in the fourth quarter of 2008. In fact, at no time in the past 60 years have we seen domestic prices fall this much over a six-month span.
Fed views deflation as the primary risk
Perhaps the market was expecting that the Fed would announce more in terms of the size of its bond-buying program (which was not forthcoming) and viewed the press statement as a disappointment. But as we stated this morning, periods of deflation in the past were typically met with long-term yields in a 2-3% band with near consistency. The Fed may have tweaked how it portrayed the current climate in today’s statement, but what it did not change was its view that deflation remains a primary risk – “the Committee sees some risks that inflation could
persist for a time below rates that best foster economic growth and price stability in the longer term”.
Too much slack in the economy to worry about inflation
The fact that the Fed can state this view, knowing full well that it has dramatically expanded its balance sheet and the money supply, is a testament to the view that the central bank has been leaning against the winds of deflation rather than creating inflation. In our view, the latter will be practically impossible to do in an environment where the underlying unemployment rate is approaching 16% and capacity utilization rates are at all-time lows of 66%. There is simply too much slack in the economy, in our view, for us to be worried over the prospect of inflation or a sustained bear market in bonds.
Regarding the Fed’s statement of policy yesterday (which were pasted in yesterday’s Afternoon Note), David Rosenberg, an economist at Merrill Lynch (now part of Bank of America) published some interesting comments late in the day.
Mr. Market is to be respected, but he is not always correct
We find it rather difficult to square today’s Fed press statement with the amazing reversal in investor sentiment towards euphoria over the past several weeks. The equity market is, as we all know, a forward-looking barometer, and now seems to have gone further than merely pricing in “green shoots”, to discounting the righthand side of the ‘V’. Mr. Market is to be respected, but he is not always correct.
Fed has a more somber forecast than Mr. Market
The Federal Reserve does possess the largest US macroeconomic model on the planet, and although the central bank acknowledged the obvious today (that “the pace of contraction appears to be somewhat slower”, which was hardly a resounding endorsement for the second-derivative viewpoint, in our view), it seems to have a much more somber forecast of the economy (that “economic activity is likely to remain weak for a time”) compared to Mr. Market.
Disconnect between Fed & market’s ability to sustain rally. Although the “outlook has improved modestly since the March meeting”, the operative word is “modestly”. In addition, the “remain weak for a time” quote resonated with us even if the market has largely shrugged it off. The Fed certainly does not have a perfect forecasting track record , but let’s just say that there does appear to be a disconnect between the central bank’s choice of words to describe the economic backdrop and Mr. Market’s ability to sustain this vigorous rally.
Never in the past 60 years have prices dropped this much
As for Treasuries, the selloff continues unabated, and comes on a day when real GDP contracted at over a 6% annual rate with confirmation of a deflationary environment with the gross domestic purchase deflator (GDP deflator ex trade) declining at a 1% annual rate on top of a 3.9% annualized slide in the fourth quarter of 2008. In fact, at no time in the past 60 years have we seen domestic prices fall this much over a six-month span.
Fed views deflation as the primary risk
Perhaps the market was expecting that the Fed would announce more in terms of the size of its bond-buying program (which was not forthcoming) and viewed the press statement as a disappointment. But as we stated this morning, periods of deflation in the past were typically met with long-term yields in a 2-3% band with near consistency. The Fed may have tweaked how it portrayed the current climate in today’s statement, but what it did not change was its view that deflation remains a primary risk – “the Committee sees some risks that inflation could
persist for a time below rates that best foster economic growth and price stability in the longer term”.
Too much slack in the economy to worry about inflation
The fact that the Fed can state this view, knowing full well that it has dramatically expanded its balance sheet and the money supply, is a testament to the view that the central bank has been leaning against the winds of deflation rather than creating inflation. In our view, the latter will be practically impossible to do in an environment where the underlying unemployment rate is approaching 16% and capacity utilization rates are at all-time lows of 66%. There is simply too much slack in the economy, in our view, for us to be worried over the prospect of inflation or a sustained bear market in bonds.
Wednesday, February 25, 2009
Tuesday, February 10, 2009
BASIC ECONOMICS
You cannot legislate the poor into freedom by legislating the wealthy out of freedom. What one person receives without working for, another person must work for without receiving. The government cannot give to anybody anything that the government does not first take from somebody else. When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for, that my dear friend, is about the end of any nation. You cannot multiply wealth by dividing it. Dr. Adrian Rogers
Tuesday, February 3, 2009
Friday, January 2, 2009
PREDICTION 2009
Ok, so with that cheery backdrop, here you go with my predictions for 2009.... and I will prefix this by saying this is a list I hope proves to be entirely incorrect. Perhaps there really is a Unicorn that craps skittles even though I've yet to find it - this is one round of predictions I'm willing to take a zero score on come December 09.
The economy will not recover in 2009. Job loss will continue through the year and unemployment will reach 8% in the "headline" statistic by the end of the year. U-6 (broad unemployment, or the closest to "real" unemployment without government "cooking") will top 15%. All the "talking heads" are predicting a turnaround in the second half of 2009. They will be wrong. Look at their records for 2008 - all of them were predicting closes at or above 1500 for the S&P 500. Why does CNBC continue to put people on the air who, if you listened to them, cost you 40% or more of your money?
Deflation, not inflation, will become evident well beyond housing. Other capital goods beyond housing will see real price declines for the first time since the 1930s. Debt is inherently deflationary; the "hyperinflationists" will once again be shown to be wrong (how many years running will it be now?)
Housing prices will continue to decline. I believe we're about halfway done with the price correction. Those who think we will turn this in 2009 are wrong - unless we get an all-on collapse in prices in early 2009, which I do not believe will occur. I've heard several claims we will have positive year-over-year home price changes in 2009. I'll take the other side of that bet.
The Fed's attempt to "pump liquidity" will be shown to be an abject failure. We will see either a Treasury Market selloff or worse, severe instability in the dollar at some point in 2009.
GDP will post a 12-month negative number and there is a decent shot that we will actually see an official depression print before the end of 2009, defined as a 10% decline peak-to-trough.
The Stock Market has not bottomed although you may think it has for a few months. The annual range will be quite extreme; I would not be surprised at all to see 1,000 touched on the SPX in the first part of the year. I believe the SPX will at least touch 500 in the next 12-24 months and the current bottom will not hold. It is possible that we could see a crash to SPX 300 and DOW 3,000 some time this year, probably after the spring (when the "Obama Halo" wears off - if it isn't blown off by economic events first.) Yes, this means I am predicting a fifty percent swing in the SPX in 2009. Lots of money to be made as a trader if you're quick and good, but an absolute minefield if you're a long-term investor.
Precious metals will not be a safe haven. The callers for $1600 and above on gold will be wrong, unless there is a major military conflict. I do not rate that probability as particularly high, but it is an event (along with a major terrorism incident - nuclear or biochemical - that would cause a rocket shot in Gold prices), so I am hedging that call. The risk of this sort of "response" to the economic crisis is, however, real, and will rise significantly going into 2010 and beyond. We'll revisit this one (a major war) next year.
The Dollar will not collapse. This is not because we're in great shape or will truly recover, it is because the rest of the world is in worse shape than we are. Last year pundits were all calling for the dollar to collapse to 40 - it didn't happen. Now they're calling the dollar's strength a "Bear market rally." Nonsense; the simple truth is that while we're in bad shape the rest of the world is literally on the precipice of a full-on collapse. European banks are more-levered and less-transparent than our banks as just one example.
The pound or euro - and perhaps both - will likely be where the FX dislocation initiates if it occurs. I see the potential for the pound and euro to both reach par with the dollar, although I'm not going to go that far out on the tree limb and predict it - yet. Needless to say that would rocket the Dollar Index but it won't be our strength that does it - it will be their weakness.
The US Consumer will go from a negative savings rate to a seriously-positive one. I am predicting 4% in 2009 but it could go as high as 10%. The math on this is simple - the "consumerist legion of more" has run its course and all that's left is debt. It hurts and bad; expecting the American Consumer to cut off his other arm is just plain dumb. By the way this is a good thing in the longer term for America once the excess debt is forced out and defaulted through the system.
Commercial Real Estate will effectively collapse and most commercial Real Estate REITs will be either insolvent or limping on life support. There will be calls for bailouts (which may be attempted; the calls are already starting to be heard) but it won't matter - a failed business is a failed business, bailout or no, and overcapacity must go away before sustainable business conditions can return.
Along with the above, expect 10% of all retail stores to close, and that number could go as high as 20%. That's not going to be fun; there will be hundreds of malls that wind up literally shuttered across America. Stay away from most retailers and property groups as investments. Firms like SPG and VNO are levitating on the strength of their dividends (7-10% yields at present); I believe this is a sucker play; if retailer defaults force dividend cuts (and I believe they will) the commercial REITs will go straight into the toilet.
Several states will get in serious financial trouble and outright default of one or more is possible in 2009. California leads this parade. But even if there is a default on a state basis, the effect will be highly localized, as county and municipal governments vary in their wisdom and budget process. The real pain comes in state-wide social and educational programs. Be very careful if you are in municipal bonds or thinking of getting back into them (I recommended they be dumped in 2007 - look at what has happened to the closed-end funds in 08! Aieeee!) as the default risk is VERY REAL. If you're buying individual issues and do the work to determine not only the risk of default but also the likely recovery if they do default there are some good deals out there - but only if you're doing the work. "Trust me" (as in buying funds, whether mutual funds or closed-end stuff) is very dangerous.
Mortgages are not done. The story last year was "Subprime." This year's will be "ALT-A", "Option ARMs" and so-called "Prime". The Fed and Treasury know this, which is why they are playing games with "agency" debt in a desperate attempt to clear this market before the ticking nuclear devices go off. The amount of debt involved in these "bad deals" is vastly higher than that in the "subprime" space and if they fail to contain it (a near certainty) Round #2 of severe bank instability gets served up on us in the second half of 2009.
If you want to refinance a mortgage you may get one brief shot at it with long rates around 4%. You're nuts to buy outright unless you intend to die in the home, but if you have a solid reason to be obtaining a mortgage or wish to refinance you will probably get the opportunity. This assumes the "buydown game" gets going before Treasuries dislocate; if you get the opportunity take it as it is likely to be fleeting. The few places in this country where homes wind up selling for 2.5x incomes (on average) and you have an opportunity to finance at 4% and change will be decent buying opportunities - if you're sure you can cash flow the note (e.g. your job and/or income stream is not in any danger of collapsing.)
Those who have said that the corporate bond market is being "unreasonable" in its expectation for defaults will start to look like the jackasses they are. Actual default rates (not projections) on non-investment-grade debt will skyrocket starting in 2009 and there will be no sign of it turning around this year. If you're playing in this area of the market thinking that "the worst is behind us", I hope you like walking around bald as the haircuts handed out to folks like you will be especially severe and delivered with a straight razor.
The calls for "more lending" to consumers and businesses will go exactly nowhere. The problem isn't credit availability - there's plenty of money available to lend if you are credit-worthy. Those who are being turned down now simply aren't credit-worthy when one looks at what they want to do with the money and what they're backing their repayment capacity with. The more "credit stimulus" is thrown into the economy (and there will be more) the worse the downturn will get.
General Motors and Chrysler will fail to meet their targets and it will be labor that sinks the deal. At least one and probably both will wind up in some form of bankruptcy in 2009. The UAW is insane; Gettlefinger needs to be strung up by his genitals and pelted with rotten tomatoes by his union "brothers", and if they had a lick of sense they'd have already done it. They obviously don't. I give this mess six months tops, with Ford as the only possible survivor. The recent GMAC games show exactly how desperate they are; 0% 5 year loans to people with 620 FICO scores are flat-out insane and the default rates on those loans are going to wind up in economics textbooks five years hence.
Protectionism and currency manipulation will rear their ugly heads in 2009, originating not here but in Asia as their economies go straight into the toilet. China and Japan are at severe risk here.
Commodities will appear to be headed for a new bull market but this will turn out to be a false hope as demand continues to collapse. Attempts to manage oil output to prop up the price will fail. Several oil-producing nations will find themselves in serious economic trouble, with Russia being in the lead but by no means alone.
Sovereign debt defaults will number at least three with many other nations on "watch" for same; we had one last year (Iceland.) Noise about a US "AAA" downgrade will continue. Highest on the list for probables are Russia, which needs oil at roughly double its current price - and stable - to be financially viable. Not going to happen in the near term.
China will have its first large-scale rumbling of civil unrest as a consequence of collapsing export demand and thus employment. They'll manage to tamp it down - this year. Don't take a bet on that holding together longer-term. Those who think China will be "ok" are deluded; they have a horrifying overcapacity problem (debt-financed, of course) and there is no way for them to get out of it. They are truly going to "take it in both holes" down the road, but the worst of it won't be in 2009 - that is still a year or two in the future.
Foreign uptake of Treasuries will be choked off - by necessity. It won't be because they want to screw the US (although they should have a long time ago, given our profligate and unsustainable habits), it will be because they will be forced to redirect their resources inward as their own economies collapse.
"The City" (London to be precise, Britain generally) will be recognized as getting it "worse than we are" (in America.) This will be the first of many validations of my thesis "we're screwed, they're gang-raped."
Things will get "revolting" in a number of nations. Not here in America. Yet. If we're lucky the American Sheep will wake up and stage some of that peaceful protest stuff I outlined above. If we're not so fortunate 2010 could be really bad.
In terms of recommendations its simple - rallies are to be sold, cash is to be raised and prudence is to be practiced in your own personal financial affairs. Don't get creative in all things finance, get stingy and prudent. Your personal financial survival could well depend on it.
The economy will not recover in 2009. Job loss will continue through the year and unemployment will reach 8% in the "headline" statistic by the end of the year. U-6 (broad unemployment, or the closest to "real" unemployment without government "cooking") will top 15%. All the "talking heads" are predicting a turnaround in the second half of 2009. They will be wrong. Look at their records for 2008 - all of them were predicting closes at or above 1500 for the S&P 500. Why does CNBC continue to put people on the air who, if you listened to them, cost you 40% or more of your money?
Deflation, not inflation, will become evident well beyond housing. Other capital goods beyond housing will see real price declines for the first time since the 1930s. Debt is inherently deflationary; the "hyperinflationists" will once again be shown to be wrong (how many years running will it be now?)
Housing prices will continue to decline. I believe we're about halfway done with the price correction. Those who think we will turn this in 2009 are wrong - unless we get an all-on collapse in prices in early 2009, which I do not believe will occur. I've heard several claims we will have positive year-over-year home price changes in 2009. I'll take the other side of that bet.
The Fed's attempt to "pump liquidity" will be shown to be an abject failure. We will see either a Treasury Market selloff or worse, severe instability in the dollar at some point in 2009.
GDP will post a 12-month negative number and there is a decent shot that we will actually see an official depression print before the end of 2009, defined as a 10% decline peak-to-trough.
The Stock Market has not bottomed although you may think it has for a few months. The annual range will be quite extreme; I would not be surprised at all to see 1,000 touched on the SPX in the first part of the year. I believe the SPX will at least touch 500 in the next 12-24 months and the current bottom will not hold. It is possible that we could see a crash to SPX 300 and DOW 3,000 some time this year, probably after the spring (when the "Obama Halo" wears off - if it isn't blown off by economic events first.) Yes, this means I am predicting a fifty percent swing in the SPX in 2009. Lots of money to be made as a trader if you're quick and good, but an absolute minefield if you're a long-term investor.
Precious metals will not be a safe haven. The callers for $1600 and above on gold will be wrong, unless there is a major military conflict. I do not rate that probability as particularly high, but it is an event (along with a major terrorism incident - nuclear or biochemical - that would cause a rocket shot in Gold prices), so I am hedging that call. The risk of this sort of "response" to the economic crisis is, however, real, and will rise significantly going into 2010 and beyond. We'll revisit this one (a major war) next year.
The Dollar will not collapse. This is not because we're in great shape or will truly recover, it is because the rest of the world is in worse shape than we are. Last year pundits were all calling for the dollar to collapse to 40 - it didn't happen. Now they're calling the dollar's strength a "Bear market rally." Nonsense; the simple truth is that while we're in bad shape the rest of the world is literally on the precipice of a full-on collapse. European banks are more-levered and less-transparent than our banks as just one example.
The pound or euro - and perhaps both - will likely be where the FX dislocation initiates if it occurs. I see the potential for the pound and euro to both reach par with the dollar, although I'm not going to go that far out on the tree limb and predict it - yet. Needless to say that would rocket the Dollar Index but it won't be our strength that does it - it will be their weakness.
The US Consumer will go from a negative savings rate to a seriously-positive one. I am predicting 4% in 2009 but it could go as high as 10%. The math on this is simple - the "consumerist legion of more" has run its course and all that's left is debt. It hurts and bad; expecting the American Consumer to cut off his other arm is just plain dumb. By the way this is a good thing in the longer term for America once the excess debt is forced out and defaulted through the system.
Commercial Real Estate will effectively collapse and most commercial Real Estate REITs will be either insolvent or limping on life support. There will be calls for bailouts (which may be attempted; the calls are already starting to be heard) but it won't matter - a failed business is a failed business, bailout or no, and overcapacity must go away before sustainable business conditions can return.
Along with the above, expect 10% of all retail stores to close, and that number could go as high as 20%. That's not going to be fun; there will be hundreds of malls that wind up literally shuttered across America. Stay away from most retailers and property groups as investments. Firms like SPG and VNO are levitating on the strength of their dividends (7-10% yields at present); I believe this is a sucker play; if retailer defaults force dividend cuts (and I believe they will) the commercial REITs will go straight into the toilet.
Several states will get in serious financial trouble and outright default of one or more is possible in 2009. California leads this parade. But even if there is a default on a state basis, the effect will be highly localized, as county and municipal governments vary in their wisdom and budget process. The real pain comes in state-wide social and educational programs. Be very careful if you are in municipal bonds or thinking of getting back into them (I recommended they be dumped in 2007 - look at what has happened to the closed-end funds in 08! Aieeee!) as the default risk is VERY REAL. If you're buying individual issues and do the work to determine not only the risk of default but also the likely recovery if they do default there are some good deals out there - but only if you're doing the work. "Trust me" (as in buying funds, whether mutual funds or closed-end stuff) is very dangerous.
Mortgages are not done. The story last year was "Subprime." This year's will be "ALT-A", "Option ARMs" and so-called "Prime". The Fed and Treasury know this, which is why they are playing games with "agency" debt in a desperate attempt to clear this market before the ticking nuclear devices go off. The amount of debt involved in these "bad deals" is vastly higher than that in the "subprime" space and if they fail to contain it (a near certainty) Round #2 of severe bank instability gets served up on us in the second half of 2009.
If you want to refinance a mortgage you may get one brief shot at it with long rates around 4%. You're nuts to buy outright unless you intend to die in the home, but if you have a solid reason to be obtaining a mortgage or wish to refinance you will probably get the opportunity. This assumes the "buydown game" gets going before Treasuries dislocate; if you get the opportunity take it as it is likely to be fleeting. The few places in this country where homes wind up selling for 2.5x incomes (on average) and you have an opportunity to finance at 4% and change will be decent buying opportunities - if you're sure you can cash flow the note (e.g. your job and/or income stream is not in any danger of collapsing.)
Those who have said that the corporate bond market is being "unreasonable" in its expectation for defaults will start to look like the jackasses they are. Actual default rates (not projections) on non-investment-grade debt will skyrocket starting in 2009 and there will be no sign of it turning around this year. If you're playing in this area of the market thinking that "the worst is behind us", I hope you like walking around bald as the haircuts handed out to folks like you will be especially severe and delivered with a straight razor.
The calls for "more lending" to consumers and businesses will go exactly nowhere. The problem isn't credit availability - there's plenty of money available to lend if you are credit-worthy. Those who are being turned down now simply aren't credit-worthy when one looks at what they want to do with the money and what they're backing their repayment capacity with. The more "credit stimulus" is thrown into the economy (and there will be more) the worse the downturn will get.
General Motors and Chrysler will fail to meet their targets and it will be labor that sinks the deal. At least one and probably both will wind up in some form of bankruptcy in 2009. The UAW is insane; Gettlefinger needs to be strung up by his genitals and pelted with rotten tomatoes by his union "brothers", and if they had a lick of sense they'd have already done it. They obviously don't. I give this mess six months tops, with Ford as the only possible survivor. The recent GMAC games show exactly how desperate they are; 0% 5 year loans to people with 620 FICO scores are flat-out insane and the default rates on those loans are going to wind up in economics textbooks five years hence.
Protectionism and currency manipulation will rear their ugly heads in 2009, originating not here but in Asia as their economies go straight into the toilet. China and Japan are at severe risk here.
Commodities will appear to be headed for a new bull market but this will turn out to be a false hope as demand continues to collapse. Attempts to manage oil output to prop up the price will fail. Several oil-producing nations will find themselves in serious economic trouble, with Russia being in the lead but by no means alone.
Sovereign debt defaults will number at least three with many other nations on "watch" for same; we had one last year (Iceland.) Noise about a US "AAA" downgrade will continue. Highest on the list for probables are Russia, which needs oil at roughly double its current price - and stable - to be financially viable. Not going to happen in the near term.
China will have its first large-scale rumbling of civil unrest as a consequence of collapsing export demand and thus employment. They'll manage to tamp it down - this year. Don't take a bet on that holding together longer-term. Those who think China will be "ok" are deluded; they have a horrifying overcapacity problem (debt-financed, of course) and there is no way for them to get out of it. They are truly going to "take it in both holes" down the road, but the worst of it won't be in 2009 - that is still a year or two in the future.
Foreign uptake of Treasuries will be choked off - by necessity. It won't be because they want to screw the US (although they should have a long time ago, given our profligate and unsustainable habits), it will be because they will be forced to redirect their resources inward as their own economies collapse.
"The City" (London to be precise, Britain generally) will be recognized as getting it "worse than we are" (in America.) This will be the first of many validations of my thesis "we're screwed, they're gang-raped."
Things will get "revolting" in a number of nations. Not here in America. Yet. If we're lucky the American Sheep will wake up and stage some of that peaceful protest stuff I outlined above. If we're not so fortunate 2010 could be really bad.
In terms of recommendations its simple - rallies are to be sold, cash is to be raised and prudence is to be practiced in your own personal financial affairs. Don't get creative in all things finance, get stingy and prudent. Your personal financial survival could well depend on it.
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