Year end look forward for 2009

COMMENTARY

Holiday Greetings To All,

2008 is winding down and we will soon be starting 2009. Looks like a another bump in the road for the World Economy. However, there is opportunity for some of us, if we realize it won't be business as usual, rather, it will be a new deck and a new deal.

Projected Highlights to come for 2009

• Deflation: Phase Two hits with high unemployment (Looking for 10% plus by year end) and accelerated bankruptcies across the board while the CRB Cash Index continues to grind lower with a few keep-em-honest mini rallies through out 2009.

• Run Away Inflation: Sorry, Fed and World Central Banks will not be able to pull that one off to get everyone off the debt hook. Look at the velocity of money in circulation (or guess at it). All the de-leveraging taking place at the Consumer, Business, Money Center Banks, and Governmental levels are crushing the International Stimulus Package efforts, at least near term.

• Dollar begins to Strengthen: by 2Q as other countries an economies continue to wind down and catch up with the US slow down. Another words, dollar strengthens by default not necessarily by improving fundamentals.

• Gold: stays under 2008 highs (Previous highs were slightly over $1,000) and look for large cracks in prices developing in the numismatic coin market.

• Residential Real Estate: continues to slide down, no near term bottom in sight for 2009.
  
• Commercial Real Estate: Joins the party in a big way as businesses and leases fail leaving huge empty spaces. At first it will look like teeth are missing from a beautiful smile. Construction on some buildings will stop mid way as the excess capacity is drained from the system. Bids for the Commercial Bond paper will become scarce at any price.
  

• National Health Care: Comes to America not by choice but out of desperation. Look for a single payer National Health Care Program begin to emerge in 2009. Crushing business and individual costs along with rising uninsured numbers that are now above 40 mm plus will force the issue.

• Worker Collective Bargaining: will re-emerge again as workers desperately try to hang on to their jobs and not get run over by business interests. This will be a long and painful process for everyone.

• Tariffs: or defacto job protecting legislation (This could also take place through the creation of special business sector incentives) will begin to emerge with consequence regarding international trade. Look for trading partners to be doing similar actions.

• Civil Unrest: in the cities will flare up. The downturn will occur as an over leveraged citizenry becomes ugly as built in safety nets are unable to hold the numbers. Possible use of regular Army may be seen to assist crowd control efforts by using the cover of a military exercise or tagging it a monitoring and assist event for Homeland Security purposes.
  

• Legacy Leadership: will begin to disappear in both business and government. It will be done quietly but in the next couple of years all new faces will be up front.

• Nationalization of the Federal Reserve: I know, hard to believe. But it happen before in the 1940's and I believe it will happen again (Structural change which will divest the private interests and reconnect to the Public Sector under the Department of Treasury.) Their is precedent, and the while Ben and Greenie (Greenspan) should get an A for effort they clearly failed us in application - F. (This is my wild card call looking to happen in the next couple years as the economies slow recovery start to choke on huge public debt.)

• Govt Bankruptcies (light): at the Local, State, Federal and International levels. Look for the emergence of payment default holiday's to become more common as a useful tool to try and keep decaying infrastructure going.

• Business Bankruptcies: Consolidation will continue to occur as many business both large and small will slip under the water and disappear. High unemployment, falling real wages, and eroding family net worth (from declining Property and Retirement Programs) will continue to conspire to disrupt consumer purchasing power.

• Equity Markets World Wide: continue to grind down with a few brief rallies through out the year. Be careful in 2009 you don't get suck into a decaying market prematurely.

FYI - Some stocks took over 20 years to reach old 1929 prices while many never made it at all.

• Strategy: The old two step might be needed - - regarding the preservation of your principle which should be your main focus during a major world wide deflationary period. I am completing that strategy as we speak and will share the results with any who may be interested.

That's all from your Main Street Sidewalk economist for 2008. Your comments are welcome. I hope I am way off on this one versus what my cyclical charts seem to be indicating.

Happy, Healthy, and Safe Holiday Season,

James Monachino