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

Banks Show No Signs of Easing in Step With Fed’s Cuts

Banks Show No Signs of Easing in Step With Fed’s Cuts
Dec. 17 (Bloomberg) --By Liz Capo McCormick and Gavin Finch


HIGHLIGHTS

• Federal Reserve and Treasury: Credit Markets show no signs of ending the 18-month freeze, as evidenced by the unprecedented gap between what banks and the U.S. government pay to borrow money.
• TED SPREAD: Libor, that banks charge each other for three-month loans and Treasury bill rates is six times wider than before markets began to seize up in June 2007. Even though the so-called TED spread narrowed to 1.55 percentage points from 4.64 percentage points in October.
• Consumer Credit: fell $6.4 billion in August and $3.5 billion in October, making 2008 the first year with at least two declines since 1992, according to Fed data. August’s decline was the biggest in at least 65 years.
• Bond Sales: by companies rated below investment-grade fell 57 percent to $63.3 billion this year from 2007, according to data compiled by Bloomberg. The extra yield investors demand to own the debt instead of Treasuries rose to a record 21.4 percentage points yesterday from 1.32 percent 18 months ago.
• Personal Bankruptcies: rose 34 percent in the third quarter from the same period of 2007, according to the American Bankruptcy Institute in Alexandria, Virginia. Moody’s Investors Service predicted in November that corporate defaults in the U.S. will surge threefold to 11.4 percent in the next 12 months.
• 85 % of Domestic Banks: tightened lending standards on commercial and industrial loans to large and mid- size firms, the highest since the survey began in its current format in 1991, the Fed said in its latest quarterly Senior Loan Officer Survey conducted between Oct. 2 and Oct. 16.
• Finally: “There isn’t a community banker in America who doesn’t want to make good loans,” said James Mckillop, chief executive officer of the Independent Bankers’ Bank of Lake Mary, Florida, which provides loans to 350 community banks in Florida and Georgia. “But finding loans that they feel are going to be good is becoming more and more difficult.”

COMMENTS:

Federal Reserve cuts rates and the nightmare continues. It will be a number of years before we complete all the outstanding commitments that were made during more prosperous circumstances.

James Monachino

U.S. Economy: Employers Eliminate 533,000 Jobs, Most Since 1974

U.S. Economy: Employers Eliminate 533,000 Jobs, Most Since 1974 By Bob Willis and Rich Miller Dec. 5 (Bloomberg) --

HIGHLIGHTS

• Companies Slashed Payrolls: last month at the fastest pace in 34 years as the economy headed for its deepest and longest recession since World War II.
• Employers cut 533,000 Jobs: Unemployment rate rose to 6.7 percent, the highest level since 1993 with losses so far this year totally 1.91 million jobs.
• Nariman Behravesh: Chief Economist at IHS Global Insight, “It’s unbelievable,” he went on to say, “We’re well on our way to the worst recession of the postwar period.”
• Revisions for September and October: increased job losses by 199,000. The October figure was revised to 320,000 from the previous estimate of 240,000. November was the 11th consecutive drop in payrolls.
• Mark Zandi: Chief Economist at Moody's Economy.com,“Almost all businesses are in survival mode,” “Policy makers from the Federal Reserve to Congress and the new administration are going to have to be very aggressive.”

COMMENTS

Testing the Markets: Is it time to put your toe in the water? Great bargains everywhere. What's a Fat Cat to do? I see a toe lightly feathering a vat of acid. If you don't need ten toes dip in.

Global Disorder will find a New Paradigm:

* New Tax Structures - look for it coming to a country or continent near you.
* New Oversight - rules that will impact the way you do business.
* New Regulations- that will hopefully dampen the rip and tear capitalism that helped create our current global market decay.

* World Wide Tariffs - Look for the revival of tariffs or defacto tariffs that will begin to appear around the globe as job creation becomes number one.
* Oil Revenues Decline - look for world wide terrorist traffic to slow significantly. These campaigns our expensive and don't run on credit.

* Federal Reserve - Sorry Ben, looks like an A for effort and an F for application. The world economies are melting and the Fed's lack of critical oversight is in the middle of it.
* Nationalize the Federal Reserve: Time to make a change in personnel and structure. Reconnect our monetary system to the taxpayers not private international banking interests.

* Bailout Money: focus on rebuilding the real economy (middle class worker). This is hard pain staking work but will start to change the current downward momentum.
* National Health Care: Massive unemployment, crushing corporate health & retirement burdens, and rising premiums that are forcing the rolls to swell well beyond the 40mm number of uninsured USA citizens that swamp our emergency rooms and hospital balance sheets. This will force the creation of a national single payer health care program.

* Leadership: In a capitalistic environment you are not rewarded for failure. Look for legacy leadership to be cycled out in both Business and National Politics. It will be subtle but wide reaching by the end of Obama's four years term.

Conclusion
Folks, we are all on the merry go round and some of us can't get off while others are being thrown off into brick walls. The good news is we have the ability to rebuild a more effective economic and political order. Maybe not by choice but desperation. Fasten your seat belts, refocus your thinking to a forward mode, opportunity an action awaits the astute and patient individuals.


James Monachino