Economic Predictions for 2009

BenjAii

As it's that time of year, I thought it would be interesting to do a bit
of (entirely unscientific) crystal ball gazing and throw out a few economic
predictions for the year ahead.

It's safe to say not many people at this point last year could have guessed
what lay ahead in 2008, but still.

It will be interesting to look at this thread come Dec 2009 ......


1. Things will get a lot worse, before they get any better.
2009 will see the effects of the financial crisis really kick
in as a massive spike in unemployment becomes part of daily life.
Social unrest and demonstrations likely in states most severely affected.
Some Sovereigns plunged into Iceland type crises as markets refuse
their debt refinancings.

2. Asset prices to continue to decline, floor not reached in 2009.

3. More massive bank write offs, banks lending still severely curtailed.

4. Further taxpayer support needed for banking and other sectors of the
economy. Difficult decisions for governments to decide which businesses
to let live and which to let die.


5. Feeling becomes widespread in society that financial deregulation
has been a mistake, calls for future direction of finance industry
to include much tighter oversight & due diligence.

6. Growing calls for political change. Hard to say what form this will take
but as we are living through the most momentous economic events of our lifetimes, hard to believe it won't happen.

silverharp

cant argue with any of the point made by OP

1) General rebound in the markets until Mar/Apr , then new lows later in the year in major indexes

2) breakdown in the bond market , interest rates rise

3) Pushing on a string continues , Central bank policies fail only to be replaced with more outlandish actions


for the history buffs, lets hope history repeats ;-)

The Anglo-Saxon Chronicles record
"1125 A.D. In this year before Christmas King Henry sent from Normandy to England and gave instructions that all moneyers ... be deprived of their members ... Bishop Roger of Salisbury commanded them all to assemble at Winchester by Christmas. When they came hither they were then taken one by one, and each deprived of the right hand and the testicles below. All this was done in twelve days between Christmas and Epiphany, and was entirely justified because they had ruined the whole country by the magnitude of their fraud which they paid for in full." - The Laud Chronicle (E)

Fortunately, history indicates that the public will eventually figure out that no matter how beguiling the claims about currency management and taxation are, the gambit has been mainly to confiscate private savings. They will then demand the return of sound money and accountable government.

Économiste Monétaire

Sure, why not. Off the top of my head...

Unemployment probably surpassing the extra 120,000 predicted by the ESRI.

Banks unwilling to lend because they don't have sufficient capital to assets the markets are demanding. Greater number of builders going bankrupt. Credit tightening further than now.

Recession getting deeper in France and Germany. British interest rates being around 0.5 by the end of Q1. ECB dropping rates to around (or below) 1% by mid-to-end of Q2. Deflation really taking hold in Ireland by the middle of Q2. Deflation occurring the U.S. by end of Q1.

A bandwagon of protectionism, or calls for protectionism coming from "the people."

Irish house prices falling a further 20% in real values.

People proclaiming that "laissez-faire economics is dead," even though it's never even been in place...

Social cracks coming through in China.

And I agree with the points above about capital markets requiring more and more yield for sovereign debt

(All above points are wild guesses :pac:)

silverharp

Saxo bank put this out every year , however it seems outrageous as a term has been devalued recently

10 Outrageous Claims 2009Saxo Bank Strategy and Research

True to Saxo Bank’s now annual tradition, we in Strategy and Research are delighted to present our “10 Outrageous Claims” for 2009.

The primary reason for doing this “Black Swan” exercise every year is to counter-balance human psychology, which is usually skewed towards optimism. We tend to be somewhat more pessimistic in our Yearly Outlook than the average analyst in the market, and believe that it is important for the investor to always factor in the less likely scenarios (as perceived by the market). Please keep in mind that this is more of a thought exercise than a set of outright predictions – we do not consider the chances are better than 50-50 for all of these claims.

Chief Investment Officer, Steen Jakobsen (sj@saxobank.com)
Chief Economist, David Karsboel (dka@saxobank.com)
Chief Equity Strategist, Christian Tegllund Blaabjerg (ctb@saxobank.com)
Chief FX Strategist, John Judson Hardy (jjh@saxobank.com)


Iranian Revolution

The Iranian economy is already under pressure. However, the single most important export good is oil, and since we expect oil to trade as low as $40 or even $35, the purchasing power of Iranian society in USD will diminish. The government will come under severe pressure as they will not be able to uphold the supply of basic necessities. There are limits as to how much the Iranian population will stand for. These limits are flexible in a well functioning economy, but with energy prices declining rapidly, social unrest and dissatisfaction are guaranteed.

Crude @ 25 USD

Crude will trade lower during 2009 as demand slows due to the worst, global economic contraction since the Great Depression. We will see production cuts by OPEC but, due to disagreement within OPEC, the cuts will not be as substantial as those required to stop crude falling from the current levels. Furthermore, oil producing and less mature countries that have grown dependent on oil revenues in order to please their populations, will desperately break any concerted efforts to keep oil prices high.

S&P500 in 500

S&P500 will hit 500 in 2009. The primary reason for this will be falling earnings, rather than falling P/E ratios (since the low interest rates justify relatively high P/Es). There are several reasons why earnings will continue to drop:

Consumers will no longer be able to extent their credit from banks, since the banks are writing off losses and need to lower their balances
Cost of funds have also increased in the corporate sector – and especially for debt-financed consumption
Total housing equity is vaporising and will no longer be able to serve as collateral for loans
Companies will curb their investing programs, which will hurt B2B business models.
Italy will make good on threats to leave the ERM

Italy has a long-running affection for devaluations, something which is not possible within the single-currency cooperation of the ERM. Government finances are under immense pressure and the ERM requirements will not only be violated, but they will be completely ignored in 2009. EU is likely to crack down on excessive government budget deficits in several member states, but Italy could make good on previous threats to leave the ERM completely.

AUDJPY to 40

The Australian economy is heavily influenced by the commodity market and a large part of the country’s economic expansion in the past year has been driven by the commodity boom. We believe the whole commodity complex will be left dead in the water for the next ten years due to real demand destruction caused by the high prices over the past five years. At the same time, we are bullish JPY with the big, Japanese Current Account Deficit and overwhelming domestic savings.

EURUSD to 0.95 – and then to 1.30

The potential problems in the Eurozone are simply not getting the attention they deserve. European bank balances are under tremendous pressure due to the outsized exposure to Eastern Europe – a region that will increasingly falter during 2009. At the same time intra-European economic tensions are increasing as witnessed by the government bond spreads vs. Bunds. Additionally, the USD is the primary medium of exchange in money markets, which ensures that as long as they stay tight, USD demand will be high. That said, the USD isn’t a sound currency and the obvious problems in the Eurozone are all priced in very quickly. Thus, a move to 0.95 will be undershooting the fundamental case, meaning a return to 1.30.

Chinese GDP growth to 0%

This is as close to recession that China will get in 2009. The export-driven sectors in the Chinese economy will be hurt significantly by the free-fall economic activity in the US. Furthermore, many of the commodity-based investments that have been undertaken over the past five years will sour with the collapsing commodity prices. Since the Chinese economy has been stimulated by overly expansive monetary policy for years, more of the thereby induced speculative excesses will also be revealed in 2009.

Pre-Ins First Out

We believe that several of the Eastern European currencies currently pegged or semi-pegged to the EUR will be under increasing pressure due to capital outflows in 2009. Several of these countries already have extremely large Current Account Deficits and their required refinancing will make them vulnerable to additional credit market disruptions. This especially goes for the Baltic currencies.

Reuters/Jefferies CRB Index to drop 30% (to 150)

Commodities might have been an even bigger bubble over the past years than equities (but not credit derivatives). We believe the speculative excesses have been so large they have even skewed the demand and supply statistics. We even doubt the consensus belief that demand has been outstripping supply for years is true. Hidden stockpiles of, especially, industrial metals will be unloaded during 2009 and that will press prices even lower.

First Asian currency to be pegged to CNY

China’s economic, political and cultural influence is growing and a return from Phony Economics to Old School economics will lead everyone to focus on the important issues. In other words: Who has the productive potential? Who holds the debt? Who has growth and savings? Most of the answers will favour China, and the Asian economies will increasingly look towards China to find new trade partners and to scale down on the hitherto US-centric agenda.

AlekSmart

The day-to-day running of the country to be sub contracted to the Dublin Docklands Development Authority on the basis that they appear to be on the periphery of almost every financial shin-dig going.....certainly far more knowledge than anybody in Dept of Finance itself...

Gekko

I predict that it won't be long til the country is bankrupt

gurramok

To add to what E.M said, a prediction of the IMF being called in to help Ireland some stage in '09 as Ireland Inc will become bankrupt but i'd wager my bets for 2010 instead for that to happen but you never know what Santa brings

Domestically, if unemployment does surge(i'd predict 12% by year end at least), expect some social unrest Greek style as we don't have that emigration safety valve of past years plus there are more young people around than in any time of the state and it'll take a minor fuse to light some of that into anger.

The same above for all over the EU as people find less money in their pockets, become dissillusioned with politics and perhaps rebel, that last part maybe far-fetched

Surprised, no-one mentioned Obama. Expect protectionism in the US to protect it from globalisation, that will hit the EU and the MNC's based here.

silverharp

just in case you thought the previous predictions were too optoimistic:D

Our 2009 Predictions
Roger Wiegand
Dec 22, 2008

"We think we now have enough data from both the fundamentals and technicals to make some serious forecasts and predictions for 2009. While 2008 was a nasty year when lots of things imploded, they are far from being repaired. Treasury Secretary Paulson told us this week there are no more surprises, which tells me we haven't even discovered but a small portion of this monster derivative mess. His ripping-off of the taxpayers to the tune of $700 billion is only a warm-up. However, the larger question for traders and investors is what could happen next and when.

In the following report we take the key global economic points and suggest the outcome for 2009."
-Traderrog

The most important news for 2008 was the destruction of the big global banks' net worth and their badly wounded ability to conduct normal business and make market-moving loans. Ben & Hank's bailout only helped the bad-boy banks reliquify themselves to remain somewhat solvent and stay in business. They are doing nothing to extend credit to any business enhancing western or global economies. The 2009 result will be no significant banker lending, taking more bailout money and sweeping additional bad loans of all stripes under the banker's rug and hiding the rest in back rooms.

The largest surprise in our view was the massive disaster at insurance giant AIG. Despite numerous injections of bailout billions, AIG remains in very serious trouble hanging on by their proverbial fingernails. The 2009 result will be a surprise crash and failure of AIG frightening the world at large causing ripples of failures throughout western and Asian nations unable to conduct business without mandatory insurance policies. Most folks have no comprehension as to the monster fallout this will create. It is in our view literally immeasurable, and this is why Paulson handed them so much money.

Our new president is determined to hand out $860 Billion to One Trillion dollars in a Herculean effort to literally buy a new economic recovery. While some of his ideas are noble indeed the overall plan
will have little effect and Great Depression II shall take hold in 2009 with crashing stock markets in May and September-October 2009. We think the worst of the worst hits in later September 2009.

During the spring of next year we see:

(1) A second larger wave of residential housing mortgage failures; (2) The first big wave of auto loan failures and repossessions; (3) Over $40 billion in credit card defaults, smashing the bank lenders; (4) The first wave of commercial mortgage failures and foreclosures on shopping malls, office buildings and other commercials; (5) And finally, the grand smashing finale of CDS Credit Default Swaps originated with No margin money or down payments! We heard today the total is 500 trillion! I cannot even fathom that number. These five converging train wrecks could take the Dow from a dead cat bounce of 10400-10800 back to 7250, or even 6600, or 5600.

Shares traders and investors have one more solid quarter, in our view to regain some stock market losses on the forthcoming Obama Trillion Dollar handouts. We think the rising share markets will help most all sectors gain some recovery and provide the illusion the bottoms are in and new bases found. The stark reality hits home after shares peak in April or early May taking an unprecedented selling high dive scaring the wits out of Americans and the watching world.

Even with these events and rising unemployment and social problems, economic observers and analysts could continue to plead the worst is over, the bottoms are in and a fine, new, shiny world of trading and investing in our bright economy lies just ahead for the fall of 2009. Then, in later September and early October, the New York, London, Tokyo and Asian markets take a monster crash. How low is low and how bad can it get? We think the Dow could end-up on November 1st, 2009 anywhere from 5,600 to a low of 3,000 or even 1,500. One guideline will be a falling overshoot of PE's on our largest, so-called international corporations posting lows of 4 to7. Today, many of them are near 18. What does this tell us about the severity of our projections?

Unemployment nationally in the USA is now touching 16%. The officially posted number is somewhere near half of that. By the fall of 2009, American REAL UNEMPLOYMENT WILL BE NEAR THE ALLTIME 1930'S DEPRESSION HIGH OF 25% UNEMPLOYED. SADLY, THAT IS NOT THE WORST AS IT GETS MORE DIRE. WE PREDICT REAL, USA UNEMPLOYMENT REACHES 30-40%. IN THE RUST BELT STATES OF MICHIGAN AND OHIO, WHILE 40% IS NOT UNREALISTIC.

Several European nations have larger, more established social safety nets for the unemployed. In the USA, local, regional and national authorities are not nearly as prepared. The American federal government departments for food stamps and the job of providing welfare provisions will be overwhelmed. This will be a Katrina event for the hungry citizens of the United States. Urban areas will see skyrocketing crime and in parts of some cities, life could become totally uninhabitable.

The last report we've seen on those receiving food handouts and related welfare amounted to 11 million USA citizens with 700,000 children going hungry each day. We suspect the true amount of those needing food help will rise to 35,000,000 with an untold tragic number of them being little, defenseless children. Governments remain in denial and are not prepared for this national emergency whatsoever. As things worsen, food riots and others with violence aimed at the "haves' are common.

The number of bank failures over the next three years will be in the thousands. In addition, the US Dollar's valuation could break recent lows near 70.00 on the index, dropping to 46.00 by 2011 or 2012.
Inflation or potentially hyperinflation is quite real as the Federal Reserve and US Treasury strain to print and circulate cash to prod our stalled economy. It is simply not working even with the dramatically lower interest rates of late. Benny Bernanke is out of rate cut running room.

Consumers are broke and going broker. Households of interrelated families are doubling and tripling up even with several employed members being under one roof. Basic costs of rent, mortgage payments, health care, food, utilities and taxes are too much to bear on stagnant and in some cases falling wages. In some areas of America, there are entire subdivisions of homes totally abandoned or existing with only a hand full of occupants. The millions thrown at lenders for new mortgages are not getting through to buyers, as there are fewer of them. We are witnessing system breakdown.

Municipalities and states are sinking into a spending, debt-ridden morass. It was reported today that 22 of 50 USA states are in serious budgetary trouble. California is one of those in terrible condition and Michigan is already technically broke as are many of her cities. Detroit will file bankruptcy in 2009 and there will many other surprises as well. There will be a cascade of bond defaults and the outcome will cap the ability of these cities, states and counties to borrow ever more.

nyarlothothep

That is apocalyptically bleak. Will any nations be insulated from the direst effects, for example Brazil?

todolist

This may not be relevant but I can't help thinking back to 1999 and all the talk of doom and gloom about the change to YK2000.Apocalyptic things that were going to happen.I heard many eminent professors on various radio shows talk of doom and gloom that turned out to be pure nonsense.

nyarlothothep

todolist wrote: »

This may not be relevant but I can't help thinking back to 1999 and all the talk of doom and gloom about the change to YK2000.Apocalyptic things that were going to happen.I heard many eminent professors on various radio shows talk of doom and gloom that turned out to be pure nonsense.

I hope you're right, but it was a completely different situation, we're already in a seriously bad situation which has an ill wind blowing behind it to make it all the more worse.

1huge1

todolist wrote: »

This may not be relevant but I can't help thinking back to 1999 and all the talk of doom and gloom about the change to YK2000.Apocalyptic things that were going to happen.I heard many eminent professors on various radio shows talk of doom and gloom that turned out to be pure nonsense.

I've heard a few people say that aswel but I don't buy it, things have gotten unbelievable bad at a very fast rate, whats happening now is not just going to blow over though I very much doubt and hope it will get as bad as this Roger Wiegand predicts.

SimpleSam06

I think what hes going for there is a worst case scenario, I find it hard to contemplate how much worse it could possibly get than what he outlines (famous last words ). I'd like to say that he's wrong, but then again, the speed and scale of the devastation wrought so far took me completely aback - I knew it would be bad, but not this bad. For my part, I've monetised as many assets as possible, streamlined operations, sold in-house projects, and built up cash reserves, without yet having to fire anyone. So prepare for the worst and hope for the best, really.

silverharp

SimpleSam06 wrote: »

I'd like to say that he's wrong, but then again, the speed and scale of the devastation wrought so far took me completely aback - I knew it would be bad, but not this bad. For my part, I've monetised as many assets as possible, streamlined operations, sold in-house projects, and built up cash reserves, without yet having to fire anyone. So prepare for the worst and hope for the best, really.

Back in 04 I started to get nervous about how sustainable things were. I'd managed to pay off our mortgage and wouldnt have touched property as an investment, I started investing in commodities as a hedge but by 08 it looked like they were topping out and the debt situation had gone nuts in the meantime so went to cash.
You are doing the right thing, anyone that is not paying off debt now deserves to have their heads handed to them on a plate. I heard an almost comical example yesterday where my uncle (an insurance broker) was quizzing a couple why they hadnt tried to cut down their living expenses, in particular they had 2 SUV's and my uncle was suggesting that they trade down to 2 Skoda estates, anyhoo their response of the wife was "they couldnt live with the shame!" good luck with that view when the repo man comes.
I have to say that although I was hedging against this as best as I can, I am truely in awe with what is happening. All anyone can say is that 09 will be worse then 2008, 99.99% guaranteed

MSporty

silverharp wrote: »

Back in 04 I started to get nervous about how sustainable things were. I'd managed to pay off our mortgage and wouldnt have touched property as an investment, I started investing in commodities as a hedge but by 08 it looked like they were topping out and the debt situation had gone nuts in the meantime so went to cash.

I'd say you also have a nuclear bunker in your back garden stocked with loads of supplies !!

silverharp

MSporty wrote: »

I'd say you also have a nuclear bunker in your back garden stocked with loads of supplies !!

some things arent worth hedging against:D