9 For '09

Here are my 9 economic predictions for '09:

Please no ridicule if my batting average is pathetic with regards to these predictions. Considering the fact that 70 to 80% of all professional mutual fund managers underperform the market each year, my rationale is that even if I go zero for nine, I will have plenty of company...


1) The most beaten down asset classes from '08 (housing, financials, emerging markets) will be some of the best performing in '09.

2) Oil prices, which have plummeted from $147 a barrel to just around $35 a barrel, will reverse course and revisit the $70 to $80 range in '09.

3) The unemployment rate which currently sits at around 7%, will top out at 11% in '09.

4) The stock market bottomed on November 21st @ 7,392 on the DOW. Although the real economy will not start to see recovery until late '09 the stock market lows of late 2008 will hold.

5) The big three automakers will be back in Washington asking for additional aid in '09. As time progresses it will become increasingly clear that although the company is weak, Ford is the strongest of the three companies. The electric car will dominate the discussion in '09 and will become a sustainable reality in 2010.

6) The Obama administration will hit the ground running with a massive stimulus package that attempts to address unemployment and the stalling economy. By the end of '09 talk will heat up about how the government has become too involved in the economy and calls for the "uncanny" power of free markets will return.

7) It will become increasingly clear next year that our world's most precious resource is not oil, but water. Today, almost one in eight people in the world do not have access to clean drinking water. By 2025, more than two billion people are expected to live in countries that find it difficult or impossible to mobilize the water resources needed to meet the needs of agriculture, industry and households. Going green will no longer be a buzzword, it will become our generation's race to the moon.

8) This amazing influx of government intervention will result in the inevitable uncovering of scandals and bribery with relation to the financial crisis. The programs have been thrown together, and oversight has been lacking, a recipe for disaster anywhere, especially in Washington.

9) The stock market volatility in '09 will pale in comparison to the volatility in '08. In the end the market will be positive for '09 in the realm of a 10-12% return on the Dow for the year.

Well there you go, 9 for '09. Feel free to add your own, economic or not.

This is my last post of 2008. Thanks to everyone who takes the time to read and comment. Keep the suggestions for the blog coming and have a Happy Holidays.

What A Guy

276 years ago, a 26 year old Bostonian transplant, living in Philadelphia
published a helpful calendar and counselor, which he called "Poor Richard's
Almanac." The publication, containing pithy wisdoms like - "Early to bed early to rise
makes a man healthy, wealthy and wise" - or "A penny
saved is a penny earned" - became an instant success in the colonies.

The revenues allowed Benjamin Franklin to retire at age 42. Since golf was not
available in the neighborhood, he squandered his remaining years by discovering
electricity, inventing the lightning rod, the iron stove, bifocals and the glass
harmonica. The next week he developed still-standing theories on meteorology, heat
absorption, electricity, and ocean currents.

In his spare time he founded the first insurance company, fire department, public
hospital, public library, night patrol and first militia. Seeking a break he became
colonial postmaster and civil defense chief for the French and Indian War. Tiring, he
was chief delegate at the Albany conference, which organized the colonies and then
was appointed chief negotiator with the British crown in London.

When negotiations failed, he returned home to help draft, and then pass the
Declaration of Independence. He was then sent to Paris where he won the support of
the French which eventually helped win the Revolution for the colonies. He returned
home and helped draft and again pass the Constitution of the new nation. After that
he did little that was important aside from a few inventions and a couple of immortal
publications.

(From Art Cashin's Morning Comments)

......................................

As a follow up to the 12 Days of Christmas: http://www.youtube.com/watch?v=2Fe11OlMiz8

9 Predictions for '09 coming tomorrow.........

Daily Links & Crisis Cocktails

Madoff's 17th Floor: http://www.nytimes.com/2008/12/15/business/15madoff.html?_r=1&em

Goverment Ponzi Scheme: http://curiouscapitalist.blogs.time.com/2008/12/16/whats-the-difference-between-a-good-ponzi-scheme-and-a-bad-ponzi-scheme/

Library Christmas Tree: http://www.flickr.com/photos/donaldist/1803976340/sizes/l/


Wall Street Crisis Cocktail Menu:

CosmoPaulson - A generous bailout of vodka, triple sec, cranberry and lime juices

TARPatini - An instant balance sheet cleaner, with Captain Morgan, Malibu and Myers rum

Wall Street Bonus - a glass of water which is, like the Street itself, on the rocks

(From PR Firm Cognito)

12 Days of Christmas...Inflation Style

Ever wondered how the price of two turtles doves changes over time. Well here you go:
http://www.pncchristmaspriceindex.com/CPI/charts.html


For 24 years, PNC has calculated the cost of the items in the song “The Twelve Days of Christmas” if purchased at current prices. Here is the Wikipedia article detailing the "Christmas Price Index":
http://en.wikipedia.org/wiki/Christmas_Price_Index

Recession, The Green Movement & Household Debt

"Is the economic crisis going to be the end of green? Or, could green be the way to end the economic crisis?"
-David Rothkopf


"We need the next president to be an energy efficiency trendsetter, starting by reinventing the inaugural parade. Get rid of the black stretch limos and double-plated armored Chevy Tahoes inching down Pennsylvania Avenue. Instead, let the next president announce that he will use no vehicles on inauguration day that get less than 30 miles per gallon. He could invite all car companies to participate in the historic drive with their best available American-made, fuel-efficient, innovative vehicle."
-Thomas Friedman


The American economy must be rescued, not by the service sector, but by the manufacturing sector associated with clean energy. The Obama team has articulated their desire to pave the way for a green commitment from Washington and it is vital that they deliver on that promise.

............................

In what could become a silver lining of this economic turmoil...

"Stung by the loss of $2.81 trillion in their net wealth, U.S. households paid down their debts in the third quarter for the first time since the Federal Reserve began reporting this figure in 1952."

I don't know what is scarier, the fact that this is the first time since at least 1952 that this has happened or that this now leaves household outstanding debt at $13.91 trillion compared to the $13.94 trillion it was in the second quarter.

On the other hand our friends in Washington are not shy about debt, the third quarter saw a record 39% increase in the debt taken on by the federal government.

Funny Videos

Transition to Digital TV: http://www.youtube.com/watch?v=7w34nNux4Xw

Prop 8 Musical(must see): http://www.funnyordie.com/videos/c0cf508ff8/prop-8-the-musical-starring-jack-black-john-c-reilly-and-many-more-from-fod-team-jack-black-craig-robinson-john-c-reilly-and-rashida-jones

How to Fold a Shirt: http://www.youtube.com/watch?v=xOHHQMQBd5s

Clap On, Clap Off Capitalism: http://www.markfiore.com/clapper_0

Obama House Meeting

Here is the message that President Elect Obama's team sent to supporter concerning the house meetings that are happening this weekend....

Friend --

Exactly one month ago, you made history by giving all Americans a real opportunity for change.

Now it's time to start preparing and working for change in our communities.

On December 13th and 14th, supporters are coming together in every part of the country to reflect on what we've accomplished and plan the future of this movement. Your ideas and feedback will be collected and used to guide this movement in the months and years ahead.

Join your friends and neighbors -- sign up to host or attend a Change is Coming house meeting near you.

Since the election, the challenges we face -- and our responsibility to take action -- have only gotten more urgent.

You can connect with fellow supporters, make progress on the issues you care about, and help shape the future of your community and our country.Learn what you can do now to support President-elect Obama's agenda for change and continue to make a difference in your community.

Take the first important step by hosting or attending a Change is Coming house meeting. Sign up right now:
http://my.barackobama.com/changeiscoming

To get our country back on track, it will take all of us working together. Barack and Joe have a clear agenda and an unprecedented opportunity for change. But they can't do it alone.

Will you join us at a house meeting and help plan the next steps for this movement?

Thanks,
David Plouffe
Campaign Manager
Obama for America

Bailout Articles

The two best articles I have read concerning the proposed bailout of the Big 3 are listed below:

$73 An Hour: http://www.nytimes.com/2008/12/10/business/economy/10leonhardt.html?em

While Detroit Slept: http://www.nytimes.com/2008/12/10/opinion/10friedman.html?em

Cartoons

Hank Paulson's Party

This Thursday, Treasury Secretary Henry Paulson will host the annual Treasury Departments Christmas party. We may be in the worst financial crisis since the Great Depression, and executives may be taking heat for excessive compensation, but nothing will stop Hank from throwing a party.

And if you thought the whole idea of a party for the Treasury Department was ironic amidst this financial crisis, wait until you hear where they are throwing the party....

The annual gala is being held in the "Cash Room" at the Treasury Department. I guess the "Taxpayer Funded" room was booked for the evening.

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Here's a follow up to the ExxonMobil post surrounding the market cap of financial firms.

A little more than 1 year ago Royal Bank of Scotland paid $100 billion for ABN Amro.

For this amount today, RBS could buy:

Citibank $22.5 billion / Morgan Stanley $10.5 billion / Goldman Sachs $21 billion / Merrill Lynch $12.3 billion / Deutsche Bank $13 billion / Barclays $12.7 billion

And still have $8 billion in change for an automaker or three….

Thanks to Noah for the heads up

The Cost of College

As the recession take holds and talk of deflation heats up, it is important to note that inflation is still running rampant in certain areas, most notably in the cost of attending college.





College tuition increased 439 percent from 1982 to 2007 while median family income rose 147 percent. Not to be lost in the graph is the fact that medical costs have risen about 250% during that period and the Consumer Price Index (the government's measure of inflation!!!!) has risen only 100%.

With regards to the cost of higher education in this country, at some point we reach a breaking point, and with the continued strain in the student loan arena, I believe that point may be in the near future. Whether this leads to lower costs, or a mass increase in enrollments at State Universities and Community Colleges is anyone's guess, but the future for soaring tuition at private institutions is certainly in jeopardy.

ExxonMobil

Something amazing happened Wednesday....

During the trading day on the New York Stock Exchange, ExxonMobil by itself became a larger company than Citigroup, Bank of America, JP Morgan, Wells Fargo, Goldman Sachs, Morgan Stanley and Bank of New York COMBINED!!!!!

Exxon market cap: $400 billion. All the above financial companies combined: $390 billion.

ExxonMobil is the largest stock in the S&P 500. Wal-Mart, its nearest competitor, is a little more than half of Exxon's size.

Even with the recent drop in oil prices, the behemoth that is Exxon, continues to grow.

Wall Street Journal CEO Council

The Wall Street Journal recently brought together 100 of the most influential CEO's in American and asked them to formulate a list of five main priorities for the incoming Obama administration:

Fiscal Stimulus

Quickly craft fiscal stimulus for the US, in cooperation with parallel efforts by G20 countries, particularly cash-rich economies with capacity to increase domestic demand. For the US, a stimulus package should exceed $300 billion. It also should emphasize investment in infrastructure, including environmental, education and low-carbon energy, but should not worsen the long-term budget deficit.


Educated Work Force

President-elect Obama should ask businesses to lead in the actions necessary to build a competitive work force for the immediate and long term. Emphasis should be placed on improved K-12 education and intellectual-capital creation. Enact national education standards and assessments, devote funds to teacher excellence and improve teacher education.


Economic Vision

President-elect Obama should announce his economic team soon and convene a conference with broad representation to recommend both immediate priorities and long-term policy direction. He should communicate a clear message about the direction of policy, including a program for long-term fiscal responsibility.


Comprehensive Energy And Environment Policy

Put national legislation in place that starts us on the road to decarbonize our economy and to create the most energy-efficient economy in the world. Level with the American people that ensuring an adequate and diverse energy supply in a low-carbon world will not be cheap or easy. But make the case that the transition must be transparent and fair to all Americans, and that linking the economy, the environment and energy policy bolsters security for all three.


Tax Policy

Change the tax code to encourage employment, job creation and investment and enhance global competitiveness in the short term. Consider raising taxes on gasoline and broadening the corporate tax base to lower rates.

Merriam-Webster’s Word of the Year

The word “bailout” which shot to prominence amid the financial meltdown, was looked up so often at Merriam-Webster’s online dictionary that the publisher says it was an easy choice as its 2008 Word of the Year.

The rest of the word of the year choices Merriam-Webster considered do not necessary instill confidence:

trepidation
precipice
turmoil

So as we close out 2008, here's to the hope that 2009's word of the year will be a heated contest between "recovery", "profits", "revitalization", and "earnings".

Daily Links

Honk, Honk: http://www.slate.com/id/2204988/?GT1=38001

The End of OPEC??? http://articles.moneycentral.msn.com/Investing/JubaksJournal/are-we-watching-the-death-of-opec.aspx

Venice Floods: http://www.boston.com/news/world/europe/articles/2008/12/02/highest_tides_in_22_years_flood_venice/?p1=Well_MostPop_Emailed4

Beyond the Initial $700 Billion

Barry Ritholtz, of Fusion IQ, is one of the most well respected financial bloggers in the world (http://www.ritholtz.com/blog/). One of his most recent posts took what he estimated to be the total cost of the credit crisis bailout (including the new Citigroup bailout) and compared it to major outlays in our governments history.

Credit Crisis = $4,600,000,000,000

Marshall Plan +
Louisiana Purchase +
Race to the Moon +
Savings and Loan Crisis +
Korean War +
New Deal +
Invasion of Iraq +
Vietnam War +
NASA =
$3,920,000,000,000

According to Ritholz, the 9 items listed above cost in total 2008 inflation adjusted dollars a full $686 billion less than what the credit crisis has cost up to this point.

He goes on to point out that if we didn't spend another dime on the credit crisis it would still be almost $1 trillion dollars more than the entire cost of World War II(adjusted for inflation).

He estimates that by 2010 the total cost of the credit crisis will exceed $10 trillion!!!

To put this exorbitant amount into perspective, the total cost thus far of the bailout could have provided a stimulus check for every American over 18 years of age in the amount of $19,000 with money to spare.