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"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.
The shining light through all of this
is the faster we find the bottom the faster we can recover. Sadly, the
recovery process will take years. Futures and commodities traders should
continue to earn steady profits as the stock markets slide into oblivion for
years. We see no recovery until
2015.
Roger Wiegand
www.webeatthestreet.com
Roger Wiegand is Editor of Trader Tracks
Newsletter and of the Rog Blog at www.webeatthestreet.com.
Roger provides recommendations for short and longer term trading using
stocks, futures and commodities with specifics.
Contact Claudio Bassi, at
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