Reviewing My 2009 Financial Predictions


It is time to review my 2009 Financial Predictions. It seems like a million years since I wrote that post.

S&P 500 By the end of 2009 it will hit 633. This estimate is based solely off earnings ($42.26 x PE of 15). That is a conservative number. If you use a 12 PE, the number drops to 507. If Bernanke loses control of the long bond, this number will go below 500. The S&P 500 is at 931 now. The upside is very limited, where as the downside is serious.

What happened? The S&P 500 dropped down to 666 in March and then rallied up the rest of the year. The rally has been much longer and much stronger than I expected, but I did stick my neck out in January and predict a 32% decline in this index. We got a 28.5% decline before rebounding. I’d say it (almost) kissed my target.

Recovery, Recession or Depression in 2009? Depression. Until mark to market accounting is restored and the bailouts stop, monetary velocity will continue to plummet. The new Treasury Secretary appears to be another Hank Paulson and we are stuck with Bernanke until at least 2010.

Many economists are now saying the recession is over. Yet job losses continue and the consumer continues to cut back. Mish made a strong case that we are in a Depression back in September. My guess is we won’t know for a few years if this turns out to be a Depression, a double-dip recession or a recovery. For now, I’ll say I’m premature on my Depression call and say I missed this one. Note that I do think some areas of the country are clearly in a Depression, but the national picture is not as clear.

Real Estate Prices will continue to decline and decline at an INCREASING pace. As this happens bank lending will get tighter as their risk increases. Higher down payment requirements will force prices much lower. Those on the sidelines will continue to see home prices fall faster than they can save. There are $1 Trillion in ALT-A resets. A massive wave of foreclosures is coming. The stigma of walking away from an underwater mortgage is going away as America becomes Bailout Nation. No recovery in 2009. If you must buy, the best deals will be new construction sold directly by distressed builders.

Real estate didn’t recover as I expected, but the foreclosures never came. Accounting fraud (aka Mark to Fantasy) continues. Banks that should have been shut down and forced to puke up foreclosed homes on the market were given billions of dollars. So millions of homes sit vacant while banks wait for asset prices to recover. They won’t. Although the foreclosure wave is being delayed (for now), there was no recovery in 2009. I got his one right.

Oilnailed it last year. Now with every central banker racing to devalue their currency this is going to difficult to predict. My wild guess is it goes down to $25/bbl before heading back up slowly.

Ouch. Oil is $79 and never came close to $25. I totally blew this one. Oil is up because the US Dollar is down and speculators are hording oil in parked tankers around the globe.

Unemployment U3 unemployment will hit 9%. U6 unemployment will hit 16%.

U3 is 10%. U6 is 17.2%. Unemployment hit my targets and kept going. Nailed this one.

Deflation, Inflation or Hyperinflation? Deflation. Asset prices will continue to fall as the leverage comes out of the system.

Asset prices are still falling. Credit is being yanked from the system at a historic rate. Credit is money. Banks are not lending. This is clearly deflation.

Gold All the experts seem to think it is going up. I’m a contrarian. I’m thinking deflation will be a more powerful force than every central banker devaluing their currencies. Gold drops to $600/oz.

I really blew this one. Turns out all the central bank devaluing was a more powerful force than deflation in 2009. All this uncertainty and fear of sovereign debt defaults caused gold to continue its rise. This was the biggest financial lesson I learned this year.

30-Year Bond This is the most important number. If it ramps America is hosed. Bernanke is using Quantitative Easing to push this number down. It is working for now. If it fails, look out below. I plan to have a post on this topic soon. Im going to bet against the grossly incompetent Bernanke and go with 4%.

Nailed this one too. Bernanke failed with his Quantitative Easing. The 30 yield went from 2.8% to 4.7%.

Even though I missed oil and gold big time, I did have a caveat.

My picks for Gold and Oil are pure guesses and not true predictions. We are in uncharted economic territory now. Currencies are being devalued everywhere and at different rates. Everything else listed is a prediction.

So I have mixed results on my financial predictions for 2009. What about 2010? Stay tuned. Not that anyone should listen to me, but I’ll have a 2010 financial post out before Monday morning.