Fearless Predictions For 2009

First of all, Happy New Year!  While some wondered if we’d ever make it out of 2008, here we are in a new year and all the change and opportunity it brings.

As I did last year, I thought I’d share some of my thoughts in terms of what we’ll see in 2009.  I did the same thing last year (you can see what I posted last year here) and while I got many of the major items right, it’s hard to believe those projections were only made a year ago – it feels like about 10 years ago, given all the turbulence and pain that we’ve witnessed this past year.

Last year, when oil was trading at about $80, I projected on Jan 1st that oil would trade over $100, going to the $110-112 range.  Even though people thought I was crazy when I said it, turns out I was a little low on my predictions.  Of course, the part I didn’t project was that oil would then close the year down over $100 from it’s high price of $147.  No one saw that coming, including me.

My projection for gold was that it would trade over $1,000 in 2008, and even though it was trading at about $800 when I made the prediction, I got that one right as well.  It topped out at about $1,032 last year, and then traded down a bit, and closed out 2008 a little under $800.  I still remain very bullish on gold, and expect we’ll easily see the $1,000 price point in 2009, likely even moving up towards the $1,500 range.

I predicted that the Canadian dollar would reach parity to the U.S. dollar and go beyond, and that happened, as the Canadian dollar topped out at $1.10 to the US dollar.  I expected the US dollar to remain weak, however some of the unexpected moves to US Treasuries in 2008 gave the US dollar unexpected strength and the Canadian dollar couldn’t hold it’s position.  However, don’t expect 2009 to be kind to the U.S. dollar.  I think the inevitable decline is going to be seen in the coming year.

I also predicted that the Conservatives would win another majority in Alberta (which they did), and that both Canadian and US interest rates would go down (they did, even more than I expected, even though most people back then were predicting higher interest rates).

I did expect the Canadian real estate market to do much better than the US market, though it has been softer than I expected.  This has been due largely to the unexpected global recession and massive amount of fear in the marketplace.  I also said there was a lot more bad news to come from the US and that “the worst isn’t over”.  This is perhaps the most understated — but accurate — prediction I made that came true.

And in a very special projection, I said that when my wife Raylene delivered our son Cooper, that he would tip the scales at 8 pounds, 8 ounces.  Raylene though he’d be about 7 pounds.  He turned out to be 8 pounds, 14 ounces, so I was very close!

So all in all, my expectations were pretty solid, and I think that had the credit crisis and unwinding of the financial markets not occurred like they did, my expectations would have remained even more accurate through to the end of the year.

So What Do I Foresee Happening In 2009?

Foolishly, I’m going to put some of my expectations for this year in writing.  The truth is, we’re in a very difficult market in which to project what’s going to happen.  There is still an incredibly low level of visibility in the market, but for the entertainment of it, here are some of the major items that I expect we’ll see in the next 12 months.

In what I think is going to be a no-brainer, I’m convinced that the U.S. dollar is going to see signficant weakness in 2009.  This will result in other currencies gaining strength against it (including the Canadian $ which I anticipate we’ll see hit par in the next 12-18 months), as well as commodities that are priced in U.S. dollars.

Big picture, I think the U.S. economy is in for more pain in 2009, and the fears of deflation are unfounded.  While there may be very temporary signs of deflation, the problem facing the U.S. next year will be the risk of soaring inflation.  The new Obama administration and the U.S. Fed will continue on the path of massive ‘stimulus’ and bailouts, and the result will be the destruction of the U.S. dollar (and inflation as a result).

2009 will bring the collapse of more major corporations, including Chrylser and likely GM.  I think we’ll also see some large companies like Nortel fold up shop, unable to compete with the crushing debt on their books.  I also expect that some of the firms that have been bailed out, including AIG, will end up collapsing anyway. 

Fannie Mae and Freddie Mac will likely take a different form by the end of next year as well, either both gone altogether, or possibly merged into a new, brilliant home financing entity created by the new administration, intent on putting it’s stamp on the mess.  Many retailers are going to struggle to survive, and consumer spending plummets.

One of the core problems causing the continuing economic challenges will be the significantly higher unemployment rates that will rise throughout 2009. 

Oil has been trading below its rational level for some time, caused in large degree by the massive unwinding of hedge fund and institutional positions. While global demand has declined, the world relies and runs on oil, and it’s a matter of time before the fundamentals start to take hold again.  I believe oil will trade up into the $70s in the 1st half of 2009, and remain there and above, possibly getting into the triple digits by the end of the year.  This would be from both the currency impact of a lower U.S. dollar, as well as demand beginning to return slowly around the world.

While the central banks will be tempted to raise interest rates to try and contain inflation, they’ll have no choice but to keep interest rates low so they don’t destroy what economic activity is left.  I expect the U.S. to retain its rates at the current “zero to quarter point” range, while Canada will likely leave things as they are now as well throughout 2009.

The US real estate market is going to continue to slide into 2009, but the year-over-year declines will start to slow down after the spring.  By and large, the best news that most markets will get is that prices aren’t dropping any more, but an actual recovery in terms of prices rising is well off into the future for most markets.

In Canada, prices will remain soft, flat for the most part.  Some areas will see larger decreases than others.  In particular, I expect Ontario to struggle with the problems in the manufacturing industry (caused both by lower consumption in the U.S., higher costs for exporters, and a languishing auto sector.  I believe we’ve seen most of the declines in Alberta, and 2009 will be primarily flat.

I believe from a social perspective, we’re going to see a significant rise in anger and resentment against the financial industry, and my hope is that more people choose to take control of their investment decisions and learn how to make better decisions.

For our companies, 2009 is going to be a very exciting and important year.  We have been working on a project that will begin to take shape early this year, and I look forward to bringing it to reality.  I believe it will help so many people finally learn how to take control of their money, and create their own financial future, rather than having to blidnly rely on the “experts” to do it for them.

Again, let me remind you that we’re currently in a period of significantly little visibility, but I think the major theme this year is going to be watching the U.S. dollar.  Obviously, if the decline I anticipate does not come, that will have fundamental impact on many of the critical economic trends for the year.

But given all the planets lining up as they are against the U.S. dollar, I’m making my personal investments decisions on this basis, and I’ll check in with you a year from now to see how my expectations turned out!

I hope you have a very properous 2009 filled with growth, contribution, joy and anticipation for what’s to come!