Saturday, January 05, 2008
I had some final 2008 predictions that I failed to write up for the New Year so I thought I’d just jot those down quickly.
U.S. recession- most definitely, the media is starting to use the R word and I doubt the Government can keep the lid on doctored growth numbers forever.
U.S. unemployment is going up, proof came out this week with private sector job growth slowing and those receiving jobless benefits rose. The first wave of job loss was mostly missed by manipulated stats and the numbers of undocumented illegals working in the housing industry. However with the second wave, legal labour, lumber, cement, hardware companies, furniture stores etc will hit take a hit as people don’t need shit if they don’t have a new house to put it in. I expect the statistical lying to continue but expect they will fail to keep inflation climbing from today’s two year high of 5% to no less than 6% by year end.
Added to my prediction of big banks going insolvent I expect to see at least one large house builder (probably Lennar) file for protection before the end of the Q2.
The subprime mess will continue but this year’s price downturn will also put many more prime mortgages into trouble as loan values exceed property values. Previous estimates of defaults will be sorely insufficient as even trustworthy borrowers end up owing more than their house is worth, those that can pay will ride it out, others who get asked for new down payments will bail.
I think the credit crisis, (the one thing I did not foresee last year) will get much worse unless the Fed just starts buying all debt or mandating loans to the public via the banks(legally the Fed can order loans be made then cover the risk themselves). Baring that, I can see a point this year where banks will start cancelling credit lines, many of these are backed by house equity that no longer exists, others just because of credit ratings or inability of banks to access sufficient credit. The result will be lower consumer spending and a switch from reasonably priced credit lines to expensive credit cards to float excessive consumption. This will be just one of the factors that will hit consumer spending hard this year. While the freeze seems to be thawing in Canada U.S. banks are rightly afraid of each others balance sheet.
Citibank for one is toast.
The recent trend of nearly 5% of car loans going bad will increase, credit card defaults will also head higher.
The inflation vs. deflation argument will continue all while the biggest personal investments of most people, (their homes) will continue to devalue in the U.S and soon Canada, England and Spain. At the same time, food costs, energy costs and the tax burdens in most countries will increase validating neither argument and making it that much harder when deciding how to protect yourself.
This year will be a year of chaos, energy and precious metal stocks, some industrial metals, Ur, Moly, Cobalt, rare earths will still do very well. Financials, retail, commercial real-estate will range from weak to nuked
low of $90 high $140 on shortages. yes I said $140, it will take only 1 fire, hurricane, war etc to put the U.S. into it's emergency supplies, Canada has no emergency supply. What if that pipeline from Alberta into the U.S. that blew up last month had taken all 6 or 7 pipes and not just one? What if someone helped it blow up at one or more points along it's length? Mind you I take this a proof there are no real terrorists in N.A., that or they are too damn stupid to bring us to our knees.
For those who still think my pessimistic views are loopy I leave you this article Crisis may make 1929 look a 'walk in the park' as proof I'm not alone and the fear is spreading, Hell my wife is starting to think it will get worse than even I do. Soon she will actually listen when I tell her I really want that gold sovereign or bag of libertads for Christmas.