Guest Author - Tony Daltorio
Happy New Year, everyone! I hope this new year is good for everyone and everything that you wish for comes true. In this week's article, I wanted to conclude my look at what I expect to happen in the financial world in 2009.
In last week's article, I predicted the following to happen in the financial markets in 2009: short-term US Treasury interest rates to rise from the ridiculous level they are at currently - 0%; the US dollar to fall sharply; the beginning of the end for hedge funds and the temporary closure of some money market funds; and finally a strong bear market rally in stocks and a rise in gold to over $1000 per ounce.
Here are some more predictions for 2009:
1) Good Money Will Be Made in Corporate Bonds
As I've discussed in previous articles, Wall Street is in full panic mode. They are expecting conditions worse than the 1930s. I do not. For instance, during the 1930s Depression corporations defaulted on their bonds at a 15% rate. Wall Street has already priced in a 25% default rate!
MY PREDICTION? Panic in Wall Street has left many high quality corporate bonds trading at bargain basement low levels. One of the big winners for 2009 will be corporate bonds.
2) Good Money Will Be Made in One Type of Treasury Bond
I also mentioned TIPS or Treasury Inflation Protected Securities in a previous article. Again Wall Street is in full panic mode. They have priced in deflation to be worse than in the 1930s. That in an absolute fantasy! Wall Street has priced TIPS as if inflation will never return. Unlike the 1930s, the Federal Reserve is creating billions of dollars of "Monopoly" money out of thin air everyday.
MY PREDICTION? This money creation by the Federal Reserve will lead to inflation roaring back in a big way. This in turn will lead to the price of TIPS bonds rising sharply. TIPS bonds will be a big winner in 2009.
3) Look for Oil and Food to Rebound in Price
I mentioned gold in last week's article. I also expect that oil and foods, such as grains to rebound in price in 2009. Wall Street has basically priced in for demand to drop to almost nothing and that we will never need another harvest or another drop of oil for years to come.
MY PREDICTION? The Wall Street bankers stupidity will probably lead to major shortages of energy and foodstuffs within a few years. Right now, most energy projects have been shut down. And many farmers can't get a loan to be able to operate their farms. Now would be a good time for wise investors to look to buy energy-related stocks along with other commodity-related stocks.
4) Even More Wall Street Scandals
The revelation that former NASDAQ chairman Bernie Madoff's hedge fund was basically a $50 billion Ponzi scheme was just the latest Wall Street scandal.
MY PREDICTION? This prediction is an easy one. Look for many many more scandals to be eminating from Wall Street in 2009. Many hedge funds and other Wall Street instruments are nothing more than fancy swindles.
5) Even More Bailouts
The government's multi-billion dollar of GMAC is just the latest in a series of bailouts. Corporate executives from coast to coast are lining up at the trough to get money from government coffers.
MY PREDICTION? Another easy one. Despite hoped for change from President Obama, there will be many more bailouts for poorly run American companies. The bill to US taxpayers is already over $8 trillion and I believe that amount will easily double or triple.
If you have any questions or comments on my predictions, please feel free to contact me directly or via the forum.
