I thought it would be fun to start off 2009 by making a handful of predictions as to what the coming year will hold in terms of your money and your lives. We’ll check back at the end of the year to see how I did.
The Dow will not go below 8,000 this year. I believe the stock market has already hit its “bottom.” Generally, when you see a long leveling off period even in the face of some bad economic news, the market is full of roughly equal numbers of buyers and sellers, and as soon as the news turns good, the sellers will disappear, leaving only buyers.
Furthermore, both the S&P 500 and the Dow will be up at least 10% on the year. I think that by summer, we’ll be hit with some reasonably optimistic economic news, causing some of the sellers to go away and for the stock market to go on a nice summer bull run. By the end of the year, both the Dow and the S&P 500 will be up at least 10% for the year.
The official unemployment rate will not get above 9% this year – but it will get close in the late winter/early spring. Given that banks can basically borrow money interest-free right now, many banks will begin lending to each other and extending credit to businesses again and the spring will bring both a thaw to the earth and to the credit markets. However, there will be a long winter between now and then as seasonal hires are laid off, bringing the unemployment rate almost to 9% – but not quite.
“Deflation” will be the big panic of 2009, especially early in the year. In the first half of the year, prices will continue to fall and people will begin to worry about a deflationary spiral, but during the summer, the stock market will begin to recover and employment will pick up and this talk of deflation will go away as a low level of inflation returns.
2009 will be the best year for individual savings this decade. There are going to be a lot of people out there with some very tight resolutions for 2009 that will make the savings rate for the year skyrocket compared to earlier years. By midyear, many of these people will have faltered, but the savings will be enough to make 2009 look like a real year of belt-tightening.
Barack Obama will announce at least one major surprising policy in the first month of his presidency. I believe there’s a “Manhattan” or “Apollo” style project in the works, most likely related to energy independence, and Obama will roll it out very early in his administration, possibly even during his inaugural address. Fiscal conservatives will hate it.
The economy will start to rebound late in the year, leading to a very strong Christmas season for 2009. Unemployment will drop going into the fall, resulting in a very strong Christmas season this year. People will make up for a pretty austere 2008 holiday season in 2009, setting spending records.
The government will take preemptive action against the oncoming bubble of option ARMs. In 2010 and 2011, a giant pile of option adjustable rate mortgages are set to adjust. The new administration will see this coming a mile away and quietly enact some policies to prevent this bubble from blowing up in our face. I predict a general policy to force option ARMs to be renegotiated.
The price of oil will creep upwards during the entire year, eventually putting gas prices near $3 a gallon again by the end of 2009. OPEC will cut production until oil gets back up into the $80-90 a barrel range. This may take several months, but eventually it will happen – and the price of a gallon of gas will follow.
One of the “big three” will fail and will be folded into the other two. I predict that Chrysler is no longer an independent company by the end of the year, and most of their brands are absorbed by General Motors. Dodge, at the very least, will be retained as a brand name, but the others (Chrysler, Plymouth, etc.) may fade away.
Fairly optimistic, huh? What are your predictions for the coming year?