Monday, December 29, 2008

Additional 2009 Thoughts

Below is an email I sent talking about a few things that I am worried about in 2009. These are less predictions but more things I am just worried about though I do have a few predictions embedded in there.

I feel like I have almost turned into a professor studying the history of monetary policy and inflation going back to the Egyptians in 4000 B.C. (something that i have already had an interest in) The timing of/if the inflation hits I thinks determines almost everything from an investment perspective except for the most undervalued individual securities. I will be the first to say I don't know and think your are being intellectually dishonest honest with yourself if you think you know. I will have much more thoughts better written out in my next letter in mid to late January.

The quick and dirty:

1) Biggest danger is the failure of England or Switzerland. I put it at at a 20% chance in 2009 that one of the countries will fail and a 50% chance that it would happen in 2009 or 2010.

2) Hence regardless the pound and swiz franc continues to decline (to me this is the absolute biggest duh out there)

3) Oil continues lower and will be below 25 by July 1st4) All currencies move down with regards to non industrial commodities (crops, livestock, precious metals - this move could be explosive - if that is the case (the explosive move) it will drag the industrial commodities higher in dollar terms but in real terms they will continue to fall - this ties in to my number 8 below). Hence gold in the next three years crosses $2000 an ounce. I am very unclear what happens in the next 6 to 12 months though I would guess higher.

5) I still expect a strong market rally out of the gate in 2009 into early February. In the end the market will break November lows in 2009.

6) Debt trounces equities (though not saying debt will have a spectacular return in 2009)

7) The coming storms of corporate bankruptcy will continue to mount and this will cause unemployment to go up much higher and much faster than anyone imagines.

8) I am still very unclear whether we have to worry about inflation in the next 36 months (I know that statement is thought of as lunacy). I think if we get inflation in the next 12 to 24 months it will be almost strictly as a result of a panic of trust on government currencies as a whole. It will have nothing to do with pushing individuals into taking risk or spending or supply constraints (what could be argued as good inflation). This is the biggest danger of all and the government is playing chicken by saying we will cause inflation at all costs.

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