2009: The Fallout

2008 saw the collapse of Wall Street and Global Financial Markets at the hands of the deflating international real estate bubble (with the largest bubble obviously residing in the US). The failure of world renowned institutions like Bear Sterns, Lehman Brothers, Fannie Mae, Freddie Mac, and others destroyed all confidence in the financial credit and equity markets. Slow and ineffective action from governments and central banks precipitated the "crisis of confidence" amongst investors. The level of fear, anxiety, and volatility witnessed in 2008 reached comparable levels seen only during the 1930's with the Great Depression. After everything that has transpired in 2008, it is safe to assume that modern capital markets will NEVER be the same again (much needed rules and updated regulations will ensure that).


With that said, if 2008 was about Wall Street's crisis and subsequent collapse, then 2009 will be about the collapse of "Main Street" and the International Economy. The evaporation of trillions of dollars in imaginary wealth and credit lines will destroy any chance of economic growth in the next 12-18 months. Over the long run, governments and central banks will work around the clock to re-inflate the financial system by lowering the cost of capital for banks and consumers, but in 2009 the level of capital destruction from defaults and bankruptcies (individual, corporate, and governmental) will overwhelm policy makers. Furthermore, the psyche of credit markets, banks, and consumers heading into the new year is far too fragile and uncertain meaning an "L" shaped economic recovery (much like Japan's lost decade) is the best case scenario investors (not to mention human beings) can hope for in 2009.

In a few days, I will post some specific forecasts and predictions for 2009 regarding unemployment, real estate, credit writedowns, government intervention, alternative energy, and a few other subjects I deeply care about.