Thoughts for 2009

It's high time I made a record of my hours staring at the screen and lost in thought while idly looking at the sky, trees, and distant Cascades; and it being the time of year for retrospectives and predictions, lacking basis for the former, I give you the latter:

US Equity Markets. I think that we'll have a slight bump in the first few weeks of the year, but the whisper numbers from 4Q08 earnings will dash that and — after a couple big wiggles — send us to new lows mid-year. Beyond that, I think equities will recover somewhat and end the year around 5% below today. Call it 850 SPY, 8000 DOW.

Global Equities. The manufacturing/export driven economies will continue to be weak and see little to no recovery in 2009. Economic strength will derive from agriculture, energy, and mineral, more or less in that order. Brazil, Chile, Argentina, and Russia will see significant recovery as 2009 ends. Australia and India to a lesser extent. Japan and Korea will recover next mid 2010, but prior to China, the US, and the Euro area in late 2010.

Currencies. The Dollar's recent strength will weaken slowly, and fade increasingly late in the year. The Yen will see a new all time high (60/$) versus the Dollar, as will the Euro relative to the Pound. 4Q09 will see a recovery in currencies of resource exporting countries. 75 Yen/Dollar, 1.60 Euro/Dollar, 1.10 GBP/Dollar. Strength in Ruble, Kroner, Real. Buy Won in December.

Interest Rates. US Treasury yields of all durations will hover near all-time lows for much of the first half. There will be a dramatic short covering rally in long duration Treasuries, driving the yield on the 10 year down to almost 1.3%. By 4Q yields will be rising across the curve. Mortgage rates will fall to 4½% on 30-year fixed, though volume will be very low. Jumbos will fall to around 6¼%. Corporate bond spreads will peak mid-year, see some tightening by 3Q, and be modestly repaired by year-end, though it will be at the cost of relatively higher yield on quality debt.

Commodities. Agriculture will stabilize early in 2009, followed by a volatile trading range for oil developing mid-year. Other energy commodities will finally bottom in 2Q. Precious metals will do very well, and will lead industrial metals and materials higher. WTIC touches $29/bbl, but ends the year near $60/bbl; gold trades above $700 all year, and ends the year rising at more than $1100/oz.

And just in case anyone but me is willing to trade on this, be warned that I pulled all of this straight out of my ass.