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Kiplinger.com - They Called It Right (Plus Predictions for 2009)

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December 23, 2008 – Comments (15)

Who saw the financial meltdown of 2008 coming? Why the bears, of course. Kiplinger's Personal Finance went back to see which investors, analysts and academics made the right predictions about the market and economy in 2008 and asked each for their 2009 outlook. Although some, like Jeremy Grantham, see hope for 2009, these Cassandras remain a dour bunch. As for us, we expect that the recession will end in mid-2009 and that stocks could gain 5% to 8% for the year (see Outlook 2009).


NOURIEL ROUBINI, chairman of RGE Monitor and professor at New York University

WHAT HE SAID: There is going to be a recession next year ... The bursting of the housing bubble -- we have not seen it yet -- is going to lead to broader systemic banking problems. It is going to start with the subprime lenders ... and then it is going to be transmitted to other banks and financial institutions all over the country. -- September 7, 2006, speech to the International Monetary Fund

HIS PREDICTION FOR 2009: I expect that the recession will be very severe and that it won't be over before the end of 2009. And even though we might technically be out of recession in 2010, annual growth could be just 1.0% to 1.5% for several years if the credit crunch remains severe. I think there is a further 15% to 20% downside risk for global and U.S. stocks, and a further 15% to 20% downside risk for commodity prices. So 2009 will be a year of recession and deflation.

 

PETER SCHIFF, president of Euro Pacific Capital

WHAT HE SAID: This is going to be an enormous credit crunch. The party is over for the United States ... [Subprime] is not a tiny [problem], and it's not just subprime -- it's the entire mortgage market. -- August 18, 2007, Fox News

HIS PREDICTION FOR 2009: The dollar is going to resume its fall, leading to a resurgence in the bull market in commodities. That will pierce the bubble in the bond market, causing interest rates to go up. So we're going to be in a depressionary environment, but with rising prices and rising interest rates. Our economy will be a mess for years and years to come.


MEREDITH WHITNEY, analyst at Oppenheimer & Co.

WHAT SHE SAID: We believe that over the near term, Citigroup will need to raise over $30 billion in capital through either asset sales, a dividend cut, a capital raise or a combination thereof. We believe such a catalyst will pressure the stock significantly lower. -- October 31, 2007, research note [Citigroup announced a 41% dividend cut on January 15.]

HER PREDICTION FOR 2009: We believe we are now entering a new era in the financial landscape that will be characterized by expanded forced consumer deleveraging, with a pronounced downshift in consumer spending ... Specific to the credit-card industry, we believe that well over $2 trillion of lines [of credit] will be pulled over the next 18 months. -- November 30, 2008, research note


DAVID TICE, chief equity strategist for bear markets, Federated Investors, and former manager of what is now called Federated Prudent Bear fund

WHAT HE SAID: Corporate profits, household incomes, asset prices and economic performance have all evolved to the point of acute dependency on ongoing leveraged speculation and rampant credit inflation ... Mortgage finance is tightening, with negative portents for inflated housing prices, the overleveraged consumer, scores of exposed debt instruments and financial institutions, and the highly maladjusted U.S. bubble economy. -- March 2007, letter to shareholders

HIS PREDICTION FOR 2009: The dollar will decline, and it's very possible that inflation will pick up. The S&P 500 index could easily fall to 450 or so [it closed December 19 at 887.88]. This will be a longer-term decline -- you'll see fits and starts and significant rallies, which will be selling opportunities. But it's likely going to take four to five to ten years. Investors should be selling equities and conserving cash. I think gold represents a phenomenal opportunity right now.


JEREMY GRANTHAM, chairman of Grantham, Mayo, Van Otterloo & Co.

WHAT HE SAID: In five years, I expect that at least one major 'bank' (broadly defined) will have failed ... I have often been bearish about the U.S. equity markets in the last 12 years ... but I think it is fair to say that my language has almost never been this dire. The feeling I have today is that of watching a very slow-motion train wreck. -- July 2007, quarterly letter

HIS PREDICTION FOR 2009: I think there's a two-to-one chance that the market will go to new lows in 2009. A further 25% to 30% drop is probable. But that will be setting up the basis for a multiyear rally, in which the market could double, triple or quadruple. [If you invest in stocks today], you have a reasonable chance of making 7.25% [a year], plus inflation, over the next seven years.


ROBERT SHILLER, professor at Yale University

WHAT HE SAID: The home-price bubble feels like the stock-market mania in the fall of 1999, just before the stock bubble burst in early 2000, with all the hype, herd investing and absolute confidence in the inevitability of continuing price appreciation. -- June 20, 2005, Barron's

HIS PREDICTION FOR 2009: The present situation has many similarities to the Great Depression. The Great Depression was a self-fulfilling prophecy-there was no reason for it other than that people were getting worried, and right now everyone's worried about what bad times we're in. We do have better monetary policy and a government that's clearer on its fiscal policy, so I'm hopeful. [Fed Chairman] Ben Bernanke claims he can stop deflation. Bernanke will be tested.


BOB RODRIGUEZ & TOM ATTEBERRY, chief executive officer and partner, respectively, First Pacific Advisors

WHAT THEY SAID: Fear of a general contagion from the subprime fallout has worried the financial markets and especially the housing sector. So far, the general belief is that it will be contained ... We are not so sure ... [The financial-service sector's] profitability is at risk ... The common thread that is flowing through the housing market, private equity, hedge funds and other aggressive forms of investing is the absence of fear. They are all using elevated levels of financial leverage ... there will be a high price to be paid for excess. -- March 31, 2007, market commentary

THEIR PREDICTION FOR 2009: Projections of economic growth have been far too optimistic. This is a multiple-year problem. The problem lies in the fact that the primary driver of economic activity has been the consumer, and this person needs to rehabilitate his balance sheet. Corporate earnings in 2009 will be lower than people expect, and margins will decline. The upturn won't come until 2010, and when it does, it will look very sluggish and lethargic.


MARK KIESEL, portfolio manager at Pimco

WHAT HE SAID: I believe the U.S. housing market is set to cool given the current level of prices and fundamental trends. Recent price gains have likely come primarily from rising speculation and "creative financing" because affordability is declining and inventories are rising ... With a softening housing market, we should expect tighter lending standards, a moderation in the willingness to take risk, a slowdown in the pace of asset price appreciation, less-liquid markets, and rising volatility in financial markets. -- June 2006, market commentary [Home prices peaked in July 2006, according to the S&P/Case-Shiller 20-city home price index.]

HIS PREDICTION FOR 2009: The consumer went through a 20-year leveraging-up period. Now we're going through the Great Unwind, and that takes time. We'll probably stay in a recession until the second half of 2009, but even as we come out, it won't feel good. This will be an extended period of subpar growth. Credit is the blood that flows through the patient, and the patient has had a heart attack. It's too soon to buy stocks and too soon to buy a house. It won't be time to buy until the credit markets have healed.

[Link]

15 Comments – Post Your Own

#1) On December 23, 2008 at 1:24 PM, djemonk (< 20) wrote:

I love the lack of freaking out evident in those predictions. These are rational, useful looks at the situation.

Thank you!!!

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#2) On December 23, 2008 at 1:36 PM, Jerryskidz (29.47) wrote:

thanks for the post... i agree with monk... unlike most MF bloggers who want you to commit suicide by their non stop rants... these at least point out 1) near term pain, 2) then healing comes

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#3) On December 26, 2008 at 4:21 AM, revupman (< 20) wrote:

You seem to have neglected to include the one who called this bear market first, and has been the most accurate so far- Robert Precther with Elliottwave international, books- at the crest of the tidalwave and how to survive the deflationary depression. His work is excellent and I highly recommend it.

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#4) On December 26, 2008 at 6:09 AM, PeverseWorld (< 20) wrote:

The Conspiracy Theorists called it years beforehand, like they always do. The Money System is total fraud from start to finish. The stock market is a rigged and manipulated gambling casino. It's now going to be consigned to the dustbin. You will accept electronic money, dictated world central bank currency issued by criminal fraudsters, patsy national governments, fascist corporate dictatorship, poisoning, starvation, transhumanism and eugenics... en masse. Oh yes, did I mention World War 3.  Money is a confidence trick, Banks invent it from thin air and you then pay this non-existant money back with blood, sweat and tears. Then they mug you again via bailouts which go straight in the criminals pockets. All greased via ludicrous law and NO justice.. not for the slaves anyway. Recovery... you are having a laugh. Like economists have been doing for decades now. Fraud or Fool. Which one are you? Now IS the time to choose the side of right.

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#5) On December 26, 2008 at 9:30 AM, Armageddonist (< 20) wrote:

BWAAAAAAAA HA HA HA HA HAAA!

Seems Schiff is the only commentator with the gloves off & man has he taken a shellacking in the 'press' over time. (I know his Euro-Pac portfolios have taken a hammering over the past year but then there are very few who have not!) The odd man out always does..swimming against a raging sea of 'financial' flotsam.

PerverseWorld has it right from amongst the few posters thus far. I am mildly humored and violently sickened at the same time at the predictions of these 'economist' & 'media' puppets who throw out the stale bread to the poodles on the street.. the 201K holders, the pensioners who are on deck to retirement, the masses of homeowners already upside down and the Alt-A, A credit, Credit card, Auto loan, Student loan, SSI, Medicare, Medicaid, Welfare state..Local & State governments who are ALL standing at the edge of the abyss.

A second grader could figure this out: It just don't figure!...except for if you're sitting at the top rubbing your grubby meat hooks together and waiting to move in for the real kill.

I've got one question for the enlightened financial press and dabblers in the same: Just what in the hell is going to happen to turn this pig around? Major manufacturing returning to the US? Rabid consumerizm suddenly resuscitated in the west? Mortgage commitments falling out of the sky? Housing suddenly affordable for the fresh hires??! An end to bottomless pit conflict? A return to sane banking priciples? A resurgence of consumer savings instead of negative savings rates? Sensible energy policies? ....A rebirth of self determination unfettered by an iron fist?...

...Jump those hurdles you 2009/2010 prosperity returns optimists. Better yet: take 2 aspirin.. and catch the next flight to the moon. At least there--one can make a fresh start! 

 

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#6) On December 26, 2008 at 9:54 AM, sailor4330 (< 20) wrote:

I'm amazed that Gerald Celente of the Trends Institute isn't on this list, because he's been more accurate in his forecasts than any analyst in the country, bar none.

http://www.youtube.com/watch?v=DqvZwo2qhIohttp://www.youtube.com/watch?v=46MEqEgdLTg 

Several sub-prime mortgages will be adjusting upwards in the first quarter of 09, and credit card debtors will start defaulting on a mass basis as layoffs continue and jobs get scarce.

 Obama's initiatives will have a positive effect in the beginning, but later on will cause a greater strain on the economy, which will add to the problems.  It isn't possible to pay for everyone's health care in a severe recession when government funds are limited without causing a greater imbalance in the budget.

China is having its own problems and could be presented with the dire option of forgiving US debt as Japan is doing in order to assist the US to stay solvent, but if it does China itself will implode.  They're already having riots and mass protests right now.  If it calls in its US markers, the US will be insolvent.

Sorry to sound so negative, but as Patrick Henrey said , in essence, in his famous "Give me liberty or give me death speech:  I'd rather know the truth, the worst, and prepare for it.

Looking at the situation objectively and unemotionally, it's very obvious that it's not possible to fix the system.  It's broken. 

This one world government bunch has pushed for mass migration of warm bodies to the point that Greece, France, Spain, and the UK are having BIG problems with the added burden of social benefits to their illegal and legal immigrants both, just as the US. 

However, Europe has the added problem of the formation of a large contingent of jihadists that are both home grown and foreign born that will cause severe problems as the economy worsens, so we have the added burden of large scale civil upheavals to worry about.

 

 

 

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#7) On December 26, 2008 at 9:55 AM, sailor4330 (< 20) wrote:

I'm amazed that Gerald Celente of the Trends Institute isn't on this list, because he's been more accurate in his forecasts than any analyst in the country, bar none.

http://www.youtube.com/watch?v=DqvZwo2qhIohttp://www.youtube.com/watch?v=46MEqEgdLTg 

Several sub-prime mortgages will be adjusting upwards in the first quarter of 09, and credit card debtors will start defaulting on a mass basis as layoffs continue and jobs get scarce.

 Obama's initiatives will have a positive effect in the beginning, but later on will cause a greater strain on the economy, which will add to the problems.  It isn't possible to pay for everyone's health care in a severe recession when government funds are limited without causing a greater imbalance in the budget.

China is having its own problems and could be presented with the dire option of forgiving US debt as Japan is doing in order to assist the US to stay solvent, but if it does China itself will implode.  They're already having riots and mass protests right now.  If it calls in its US markers, the US will be insolvent.

Sorry to sound so negative, but as Patrick Henrey said , in essence, in his famous "Give me liberty or give me death speech:  I'd rather know the truth, the worst, and prepare for it.

Looking at the situation objectively and unemotionally, it's very obvious that it's not possible to fix the system.  It's broken. 

This one world government bunch has pushed for mass migration of warm bodies to the point that Greece, France, Spain, and the UK are having BIG problems with the added burden of social benefits to their illegal and legal immigrants both, just as the US. 

However, Europe has the added problem of the formation of a large contingent of jihadists that are both home grown and foreign born that will cause severe problems as the economy worsens, so we have the added burden of large scale civil upheavals to worry about.

 

 

 

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#8) On December 26, 2008 at 10:39 AM, JamesHeadGnome (< 20) wrote:

 JAMES E. SCHILDGEN, President, Capital Futures Associates, West Palm Beach, FL.   

     Not only did I call it right, as an experienced trader with over 40 years trading history, but I called it right in advance. Check out my website to confirm everything I say - www.GnomesofLaSalleStreet.com 

    Most "economists" or "Financial Editors" keep repeating a story until it unfolds, then spend the rest of their life bragging about it. It is the trader who knows when he's right in advance and admits when he's wrong (gets out of a bad trade) that is the exception. In this field of learning curve progress, only a few have ever gained the wisdom of trading the 'surprise big market moves' - Livermore, Gann, Cashman, Ney, Sibbet, Dewey, Elliott to name but a few. The people you've listed can't trade! They can write but can't detail out a plan- or campaign for trading if their life depended on it. Avoid them!

    In late 2006, I put out my first warning of the Equities sector busting as well as the Commodities Bubble bursting. Unlike economists, I actually put out exact dates for certain markets to turn on (yes, it is possible) and when they hit. The Double Top in Equities were pegged to the "days" of July 13th & 16th as well as October 11th in 2007.

     I also called the Double Top in the Worldwide Commodity Bubble - in advance, as well as the exact days of the C.R.B. Continuous Commodity Index in late February, early March and July 3rd, 2008. I don't believe any of the so-called economists you have on your list can come close to an 85-95 % accuracy factor if their lives depended on it. And I leave my exact dates on my website, both past- as well as my future lists 1 month in advance for all to see. Fundamentalists can't match this because they just guess, and don't know timing.

     All this is possible with a full understanding of Financial Cycles which I have become a master at. I've spent a fortune of my own money accumulating the essence of all Financial Bubbles, Panics, Manias and Crashes through massive studies all my life and accumulated a library of over 1,200+ volumes in finance as well. I only bought about 1 out of 3 of the books I've read, so you can imagine my total concentration and grasp of the realities out there. As a rule, I usually attract experienced traders and other fund managers as they recognize that I follow the rules of trading, but do it better than almost any fund manager in history.

      Thought you should know.

      James E. Schildgen

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#9) On December 26, 2008 at 11:50 AM, bsrollins (< 20) wrote:

I caution all reading against listening to the arguments made by perverseworld, armageddonist, and sailor4330. They are the inverse of those that told you the housing market would go up forever because "this time is different". Many of the arguments they are making are the same ones that come out every time we have a recession (Ex: substitute Japan for China and you have the same debt arguments made during the 1980's recessions). These arguments seem to make more sense when things look and feel so bad. The truth is we are clearly in a more severe downturn than we have had in some time. But remember, downturns are a regular part of our economy. Every 5-10 years. As is noted by the "Real" economists and portfolio managers highlighted above we are likely in for a longer and deeper recession than we have seen in some time and the recovery will likely be slower than what we have seen in the recent past. That said, the deleveriging will take place, personal balance sheets will be repaired, some old industries will go away, some new ones will emerge, and we will eventually have a growing economy again. Those individuals that use prudent personal finance principals and who invest in a diverse mix of assets classes will continue to thrive. Those that choose to stock up on canned goods and guns as well as invest all their assets in Gold will feel about as smart as someone who bought a portfolio of internet stocks in March of 2000.

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#10) On December 26, 2008 at 11:58 AM, SHEEPSHEARER48 (< 20) wrote:

   What they need to do to restart the economy is lower mortgage and other loan interest rates to very low levels. That would make housing affordable again. It's a short term fix, but it would work to give them time. Long term there is no solution except to bring back productive jobs to the USA, which will be hard to do. We have an economy based on speculation, selling baseball cards to other speculators, and that scam is rapidly failing.

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#11) On December 26, 2008 at 12:13 PM, documented2003 (< 20) wrote:

You forgot to mention someone who predicted the crash even before Robert Prechter did, and before anyone else on record. And his accuracy was 100%.

The name is Servant of the Lord Jesus Christ. He wrote a book in 1992 that dealt with the consequences of the crash of 2008. He published a book in 2003 that confirmed the anticipated 2007 top in the financial markets. He published notices in major media forcasting the Oct 11, 2007 top, the 1st Qtr 2008 decline, and the current decline. He has documented all the major advances and declines over the last 10 years. He was at least 16 years ahead of everyone else. Compared to this guy, all those college professors and economists are boy scouts wandering lost in the woods! (And they're absolutely wrong about their predictions). The Servant of the Lord Jesus Christ is presently forecasting an advancing market for the first half of 2009 (DOW about 9700), then another severe fall to new lows in the 3rd Qtr (about 6200), followed by a slight recovery in the 4th Qtr (about 6800). For 2010 it's straight down to 2000 on the DOW. 2011 will finish the US economy off at a low of about 1100.

This is one forecast that you can take to the bank.

And remember, you heard it from me - Servant of the Lord Jesus Christ. countdown2globalcrisis@yahoo.com

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#12) On December 26, 2008 at 12:54 PM, MontgomeryScott (< 20) wrote:

'If your outgo exceeds your income, your upkeep will be your downfall.'

'Deficits don't matter.' (Cheney to O'Niell)

There can be NO comparison between what is occurring now, and previous 'downturns', as the U.S. is leveraged to the hilt, and the manufacturing sector (the ones upon which everyone else depends to create CAPITAL) has been decimated.

A trillion here, a trillion there, and pretty soon, you're talking about REAL money!

Due to the fact that our currency is essentially FIAT, backed only by OIL trade with OPEC in dollars, expect that the agreement will be breached in the very near future. All those nations who hold USDollars will wish, at that time, to dump them, to cut their own losses, and China and other Sovereign Wealth Fund holders won't 'fogive' our debt, they will exercize the same perogative that a bank does, when the debtor fails to make payments-they will REPOSSES THE PROPERTY (that being, the good old U.S. of A.).

All the models of 'delevaraging' and 'risk assessment' and such, that I see, become essentially worthless, if this takes place.

Obama has a plan to 'help us', which costs a Trillion Feds. The 'government' is in arrears (officially) to the tune of 10.7 Trillion feds. WHERE is Barky gonna borrow the money? Probably the same place that Bush borrowed the money to keep fighting our war on emotions ('terror'), the Chinese---or else he'll get the FED to print some more scrip.

Weimar Republic, or Martial Law, either way, the end becomes more in focus with each passing day.

It is a shame that the issues are so obvious, and the answer WAS so simple (but now, perhaps too late to have any effect). Sound money, basic principles, United States Constitution, alas, relegated to the dustbin of history-

The first-class passengers have almost all the deck chairs rearranged to compensate for the ever-increasing list of the Titanic, and the band is still playing happy tunes, but by this time at least half of the steerage passengers have drowned (in debt).

The answer that the elite give: LEND MORE MONEY, PRINT MORE MONEY, DEFICITS DON'T MATTER (but, the lifeboats are off-limits to the steerage passengers). This ship cannot sink!

'I assure you, sir, she's made of iron. She CAN sink!'

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#13) On December 26, 2008 at 1:21 PM, documented2003 (< 20) wrote:

Adendum: 

The glory be to the Lord Jesus Christ.

- Servant of the Lord Jesus Christ 

 

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#14) On December 26, 2008 at 10:31 PM, keenobserver (< 20) wrote:

Most of what these economists suggest is that 2009 will be a bad year, and 2010 will signal the start of a recovery. How quickly the recover occurs is a matter of opinion. I support what they suggest. Do not listen to what Celente has to say. It will not be as bad as he suggests. I firmly feel that that the recovery will actually begin to be realized prior to 2010. Our new president will get it done. I am convinced of it. He will appeal to the world in ways that will remind us of Ronald Reagan. There will be some pain, but, we will see the gain. 

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#15) On December 31, 2008 at 6:54 PM, cruiser9806 (< 20) wrote:

I agree with servant. Right now even the middle east is looking to form a new currency. Then what? We go attack them for taking the dollar off as the world reserve currency? I don't think so. we will end up back at 1100 or so on the dow and struggle up from there. It won't be an apocalypse but it will be heartwrenching, a lot of suffering. The main thing is the US is still a powerhouse. This correction will clean all the cooked books.

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