It was an election year, and a number of posts hit on that theme. Way back in February I posted that Clinton fatigue would probably give Obama an edge. That certainly happened! However, by April I thought Obama was done, and even in August I thought Obama might not make it. Got that wrong!
An Even bigger mistake in that same August post was that I thought the worst of the recession was over. Even more wrong there! But I did get it right back in April that Citi was not out of the woods yet.
What else? Well it seems the US has won in Iraq. The drop in commodity prices has seriously impacted Chavez, Russia, and Iran's ability to export revolution backed by petrodollars. Global Warming (or if you prefer Climate Change) has not ended life as we know it.
But here's the most interesting thing I hadn't anticipated: Obama is the new Bush! Liberals are still trying to blame Bush, and by extension all Republicans, for all the ills of the world. However, the Obama foreign policy and economic teams look a lot like Clinton 2 with a bit of Bush (e.g. Sec. Def. Gates) thrown in. Obama has already back-pedaled on Iraq troop withdrawal plans, and on closing down Gitmo, and on Patriot act wiretaps. Obama has deferred on raising taxes and the stimulus packages between Bush and Obama are, well about the same. He didn't even support Gay Marriage (well at least not forcefully) in California. This puts the hard left in a bit of a logical bind. If Obama is right on these points, then Bush was not wrong. If Bush was wrong, then Obama is now wrong, and the better vote would have been for McCain! Go figure!
Now how about the Bernie Madoff! $50B gone! How so many fell for this is almost unimaginable. But the red flag for me is simply this: You don't put your money with an individual, or even a company he controls. If you want to invest in a hedge fund, you put it with a custodian who can independently verify trades. This is pretty basic. How so many people got it wrong just goes back to the old adage: if it is too good to be true it probably is!
So where are we on the economic status for January 2007 vs. Oct 4, 2008 vs. today?
Item Jan 2007 4 Oct 2008 Today (31 Dec 2008)
Unemployment 4.5% 6.1% 6.7%
CPI (with energy) 2.0% 5.5% -1.7% (latest)
Gasoline cost/gal. $2.25 $3.60 $1.66
Dow Jones 12,500 10,325 8,776
S&P 500 1,450 1,099 903
Nasdaq 2,500 1,947 1,577
So energy and commodity prices came down a lot. Deflation isn't good, but this correction probably is because it pumps billions of dollars of purchasing power back into the economy. That will help consumers weather the reduction in credit, and will do more than any stimulus package ever could. Which raises the question, why do we need a stimulus package again? If any such "pump-priming" is needed, how about a further tax cut. . .oh I forgot, politicians can't make pork out of a tax cut, well at least not as easily!
Will 2009 be worse than 2008? I'll go out on a limb and say no it won't. Here are my reasons:
1) As core commodity prices drop, especially energy, suddenly a lot of unprofitable businesses become profitable again. For example, airlines.
2) As much as the main-stream press wanted a recession on Bush's watch, the press is not going to let Obama and a Democratic congress suffer the same fate. There will be more economic cheerleading the minute there is any good news that can somehow be linked to an Obama policy (whether true or not).
3) Obama's economic team isn't going to be as radical as some (including I) fear, and the Republican filibuster capability in the Senate as well as public disdain for bailouts, will throttle back some of what could have been excesses.
4) Things weren't actually that bad - even jobless claims slumped much more than expected - 492,000 new unemployment claims last month vs. 586,000 the month before.
5) If so many think things will be bad in 2009, then chances are the opposite will happen.
Will things be dicey? Sure. I'm not jumping in to buy stocks now. But soon there will be many buying opportunities. It could still go all pear-shaped, if for example Obama and Congress raise taxes, or print money to bailout UAW fat-cats. But here's hoping Obama actually wants a 2nd term. If he doesn't blow it, he might actually get that!
Well there you have it. I'll be back in Hong Kong next week, and will provide updates from the Far East when I'm back. In the meantime, Happy New Year's everyone!
