Any author of a New Years wrap-up that suggests 2008 began on a prosperous and optimistic note and ended with crash is showing his/her ignorance of both the economy and current events. The meltdown in the sub-prime market (the cause of the credit collapse) and the likelihood of an ensuing recession was obvious to anyone in the know by the spring of 2007. Followers of the US credit bubble build-up saw it coming in 2003 and, especially, by 2004, when anyone who listened to US radio and watched daytime TV was bombarded with home equity loan refinancing ads aimed at very poor people. I reacted to the weirdness by finding a fairly steady job. In October, 2007, I wrote on this blog about the coming recession. By the spring of 2008, I was on about the stock market meltdown, especially as it impacted media stocks like Canwest. I also predicted an election as Harper tried to dodge the prospect of running in a recession.
Anyone who did more poorly than me -- including the "what's hot, what's not" crowd -- is either living in a Canadian dreamworld or is simply trapped in Ottawa's glorious disconnect from reality.
So, my predictions for 2009:
The Dow and TSX will likely bottom at about 4500, a figure that I came up with by calculating the 1987 Dow crash low, adjusted to inflation, adding in some real growth in the economy, and discounting for the credit bubble.
The recession will last about four years and the recovery will be very subtle, at first. Governments will, if they are smart, use this opportunity to rebuild infrastructure. In fact, the recession offers an opportunity to literally rebuild the nation.
Watch for a lot of criminal charges and litigation in response to the credit meltdown.
Labor discontent -- organized and individual -- could be strong as people and their employers struggle to determine the real value of work. One of the quandaries raised by recessions, especially those with deflation, is the inability of people to determine a value for goods and services.
There probably won't be a Canadian election next year. There probably will be one in 2010.The rape of the EI fund and the Liberals' and Tories' effective gutting of Unemployment Insurance as a useful social safety net may shape up to be one of the best election issues ever for the NDP.
The Canadian government will try to scrap barriers to foreign investment, especially in media and banking, to try to save the country's economic oligarchy, including the Aspers. It has already signalled this move.
Watch the fringes: in the economy, in politics and the arts. In recessions, new people and new ideas -- some of them quite malignant -- get pushed to the forefront, while the old and the seemingly broken get discarded.
Watch for a great cleaving between the poor and the rich, the urban and the rural, the East and the West. You'll see it caused by the collapse of oil prices, the killing off of light industry and resource extraction, and the coming deep crash in commodity prices.