Saturday, December 27, 2008

Today's piece of advice

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.


Anonymous said...

Infrastructure building during a recession is a waste of money unless it is something you can build right away. Otherwise, you may as well just give it to GM who is also a waste of taxpayer money.

All recession endings are only seen through the rear-view mirror. Not your most stellar prediction.

The NDP are forever destined to a 3rd rate party, unless, of course, communism becomes all the rage here. But I doubt that will occur in either of our lifetimes.

EI and Social Security are Ponzi schemes which will eventually collapse as there will be fewer people to pay into them then what will be withdrawing from them. Why would you promote a program like that?

The only cleaving the West will do is unto other Westerner's. The East will be on their own, due to their own selfish needs being fundamental while they insulted and put down the very people they will have to rely on.

Here is a prediction you can count on:

Oil will go up again, and while the East suffers, the West will prosper.

Unity my ass. Only when it serves your needs right? lol - not anymore my friend ... not anymore.

Ottawa Watch said...

Don't let the door...
And don't come crying to Ontario if Oil stays low and Ontario is broke. After all, Alberta's had two chances to squirrel away revenues and diversify the economy, and both times the morons conned themselves into believing high oil prices were permanent.

In a month Israelis will be out of Gaza and the price of oil with be $35 dollars a barrel, half of what's needed to make the tar sands profitable.