...or will we just be coming out of '09 with a light at the end of the tunnel? That's the big debate among the financial world, political world, and beyond. Now, I don't claim to know the answers to these questions, else I would be a millionaire living in Aussie-land or someplace, "Right near da beach, boy-yee!" Nevertheless, here's how I see a few things playing out in 2009.
The Real Estate Market - Bad news, folks. While the real estate market will no doubt have taken its biggest dive during this cycle in 2008, '09 is not going to be an impressive turnaround year. No, in fact, we haven't hit bottom yet. If you bought in the last 5 years, I hope you weren't expecting your home to appreciate in value...at all. I'm thinking that until housing prices reach the levels of 2003-2004, there won't be any serious stabalization in the market. And it can be deduced that new construction and homebuilding won't see any sort of rebound until that bottom happens, either. FYI: According to Zillow, the top of the market for LA was ~$600K from 2006 to January 2008. Assuming that we need to fall 50% from top to bottom and Zillow says the current LA median is $461K, looks like we've only hit the halfway mark.
One of the biggest reasons that I believe this phenomenon will present itself is the fact that the mortgage boom did not end until 2006, with plenty of 3 and 5 year resets on loans coming due in the next 18 months. Not until those shake out will prices be able to stabalize and foreclosures pare back. So no, the real estate market will not be fine in '09. However, anyone in a position to buy 9-18 months from now would be making a solid investment in their home....for the first time this decade.
Stock Market - So this was the second thing to fall apart in our economy. Will the market bounce back in '09? Parts of it, yes. And if they reset the Dow and S&P components, then there's an even better chance to see a broad index recovery forming by the close of 2009. However, financial stocks will most likely remain battered, due to the fact that consumers aren't spending any more. Consumer credit will not grow in '09, in fact, it may shrink as much as 20% by year's end. Partially due to credit limit adjustments by institutions to shore up their balance sheets and reduce their exposure, and also because habits will be formed in 2009 which will begin to create a more debt averse society. How do your grandparents and great-grandparents who went through the Great Depression treat debt? Don't have the money, then you don't need it, right? My feeling is that sentiment will make a come-back in American society- at least to some extent.
So with people borrowing less and unemployment rising, meaning less people can pay back what they borrow, more write-offs are coming for banks. This time, however, it won't be real estate based, it's going to be unsecured consumer lending that goes sour. Word of advice- get rid of the unsecured debt, stat, because the rates on those instruments are almost certainly going to go up in order to for the issuing banks to attempt to recoup losses.
Bright points in the market this year are going to be discount retailers (think Ross, etc.), web-based media content (Netflix, etc.), green technology (thank you, Mr. President), and food companies. Not restarauts, but food companies like Kraft and the like.
Politics - 2009 is poised to be a year of redemption for the U.S. in the eyes of the world. Time to become the nice guys again and repair our tarnished image. I see some significant progress being made in the Israel-Palestine issue in 2009; there is just too much of a global focus at the moment for progress not to be made this year. Also, I see the U.S. entering into nearly if not full diplomatic relations with Iran. Given the influence that Russia seems to have with them, it seems as though the only logical strategic manuever that we can make in order to ensure national security. Yes, that means taking down the 'Axis of Evil' poster in the Oval Office.
Will we get Osama in '09? I highly doubt it, but by the end of the year, we might forget that troops are still in Iraq (with much fewer numbers) and have our attention staunchly on the Pakistan-Afghanistan border where the hunt will be in full effect.
Gitmo? Gone already. The new, New Deal? On its way, and will probably the single biggest thing the government does for the economy.
Now, the California budget issue? Not going to change at all. Angelinos, and all Californians for that matter, need to begin to hold their State Assembly members and State Senate members accountable for this. Sure, there's ideological differences between Republicans and Democrats. But surely we all can agree that this is a problem in which the only solution lies in compromise. We as Californians must hold our delegates accountable to reaching that compromise, and if that can't happen, it's time to surgically recall each and every member who is putting up roadblocks for passage of a budget doused in compromise. No, I don't want my taxes to go any higher, but if it keeps teachers in the classroom and law enforcement keeping the streets safe, then it's a sacrifice worth making. California is the absolute greatest place in the world to live, and therefore it's going to be more costly to live there...simple supply and demand that we need to accept. Additionally, though, we need better oversight on the spending of our tax dollars. Education money needs to go directly to the bottom line, the classrooms, not the administration office. Law enforcement funding needs to go directly to protecting the people, not padding salaries for the brass.
This is the year that the government can look to Corporate America as a role model for fiscal responsibility (I know this sounds counterintuitive, but hear me out). Starbucks' CEO is not taking a raise or a bonus this year. Auto execs are taking $1 salaries. Take note and learn, Sacramento!
And for everybody out there on welfare, I would like to take an excerpt from the first official speach made by our new President...."Our economy is badly weakened, a consequence of greed and irresponsibility on the part of some, but also our collective failure to make hard choices and prepare the nation for a new age."
This means that we need to not exploit the welfare and the unemployment benefits available to those who need them. This means, get off your lazy ass and find a job! Sometimes you don't get the job you want, but work is out there! McDeez is hiring like crazy.
I'm by no means an innocent bystander to that comment, either. I, like many Americans, don't quite live paycheck to paycheck, but don't have any significant savings (they say you should have 6 months of takehome income stored up just in case), and I live to the edge of my means. And we need to change that. If there is any major theme that will help us all be fine by the time we're done with '09, it's to take President Obama's quote to heart, take responsibility, and each take ownership in making our State and our Country a better place, starting with ourselves.
Happy New Year, people, and may you all be FINE IN '09!!!
