Leonard The Monkey

He was one of the best with 2008 predictions so here it goes...........

Ok, so with that cheery backdrop, here you go with my predictions for 2009.... and I will prefix this by saying this is a list I hope proves to be entirely incorrect. Perhaps there really is a Unicorn that craps skittles even though I've yet to find it - this is one round of predictions I'm willing to take a zero score on come December 09.

The economy will not recover in 2009. Job loss will continue through the year and unemployment will reach 8% in the "headline" statistic by the end of the year. U-6 (broad unemployment, or the closest to "real" unemployment without government "cooking") will top 15%. All the "talking heads" are predicting a turnaround in the second half of 2009. They will be wrong. Look at their records for 2008 - all of them were predicting closes at or above 1500 for the S&P 500. Why does CNBC continue to put people on the air who, if you listened to them, cost you 40% or more of your money?

Deflation, not inflation, will become evident well beyond housing. Other capital goods beyond housing will see real price declines for the first time since the 1930s. Debt is inherently deflationary; the "hyperinflationists" will once again be shown to be wrong (how many years running will it be now?)

Housing prices will continue to decline. I believe we're about halfway done with the price correction. Those who think we will turn this in 2009 are wrong - unless we get an all-on collapse in prices in early 2009, which I do not believe will occur. I've heard several claims we will have positive year-over-year home price changes in 2009. I'll take the other side of that bet.

The Fed's attempt to "pump liquidity" will be shown to be an abject failure. We will see either a Treasury Market selloff or worse, severe instability in the dollar at some point in 2009.

GDP will post a 12-month negative number and there is a decent shot that we will actually see an official depression print before the end of 2009, defined as a 10% decline peak-to-trough.

The Stock Market has not bottomed although you may think it has for a few months. The annual range will be quite extreme; I would not be surprised at all to see 1,000 touched on the SPX in the first part of the year. I believe the SPX will at least touch 500 in the next 12-24 months and the current bottom will not hold. It is possible that we could see a crash to SPX 300 and DOW 3,000 some time this year, probably after the spring (when the "Obama Halo" wears off - if it isn't blown off by economic events first.) Yes, this means I am predicting a fifty percent swing in the SPX in 2009. Lots of money to be made as a trader if you're quick and good, but an absolute minefield if you're a long-term investor.

Precious metals will not be a safe haven. The callers for $1600 and above on gold will be wrong, unless there is a major military conflict. I do not rate that probability as particularly high, but it is an event (along with a major terrorism incident - nuclear or biochemical - that would cause a rocket shot in Gold prices), so I am hedging that call.

The risk of this sort of "response" to the economic crisis is, however, real, and will rise significantly going into 2010 and beyond. We'll revisit this one (a major war) next year.
The Dollar will not collapse. This is not because we're in great shape or will truly recover, it is because the rest of the world is in worse shape than we are. Last year pundits were all calling for the dollar to collapse to 40 - it didn't happen. Now they're calling the dollar's strength a "Bear market rally." Nonsense; the simple truth is that while we're in bad shape the rest of the world is literally on the precipice of a full-on collapse. European banks are more-levered and less-transparent than our banks as just one example.

The pound or euro - and perhaps both - will likely be where the FX dislocation initiates if it occurs. I see the potential for the pound and euro to both reach par with the dollar, although I'm not going to go that far out on the tree limb and predict it - yet. Needless to say that would rocket the Dollar Index but it won't be our strength that does it - it will be their weakness.

The US Consumer will go from a negative savings rate to a seriously-positive one. I am predicting 4% in 2009 but it could go as high as 10%. The math on this is simple - the "consumerist legion of more" has run its course and all that's left is debt. It hurts and bad; expecting the American Consumer to cut off his other arm is just plain dumb. By the way this is a good thing in the longer term for America once the excess debt is forced out and defaulted through the system.

Commercial Real Estate will effectively collapse and most commercial Real Estate REITs will be either insolvent or limping on life support. There will be calls for bailouts (which may be attempted; the calls are already starting to be heard) but it won't matter - a failed business is a failed business, bailout or no, and overcapacity must go away before sustainable business conditions can return.

Along with the above, expect 10% of all retail stores to close, and that number could go as high as 20%. That's not going to be fun; there will be hundreds of malls that wind up literally shuttered across America. Stay away from most retailers and property groups as investments. Firms like SPG and VNO are levitating on the strength of their dividends (7-10% yields at present); I believe this is a sucker play; if retailer defaults force dividend cuts (and I believe they will) the commercial REITs will go straight into the toilet.

Several states will get in serious financial trouble and outright default of one or more is possible in 2009. California leads this parade. But even if there is a default on a state basis, the effect will be highly localized, as county and municipal governments vary in their wisdom and budget process. The real pain comes in state-wide social and educational programs. Be very careful if you are in municipal bonds or thinking of getting back into them (I recommended they be dumped in 2007 - look at what has happened to the closed-end funds in 08! Aieeee!) as the default risk is VERY REAL. If you're buying individual issues and do the work to determine not only the risk of default but also the likely recovery if they do default there are some good deals out there - but only if you're doing the work. "Trust me" (as in buying funds, whether mutual funds or closed-end stuff) is very dangerous.

Mortgages are not done. The story last year was "Subprime." This year's will be "ALT-A", "Option ARMs" and so-called "Prime". The Fed and Treasury know this, which is why they are playing games with "agency" debt in a desperate attempt to clear this market before the ticking nuclear devices go off. The amount of debt involved in these "bad deals" is vastly higher than that in the "subprime" space and if they fail to contain it (a near certainty) Round #2 of severe bank instability gets served up on us in the second half of 2009.
If you want to refinance a mortgage you may get one brief shot at it with long rates around 4%. You're nuts to buy outright unless you intend to die in the home, but if you have a solid reason to be obtaining a mortgage or wish to refinance you will probably get the opportunity. This assumes the "buydown game" gets going before Treasuries dislocate; if you get the opportunity take it as it is likely to be fleeting. The few places in this country where homes wind up selling for 2.5x incomes (on average) and you have an opportunity to finance at 4% and change will be decent buying opportunities - if you're sure you can cash flow the note (e.g. your job and/or income stream is not in any danger of collapsing.)

Those who have said that the corporate bond market is being "unreasonable" in its expectation for defaults will start to look like the jackasses they are. Actual default rates (not projections) on non-investment-grade debt will skyrocket starting in 2009 and there will be no sign of it turning around this year. If you're playing in this area of the market thinking that "the worst is behind us", I hope you like walking around bald as the haircuts handed out to folks like you will be especially severe and delivered with a straight razor.

The calls for "more lending" to consumers and businesses will go exactly nowhere. The problem isn't credit availability - there's plenty of money available to lend if you are credit-worthy. Those who are being turned down now simply aren't credit-worthy when one looks at what they want to do with the money and what they're backing their repayment capacity with. The more "credit stimulus" is thrown into the economy (and there will be more) the worse the downturn will get.

General Motors and Chrysler will fail to meet their targets and it will be labor that sinks the deal. At least one and probably both will wind up in some form of bankruptcy in 2009. The UAW is insane; Gettlefinger needs to be strung up by his genitals and pelted with rotten tomatoes by his union "brothers", and if they had a lick of sense they'd have already done it. They obviously don't. I give this mess six months tops, with Ford as the only possible survivor. The recent GMAC games show exactly how desperate they are; 0% 5 year loans to people with 620 FICO scores are flat-out insane and the default rates on those loans are going to wind up in economics textbooks five years hence.

Protectionism and currency manipulation will rear their ugly heads in 2009, originating not here but in Asia as their economies go straight into the toilet. China and Japan are at severe risk here.

Commodities will appear to be headed for a new bull market but this will turn out to be a false hope as demand continues to collapse. Attempts to manage oil output to prop up the price will fail. Several oil-producing nations will find themselves in serious economic trouble, with Russia being in the lead but by no means alone.

Sovereign debt defaults will number at least three with many other nations on "watch" for same; we had one last year (Iceland.) Noise about a US "AAA" downgrade will continue. Highest on the list for probables are Russia, which needs oil at roughly double its current price - and stable - to be financially viable. Not going to happen in the near term.

China will have its first large-scale rumbling of civil unrest as a consequence of collapsing export demand and thus employment. They'll manage to tamp it down - this year. Don't take a bet on that holding together longer-term. Those who think China will be "ok" are deluded; they have a horrifying overcapacity problem (debt-financed, of course) and there is no way for them to get out of it. They are truly going to "take it in both holes" down the road, but the worst of it won't be in 2009 - that is still a year or two in the future.

Foreign uptake of Treasuries will be choked off - by necessity. It won't be because they want to screw the US (although they should have a long time ago, given our profligate and unsustainable habits), it will be because they will be forced to redirect their resources inward as their own economies collapse.

"The City" (London to be precise, Britain generally) will be recognized as getting it "worse than we are" (in America.) This will be the first of many validations of my thesis "we're screwed, they're gang-raped."

Things will get "revolting" in a number of nations. Not here in America. Yet. If we're lucky the American Sheep will wake up and stage some of that peaceful protest stuff I outlined above. If we're not so fortunate 2010 could be really bad.

In terms of recommendations its simple - rallies are to be sold, cash is to be raised and prudence is to be practiced in your own personal financial affairs. Don't get creative in all things finance, get stingy and prudent. Your personal financial survival could well depend on it.

Seems like everyone is looking to get back on the TBT train once again now that it looks like we may have seen at least a near term top.

If we break 45 count me in but otherwise I have a hard time believing the FED is going to give up on getting mortgages under 5% anytime in the near future as that seems to me at lease one of the biggest weapons against further economic destruction that they have left.

I would much rather concentrate on AZO. Recently a new AZO store opened near my home which i went to go visit just to check it out. While not as much fun as visiting say a RICK's I was even less impressed when the selection.

Not one trunk monkey.

Now say if AZO did start selling trunk monkeys I would have to revisit my thesis but until then all AZO has is a big fat 10 point drop coming.

Also the car sales reports today came in much better then expected only down about 31%. Smoking hot.

With the big 3 going bankrupt and everyone buying foreign cars that will also mean less business for AZO as people's cars break much less often.

BTW that is not a slight on American manufacturing workers as foreign cars are made domestically and domestic cars and half assembled forgeinly. So it's really a slight on foreign workers, so there.

http://volcanoes.usgs.gov/yvo/activity/

Well 2009 is off to a fine start - CMN is already up about 10% and AZO isn't doing much.

We are going to get some Ag with MOS and MON coming up. NEOG business should be up as China seemingly puts toxic waste on all of their food exports and BBBY should confirm people are still cutting back.

No big bold predictions for this week, too much market uncertainty right now. The strength looks like it could continue until the S&P goes up another 100 points and if it does I'll be looking to load up on some Puts and short positions. No underestimating the Bama Rally.

Enjoy the weekend!

Monday

MOS The Mosaic Company Q2 2009 $ 1.48 5-Jan AMC

Tuesday

NEOG Neogen Q2 2009 $ 0.25 6-Jan BMO
PRXI Premier Exhibitions Inc. Q3 2009 $ 0.02 6-Jan AMC

Wednesday

BBBY Bed Bath & Beyond Inc. Q3 2008 $ 0.33 7-Jan
STZ Constellation Brands, Inc. Q3 2009 $ 0.59 7-Jan BMO
FDO Family Dollar Q1 2009 $ 0.40 7-Jan BMO
MON Monsanto Company Q1 2009 $ 0.59 7-Jan BMO
RT Ruby Tuesday Q2 2009 -$ 0.11 7-Jan AMC

Thursday

APOL Apollo Group Q1 2009 $ 0.98 8-Jan AMC
CVX Chevron Interim 2008 n/a 8-Jan AMC

Friday

AZZ AZZ Incorporated Q3 2009 $ 0.81 9-Jan.
KBH KB Home Q4 2008 -$ 1.18 9-Jan BMO
NFLD Northfield Labs Q2 2009 n/a 9-Jan

Monday, January 5, 2008

7:00 a.m. ICSC Chain Store Sales Index For Jan 3: Previous: -0.5%.
10:00 a.m. Nov Construction Spending: Previous: -1.2%.

Tuesday, January 6, 2008

8:55 a.m. Redbook Retail Sales Index For Jan 3: Previous: -1.5%.
10:00 a.m. Dec Non-Manufacturing Index: Previous: 37.3.
10:00 a.m. Nov Pending Home Sales: Previous: -0.7%.
10:00 a.m. Nov Factory Orders: Previous: -5.1%.
2:00 p.m. Dec FOMC Minutes
5:00 p.m. ABC/Wash Post Consumer Conf For Jan 3

Wednesday, January 7, 2008

8:15 a.m. Jan ADP Employment Survey: Previous: -250K.

Thursday, January 8, 2008

8:30 a.m. Initial Jobless Claims For Jan 3 Week
10:00 a.m. DJ-BTMU Business Barometer For Dec 26
3:00 p.m. Nov Consumer Credit: Previous: -$3.5B.

Friday, January 9, 2008

8:30 a.m. Dec Non-Farm Payrolls: Previous: -533K.
8:30 a.m. Dec Unemployment Rate: Previous: 6.7%.
10:00 a.m. Nov Wholesale Trade: Previous: -1.1%.

Make sure to have fun and be safe!

I don't need AZO getting any more business.

Last time I shorted AZO was a little more then a year ago... unbelievable how time flies!!!

I must say little has changed between why I am short now at 139.99 since that post except that the current share price is much closer to strong overhead resistance.

Balance sheet is bad and getting worse as they continue to borrow money to buyback stock. They won't be able to do that forever and the growth doesn't justify the multiple. I think the stock has acted more as a safe haven and upside is limited from here.

HT to AlphaDawg on this old IDB name.

Stop at 12.50

With a little love this looks like it could be an IBD'er again and with that kind of momo we could see a nice run.

Here is some more info:

http://www.cantelmedical.com/investor/corp_govern/Presentation-Cantel_2008_12_10_Final.pdf

First it was the banks, then insurance, autos, student loans, auto loans, home owners ect...

While it's time to kick it up a level...

http://www.scholarsandrogues.com/2008/12/19/bailing-out-the-porn-industry/

Judging from the RICK's call those girls are going to need a bailout too.

Glad I sold my RICKs.

Poor girls.

Hope everyone has a great holiday season!

Remembers what's most important - family, friends, loving, drinking, eating, laughing, drinking, health, caring, drinking, enjoying life, drinking...

Looked like today we would break out of this little flag pattern and retest 850 but some last minute buying juiced us up a little bit. Action this week and probably next may stay very random so I would stay small in taking positions.

I will start shorting some SDS around 800.

Inverse ETF's suck even though SDS has done much better then the others.

For a short thats actually a short take a look at AAPL.

Not much there for another 5 and if it breaks 80 look out below.

So much holiday stuff to do and so little time.

I can tell you from being out today that everyone in my neck of the woods is out shopping and buying things today in spite of the fact that they should be saving their money and buying things like soup and ammunition.

This rational type behavior is however being cast aside as the holiday spirit is taking over and forcing people to go out and buy things in mass force.

My shopping district is gridlocked. People are waiting an hour in line at BGP to purchase a book, I can't get a parking spot at BBY or TGT. The DRI places are packed and PETS is running rampant with animals maxing out their credit cards. M and JCP actually have more customers then employees roaming the stores and SHLD... well I couldn't find any employees or customers there, but when can u?

I am hearing reports around the country that this is taking place and is something to consider before getting too bearish in the s/t.

Granted we have to squeeze the shopping season into one less week then a year ago and people very well may be using the last drops of credit they can get their hands on. However, with The Messiah taking office in a few short weeks and Dec. numbers possible not being as bad as many expected we may have to wait for some post holiday numbers before taking retail back out behind the shed.

Numbers I am hearing from my inside sources are telling me sales as of right now have drastically improved from the Oct/Nov months down double digits to now barely down to flat. That's impressive all things considered.

Any perspectives on what you are seeing this weekend as far as shopping activity goes I would love to hear about.

Goldman, Sachs & Co. urged some of its big clients to place investment bets against California bonds this year despite having collected millions of dollars in fees to help the state sell some of those same bonds.

The giant investment firm did not inform the office of California Treasurer Bill Lockyer that it was proposing a way for investment clients to profit from California's deepening financial misery. In Sacramento, officials said they were concerned that Goldman's strategy could raise the interest rate the state would have to pay to borrow money, thus harming taxpayers.

"It could exaggerate people's worries about our credit," said Paul Rosenstiel, head of the public finance division of the treasurer's office.

Such worries would tend to drive down the price of California bonds. That, in turn, would drive up the interest rate the state and its municipalities pay to borrow money. An increase of a single percentage point on a $1-billion bond issue would cost taxpayers an additional $10 million a year in interest.

That's especially troublesome at a time of severe budget turmoil and tight credit. Gov. Arnold Schwarzenegger has warned that the state could run out of cash as early as February.

Some experts said the investment bank's actions, while not illegal, might be inappropriate. "That's not a good way to do business," said Geoffrey M. Heal, professor of public policy and business responsibility at Columbia University. "They've got a conflict of interest and they're acting against the interest of their customers. . . . You act in the interests of your clients. You don't screw them, to put it bluntly."

Goldman declined to discuss the details of its trading strategy. "We continue to support our clients and underwrite transactions," spokesman Michael DuVally said in an e-mail response to written questions on Oct. 28. He said Goldman "as a firm" was no longer giving the trading advice to clients. He declined to elaborate.

Goldman's strategy was embodied in a 58-page report presented to institutional investors in September. The document, stamped "Proprietary and Confidential," was obtained by ProPublica, a New York-based nonprofit organization specializing in investigative reporting. This article was reported jointly by ProPublica and the Los Angeles Times.

Goldman stood to profit from several aspects of California's borrowing, which involves the sale of bonds to investors. First, it collected millions of dollars in fees for bringing the bonds to market and finding buyers. Then it marketed a financial instrument known as a credit default swap that is essentially an insurance policy against a bond default.

The bond investor buying the instrument pays a fee in exchange for a promise of a full refund of the bond's face value should a state such as California abruptly refuse to pay back what it owes. Such defaults are extremely rare -- California, for example, has never defaulted -- but the swaps' prices rise as states or municipalities slide into tough times economically.

Goldman, according to sources familiar with municipal bond trading, has been a leading dealer in municipal credit default swaps. The New York-based firm was trying to expand that niche market into one with broader appeal to major investors.

The company also is an important underwriter of California municipal securities. Over the last five years, it has earned about $25 million in underwriting fees from California issues.

The 58-page document advised big investors how they could profit from -- or hedge against losses in -- financial markets that had become extremely volatile and unpredictable. The firm advised "shorting" -- that is, betting on a price decline -- in markets for corporate junk bonds, European banks, the euro and British pound currencies, and U.S. municipal bonds.

Several large states, including California, faced "worsening fiscal outlooks," the report said. It cited the recent bankruptcy of the Bay Area city of Vallejo as evidence of the "worsening fundamentals of municipal finances."

Meanwhile, muni bond insurers were suffering credit downgrades, it noted, which undermined the quality, and therefore the prices, of the bonds they had insured. And the credit crunch was forcing big investors such as hedge funds to dump their muni bond portfolios, driving down the bonds' prices.

Goldman recommended making the short bets via credit default swaps, a market in which it played a major role.

These instruments are designed to allow investors and speculators to hedge, or insure against, the risk that bond issuers or other debtors might default on their obligations. In their customary form, they are contracts that require their sellers -- in this case Goldman Sachs -- to buy back from a swap holder a defaulted bond at 100 cents on the dollar, thus insuring against any loss.

In that way, the swaps could be beneficial to the market, encouraging risk-averse investors to buy more municipal bonds. But like derivative securities in general, they can be dangerous to hold. That's because they are often highly leveraged. A small investment can buy coverage on bonds worth much more. If defaults rise to unexpected levels, the swap sellers could be hard-pressed to make good on their promises.

The perils of the credit default swap market were brought home this year, when they were instrumental in the collapse of Lehman Bros. Holdings, American International Group and Bear Stearns. Lehman and AIG were rumored to owe far more than they could pay on swaps they had sold. Meanwhile, the prices of default swaps on the three firms soared, signaling to investors that the firms might be in trouble. Investigations continue into whether those swaps may have been manipulated to undermine confidence in the firms and drive them out of business.

"By encouraging people to buy swaps, you're pushing up the price of those and making it more expensive to insure against the default on the bond that you're buying," Heal said. "The fact that such coverage has gone up in price will signal to the investor that the riskiness of the bond has increased, even if that's not true. Even if the underlying financial situation of the state has not, in fact, changed."

Indeed, what some traders found perplexing about the push for a market in municipal credit default swaps was that muni defaults almost never happen.

Goldman was a leader in the effort to build up the market for the muni swaps. In May, when the financial information firm Markit introduced a municipal CDS index to give swap traders a benchmark to set prices, Goldman was listed as one of the seven dealers participating in the rollout.

For some time before that, Lockyer told The Times, Goldman had "regularly urged" California to trade in the municipal swaps itself, ostensibly to hedge the state's risks as a bond issuer. Lockyer refused.

The trading strategy that Goldman pitched to institutional investors was apparently crafted in the spring and summer. The company may have hoped to parlay the swaps market into more activity in municipal bond trading, which is traditionally light because muni investors tend to hold the bonds to maturity.

Theoretically, the swaps index could lure speculators into the muni market, a development that would create much more fluctuation in daily prices, which in turn would generate revenue for trading desks at Goldman and other investment firms.

Lockyer and Rosenstiel said they became aware of the introduction of the muni swaps index but had not detected an effect on trading or pricing of California bonds.

But they also said the market was so complex, and the conditions affecting municipal bond prices so numerous, that it might be difficult to identify any specific cause for a given price change in California debt issues.

"The existence of the credit default swap market in muni bonds has the potential to hurt muni issuers," Rosenstiel said, "but it also has the potential to help muni issuers, and I don't think we have enough experience to know which is which."

He acknowledged that it was not unusual for a full-service investment firm such as Goldman Sachs to have to navigate among potential conflicts of interest.

"Investment banks bring issuers and investors together," he said. "Securities law has recognized the potential for a conflict of interest in playing both roles."

Under the law, the solution is for the parts of the firm dealing with either side to be isolated from each other so that information does not improperly flow between them to benefit one set of clients more than another. There is no evidence that the wall was breached in this case. Assuming such protection was in place, Lockyer said that fear of market manipulation was unfounded.

Still, Heal said he was surprised by Goldman's actions. "Goldman Sachs has a reputation as behaving in a responsible manner . . . and I don't think this is consistent with their traditions," he said.

"States are going to have to cut back on education, social services, a whole range of things because of the lack of credit. This is not just a Wall Street thing. This is going to affect the lives of less affluent people in the states that are affected."

In any case, there are signs that the muni swap index has been a bust. Tom Graff, managing director of Baltimore-based Cavanaugh Capital Management, said that by the end of August the index had failed to attract much business. It was destined "for oblivion," he said, in part because muni defaults were so rare.

Standard & Poor's loosened market-capitalization guidelines for its three most prominent indexes to reflect swooning equity markets.

"Standard & Poor's feels that the new market cap ranges for its U.S. indices are appropriate, based on our review of recent market activity, comments from index users and the current U.S. market cap distribution," said David Blitzer, managing director and chairman of the index committee.

The firm lowered the minimum market cap for the key S&P 500 index to $3 billion from $4 billion. The range of caps in the S&P MidCap 400 is now $750 million to $3.3 billion, while the SmallCap 600's range is now $200 million to $1 billion.

Guess we are running out of big companies.

If this keeps up soon we will just have a MidCap and a SmallCap index.

New trading strategy - Short large caps until they are all Mid Caps and then move to Mid Caps until they are Small Caps.

Here is a look at someone taking advantage of the unemployment problems by using it as an opportunity to become a successful entrepreneur.