Friday, December 26, 2008

2008 - A year for the history books, but it reads like fiction

2008 was a weird year for predictions. We think it was possible to say almost anything and there was a notion of truth, especially if it had anything to do with the markets, politics, or sports. Before we bid 2008 good bye and good riddance, let’s share some observations about 2008:

Real Estate. What we thought would happen: we thought real estate would be flat or slightly down. After all, the real estate market was hot for 10 years and hadn’t had a down year, on a global basis, since 1945. What we didn’t foresee was 20-60% declines all around the country. Think Detroit is bad? Try Vegas. Have a look at Florida. Biggest downward plunge in a very long time.

Recession. What we thought would happen: We’ve been harping about there being a recession for quite some time – Detroit usually leads the way. What we didn’t see was the massive slowdown that was caused by the sub-prime debacle. We now have a 70’s variety, or even a 30’s variety, big tough recession. Add a nasty bear market, and you have the third worst bear-cession in 80 years.

Market. What we thought would happen: We thought the market was a little pricey last year and rebalanced to take some profits. What we didn’t think would happen is the tidal wave of fear that gripped all markets globally and took the US market down 50% (Russia down 71%, China 68% and Brazil 56%).

Subprime. What we thought would happen: We saw subprime as a problem over a year ago. What we didn’t see (and neither did anyone else, apparently) is the colossal greed of Wall Street investment bankers, leveraging the paper 19 times, leaving us with a subprime mess bigger than the whole mortgage market. The end result was a litter of bodies; including Lehman Brothers, Washington Mutual, FNMA and Freddie Mac, Merrill Lynch, Morgan Stanley, and a host of others.

Auto Industry. What we thought would happen: We figured the car companies were in for a hard competitive push, particularly with oil topping $145 a barrel. We thought their challenge was going to be making small fuel efficient vehicles, and buying enough time to retool to avoid bankruptcy. We figured Chrysler was on the block and thought China or India would buy them. What we didn’t think would happen is that two of the Big Three would be on life support, and have to have an emergency transfusion in the form of a government loan. We knew the industry would change, but there was no way we thought it would change in the blink of an eye.

Crooks. What we thought (knew) would happen: We figured that where there was money, there would be crooks (no big surprise there). We thought the subprime would bring some evil doers out, and the hedge fund business was bound to have rogues. What we didn’t expect was that one of the guys who started the NASDAQ would create a totally fabricated monstrous Ponzi scheme 100 times bigger than any previous fraud. Very wealthy folks got wiped out in a flash. Oh yeah, and his kids turned him in.

Olympics. What we thought would happen. We figured the Chinese would put on a good show (they did). We thought there would be controversy in gymnastics, especially the Chinese gymnasts. What we didn’t think would happen is China would lead in medals. And we didn’t think a human porpoise would sweep the medals in swimming.
Football: What we thought would happen: We figured Michigan (U of M) would have a mediocre season with the new coach. We also figured the Lions would have a crummy year (relatively). What we didn’t think would happen was that Catholic Central (or Toledo) could beat them both…with their JV team (or their cheerleading squad)…after a party.

Politics. What we thought would happen: We thought it looked like a Clinton/McCain race in the standard far left/far right fight. We thought the big issues would be taxes and the war. What we didn’t think was that Barack Obama would be the candidate and victor. We didn’t have a clue who Sarah Palin was, much less that she’d be a vice presidential candidate. We didn’t think Hilary Clinton would end up as Secretary of State. We didn’t think it would be Christmas and they still wouldn’t know who the senator from Minnesota was.

Oil. What we thought would happen: As we wrote in July, we figured the oil problem was supply and demand. Make the price high, and more people look for oil, while using less oil. We thought oil would go down quickly to $80. What we didn’t think would happen is that oil would go below $40. We also thought people might notice the extra $50 in their pocket per week. We also didn’t think that the F-150 truck would be Ford’s best-selling vehicle in October.
Interest rates: What we thought would happen: Last year, we thought rates looked like they were increasing, with commodity inflation all around the board. By mid 2008, it looked obvious that rates were falling. What we didn’t expect is that rates would go to zero…and no one could get a loan.

2009. What we think will happen: Let’s see, we have cheap gas, cheap commodities, cheap labor, cheap real estate, cheap money, and a government that seems to be willing to print money on toilet paper. Cheap everything is good. Hard times are good, in the long run; it brings discipline, perseverance and innovation. Tough times don’t last: tough people do.
To all of you, we wish you a healthy happy holiday. Good riddance to 2008!

Your Team at LJPR