2008 in Rearview Mirror: 2009 Just Beyond the Hood Ornament
So here we are, another year after this post in which I pretty much threw up my arms and got out of the prediction business (or not: I actually predicted the decline of oil prices). I never would have imagined that 2008 would prove the greatest test of American Capitalism since 1929, that oil would be 1/2 of what it was at the end of 2007, and that we would elect America’s first black president who would then stay the course of the foreign policy that propelled him into the office. While it’s too early for me to say I like Obama, I must say that I admire his chutzpa.
I actually leave 2008 feeling a bit more sanguine than I usually am at these times. I’m a contrarian by nature, and when everyone is panicking and heading for the exits, I’m the kind of guy who grabs a bag of popcorn and moves to a better seat. I am seriously troubled by the looming bankruptcy of the state governments like California and New York, but when it comes to Wall Street I’m feeling confident that the worst is over. The Street tooks its lumps and things are going to be slow for the next year, but I trust two things: American enterprise and human greed. Wall Street will figure out new ways of making money and the financial industry will recover.
As for the American car industry, I see this languishing through 2009 with the Democrats loading the shotgun and putting the collar around its neck, but chickening out before they get to the back door. I expect more bailouts, more lackluster promises but no real action that forces the car makers to restructure and begin making cars people want to buy for prices people are willing to pay.
Over the short term I expect deflation to be as big a problem as inflation was in the 1970s. People are expecting prices to fall, and are holding back their purchases until they do. I know; I’m doing it myself. However I’m already beginning to consider what all these bailouts mean for the long term. Flooding the country with cash for everything from bridge repairs to autoworker salaries is going to create a situation where there is too much cash chasing too few goods and services – and that means inflation. Consider that right now companies are hoarding cash; when inflation hits that cash is going to lose even more value. What investments are safe? I’d sound like a Right wing loon if I said “Gold” so I won’t say it; but that metal is sure looking pretty these days.
So deflation followed by 70’s style inflation seems a recipe for economic instability over the next year or two. A lot of people are going to be hurt, especially by inflation which erodes the value of cash. If anything people need to pay attention to what’s going on; don’t panic just pay attention.
It will be interesting to see how wrong I am in a year.
Oh, and whatever happened to hood ornaments anyway?
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