First let's look at employment. Everyone is making a big deal about how the government counts people that are out of work and accuses the politicians of making numbers look better than they really are. The government gives us one number and talking heads another. The NY Times reported that unemployment is not a tad over 10% as officially reported but more in line with 17%.
Employment is the last thing that recovers in any depression. The worst is over. If you have a job today you'll probably have a job next December too. If you don't have a job but are looking you may get a job by the end of 2010. This depression like half the marriages in America is not going to last forever and neither is the double digit unemployment numbers. Better numbers in 10 but nothing to get truly excited about.
Manufacturing - this sector had already swept out most of the excesses. A lot of people didn't think the government should have bailed out the auto industry but since approximately one out of every ten jobs is somewhat related to making cars they really had to. Things are and will be different. In the Detroit area I don't think anyone believes the car companies are dumb enough to go back to the old ways of doing business and building cars simply to keep plants open and people working. Those days are gone. Manufacturers should see the beginning of profitability starting late in 2010. One car company has already brought back some economic benefits for it white collar workers such as a 401k match. More and more rust-belters will be smiling in 2010.
Hyper inflation. The way the wonks talk on cable you'd think we were on the brink of becoming the twin of post WW ll Germany trundling wheelbarrows of Deautsche marks to buy a loaf of bread. Hyper inflation is defined as prices increasing at 10-50% per month. We are a far cry from hyper inflation. In fact in 2010 we may not experience a huge run-up in prices at all. After a decade of very little inflation you can expect a slight increase in 2010 starting in the second half, but more coming in 2011.
Unfortunately government spending will continue. Nothing stops our elected officials from standing at the urinal of public waste. It's not their money, they don't care, get used to it.
Real estate - new home building should see a very modest increase, which is good news and existing home values may have a slight pop before the summer break when folks start serious shopping. At worst we're looking at stabilization. Some areas of the country have already experienced increases for their markets. More residential real estate will be bought as consumers will finally figure out that prices are as good as they will get. Commercial real estate, on the other hand, has lots of excesses and there are serious issues in this sector.
Interest rates, according to the new Time Magazine Man of The Year, will hold firm for an extended period of time. I say until midway 2010 and then rates will start their systematic increases. When rates start moving up hang on because it will be a bumpy ride. Lock in your fixed rates now and eliminate all your variable rate credit cards asap.
The dollar could strengthen or just muddle along until a firm economic policy on dealing with how much money we've printed and shoveled in the world's economies is handled. The one thing to remember is that in a global crisis everyone loves the dollar. A weak dollar is still good for most of the S&P 500 companies as they do business here, there and everywhere. It's not so good for retirees shuffling for one last hurrah around the Piazza San Marco and slurping pasta e faioli, washing it down with Kaopectate shooters while on a fixed income.
The biggest thing that will happen in 2010 is the one thing that no one has yet thought about or prepared for. Most everything we do think, worry to death and prepare for never happens. The markets should do well into mid-year and then take a break, consolidate and resume for a decent 2010. If you're out of the market you should start to move back in. This depression was a global event seen only once every hundred years. We should not retrace to previous market lows, if that gives you some comfort. If you're invested you should review and bring your portfolio up to date. Too many investors stick with an allocation that they established when they were in their 40s and 5os and conveniently forget that they need to upgrade to reflect their current age and risk level.
Hopefully my insights will help you sleep a bit better. Nothing ever is as bad as it seems unless it happens to you. Wishing you all, dear readers, a wonderful New Year.
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