While we weren't able to recommend specific stocks this year, we did espouse some pointed views. How did they turn out? Let's take a look.
First, as we noted in the 2007 report card, we entered the year long U.S. and foreign stocks, emerging markets, gold, silver, and foreign bonds. We were expecting a recession and dollar weakness. We were right on the gold, silver, foreign bonds and recession, but brutally wrong on stocks, emerging markets, and dollar weakness. We were more defensive than most, but underestimated the crash and overestimated Zimbabwe Ben's ability to print his way out of it.
Likewise, we didn't predict the Treasury bubble that we are now in. That will pop. When, I don't know. It may take more than a year. But if you are willing to lend long-term to the government at 3% pre-tax when federal obligations are growing at double-digit rates with no conceivable way to pay them down, you're insane.
There were a couple of great calls in 2008. Our October 16 "epic opportunity" call came with the GDX at 22. It closed the year at almost 34, a 54% gain in 1 1/2 months. And if you played it with call options, as we did, you multiplied your money many times over.
And in July, we were the first to spot the Calpers fraud, which became big news in December.
My outlook for this year? I'm still sticking with what I said in October 10's What comes next:
Stage 1: Paulson/Bernanke [now Geithner/Bernanke, a distinction without a difference] continue throwing ever greater amounts of money at the problem in increasingly radical and unprecedented ways. In addition to direct purchase of toxic waste and equities, don't be suprised to see direct government refinancing of mortgages or direct government issuance of new, low-rate mortgages to home buyers.
This may have the positive effect of downgrading The Second Great Depression to The Really Bad Recession. But it will also have the decidedly negative effect of destroying the government balance sheet.
Stage 2: As the recession deepens, job losses mount and business activity drops, cutting tax revenues and making debt service on the $11 trillion+ debt impossible. Uncle Sam becomes Casey Serin, and Treasury bonds are no-job, no-income, no-assets liar loans. The government faces two choices: default or the slow puncture of inflation. Inflation is probably the lesser of two evils, but it's no picnic, as Argentina, Zimbabwe, and Weimar Germany can attest.
Post a Comment