Stock Index: In 2008's outlook I said the following: "My overall outlook for stocks is mixed at best, the fact that it is an election year and that the Fed will most likely take proactive steps to head off any severe declines, will probably keep any "Black Mondays" out of play for now, I do expect harsh and severe behavior both up and down in the broad market. However, and unexpected troubles could prove to be rather messy." Bottom line: a nervous stock market sends money out and into other places especially short term interest rates.
With T-Bill rates hovering near zero, it would seem that my outlook of last year's behavior was correct.
That's nice, but hindsight is as worthless as intention, so time to move forward. My out look for 2009 is far more friendly. First the amount of negativity floating around out there is amazing, I see people calling for unemployment to reach 40 percent, and all kinds of other stupid, beyond reality things, that I am not even going to get into because I simply refuse to be a hypocrite and pander to people's fears. To all of this I say: BULL! And I think we can see a much more normal 10-12 percent rally for the S&P 2009.
The poor and beleaguered NASDAQ has had a ride that makes the S&P 500's misfortune look like a walk in park, as the NASDAQ has lost some 70+ percent from its all time high. Will this be the year of recovery for the NASDAQ? My thoughts are yes. The NASDAQ represents our ability to innovate, and looking at it, we are sorely in need of some. This is one spot where Mr. Obama may actually do something very well. He is planning a large bail out/booster package and some of that may, hopefully provide some sort of needed boost. Further, if this is truly the index of brain power we have been depressed for a very long time, and trouble always leads to
better things down the road and we should be getting to that spot.
Gold: Is it possible for the dollar to be halfway firm and for gold to rally even as crude oil slumps? Yes, it can happen, and it could even be a likelihood. From 1995 through 2005 the US dollar Index experienced it's largest down to up down move across 10 year period, it is very interesting to not that gold was largely range bound through the entire period. Gold's actual closest currency correlation is with that of the Swiss Franc. My guess is this has less to do with the two actually correlating, and has more to do with a general desire not to hold dollars or yen. Could we see some inflation crop back up in some elements of the US economy in the second half
of 2009, and we could see gold rally...
Lumber: How, with the housing debacle we are having in the United States could a person possibly be bullish on lumber? Rather easily, actually. Despite a huge housing inventory to be worked through, we are still building new houses, albeit at a greatly reduced pace. The housing troubles actually began as supplies of vacant units began to swell in 2006. This puts three years into the housing troubles, and proactive action on interest rates, and mortgage terms should bring the destruction to a halt in early 2009. Not that I am looking for huge boom, but things should begin to improve.
Mr. Obama's infrastructure plans could also help the lumber market by increasing utilization. Markets are self correcting devices and prices have reached levels reached in the 1991 and 2001 slow downs. Supplies will be forced to contract and this should lead to a moderate rally, most likely starting late in the first quarter.
Corn: The corn market set several records in 2008, records highs, a record drop and record volatility. The chance of repeating any of those, let alone all three in 2009, would be in my estimation, nil. We have a number of ethanol producers out of the game, some temporarily, and some probably for good. For my two cents worth we should be using corn for feed, keeping the food cycle in place and not making poor scientific choices for political expediency. Food for fuel in the case of corn is not a good trade, and the ramifications are more negative than positive if this pursued on a large scale.
I am looking for corn to meander to a typical March seasonal high to around 4.80 a bushel, and then begin to work lower, but we can expect some weather volatility to keep things very interesting.
Okay that is only three markets, if you would like to read my thoughts on all the others along with detailed price targets just go here and get the STI, and you will get the entire report with it.
My name is Sterling Smith and I am bullish on 2009.
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