Looking ahead to the first quarter of 2009
We’ve all heard the old adage, “it’s always darkest before dawn.” But exactly when can we expect things to lighten up? There is so much paranoia and mistrust with a stock market in the tank and so many companies already filing for bankruptcy or preparing to file for bankruptcy, that as we peer in the dark, we see less than promising news for the first quarter of 2009.
Retailers will continue to sift through the rubble of a disastrous holiday season. Some experts predict that we will see the largest number of retail store failures in 35 years, from small stores to entire malls and from electronics to clothing. Many predict that the future retail industry will be streamlined with fewer outlets, brand names, and even lower profits.
More banks will fail, unable to absorb large write-offs from business loan losses and credit card defaults. This will affect the entire banking industry system and more regional banks will collapse. This is despite the fact that banks are hoarding cash to buffer against their own potential losses. Citigroup has already received a $25 billion cash injection from the Fed and is expecting another $20 billion, but I don’t think it’s enough to get them out of the woods. So watch out for Citigroup and at least one other major bank to be further nationalized.
It is obvious that the auto industry will not have stellar earnings news to report. Despite $6 billion in government aid, it remains to be seen whether or not GM and Chrysler will be able to get back on their feet. Even with a $5 billion stake in the automaker’s financial arm, GMAC, I’m not holding my breath that this will ease the credit crunch any time soon.
With consumption and demand down, I don’t expect oil and other commodities to recover in the first quarter. Crude oil prices, which saw wide fluctuations in 2008, are likely to remain volatile in 2009. According to forecasts by oil traders, economists and the International Energy Agency, oil is expected to trade in a $40 range. at $65 per barrel. Prices hit a record high of $147.27 in July 2008, but the global credit freeze and recession pushed prices below $50. Price swings may continue, but are expected to be less dramatic in 2009. We can expect poor earnings reports for most corporations in the fourth quarter of 2008 and expect further capex reduction in other corporations. industries. In fact, look for record bankruptcies to decimate many industry sectors in addition to construction, finance, and retail. Reports began to emerge last week that the world’s third-largest chemical company, LyondellBasell Industries, is considering filing for bankruptcy. Despite dismal corporate earnings, I think we can see the market get a boost from Obama’s inauguration on January 20, but it will be short-lived. Consider the mess you’ve inherited: rising unemployment, declining house prices, and GDP is expected to contract by 6% in the fourth quarter, although the exact figures are not yet known, as are estimates for the first quarter of 2009. Industrial production will most likely continue to fall and while the Obama administration represents hope and change, it may be until the end of the second or third quarter before consumer confidence shows signs of improvement.
The recession will continue not only in the US, but will spread to other major and developing countries, causing further stagnation in the world economy. Expect to see more trade divisions like the current one between the Chinese and the US and the Mexican blockade of US beef. This will result in short-term protectionism rather than open trade, a condition that could prevail until the economy recovers around 2010.
Despite all the pessimism and predictions of a prolonged recession, the Marist Institute for Public Opinion in Poughkeepsie, New York, conducted a survey and found some surprising results: Most Americans are optimistic about what awaits them in 2009 Granted, those with the highest expectations for a better future were under 45 and likely hadn’t lost much of their retirement savings. Sixty-four percent of those under 45 years of age had an optimistic view compared to 52 percent of those over 45 years of age.