Postcards from 2009

Ring out the old, ring in the new,

Ring, happy bells, across the snow:

This year is going; let him go;

Ring out the false, ring in the true.

~ Alfred, Lord Tennyson, 1850

Recently I was cleaning up and encountered a sheet of paper I had written on with the title “Possible Tape Bombs To Come”. I wrote it early in 2009 to organize my thoughts on what to look out for in the New Year. As you recall, the credit crisis was in full force as we rang in 2009.

I thought it might be interesting to look at what I wrote (at the risk of great personal embarrassment) and see how things turned out. These were not meant to be predictions, but merely a list of potential “what ifs”. (Note to Non-Traders: A tape bomb is just an event that abruptly causes a market to take a dive.)

1. One or More of the Big 3 Automakers File for Bankruptcy: 2 out of the 3 did go into bankruptcy, but the markets were not affected too seriously because it had already been priced in. They exited bankruptcy surprisingly quickly.
2. Stimulus Packages Might Not Work: It depends on who you ask. This one is still up for debate, although things do seem to be improving for now.
3. Commercial Real Estate Implodes: Although there have been a few individual casualties, the problem hasn’t become systemic. Still, rumours continue to fly.
4. Currency Crises (U.S. Dollar, Euro, Other?): The U.S. dollar did get clobbered in the latter half of the year, but I wouldn’t call it a crisis – yet.
5. Insurance Companies Run Into Bigger Problems (possible writedowns from real estate, stock market, or corporate bond losses): I’m not sure about this one. Nothing catastrophic has happened since the AIG thing, but I’m a little suspicious of the reasons behind Manulife’s huge capital raising expedition. For now, the recent stock market gains have them appearing healthier.
6. Western European Banks With Huge Exposure to Eastern European Economies Falter: Nothing has happened on this front yet, but rumblings of trouble down the road persist.
7. Debt (Consumers and Financial Institutions): Problems with bank and consumer debt were a big part of what precipitated the credit crisis, and this did affect markets dramatically until governments intervened with boatloads of cash. The markets have risen, but we still have too much consumer and bank debt and we now have too much sovereign debt as well.
8. Unemployment Causes Consumers to Cut Spending Because a) they have lost their jobs, b) they are afraid of losing their jobs, c) they need to pay down debt, and d) they have serious investment losses and need to save more for retirement: Consumer spending is still down, but seems to be stabilizing.
9. Investor Apathy – People who are able to save will do so via GICs or savings accounts due to a loss of trust in the markets.  Those who still have money in the markets may sell, causing further declines: Markets did take a big dive until March. Since then, they have staged a huge rebound off of the March bottom (albeit from crazy-low levels).
10. Earnings – estimates are way too high: This was true earlier in the year, but analysts did end up lowering their expectations to the point where many companies were able to meet or beat them.
11. More Fraud Discoveries Further Erode Investor Confidence: Following Bernie Madoff, many other fraudsters have popped up.

I know this stuff is pretty “inside baseball” for a lot of people, and to tell you the truth, I stopped following the markets all that closely this past year myself. I guess you can put me in the apathetic investor camp, at least for a while. Tomorrow, we’ll look at some “what ifs” for 2010.

What are your thoughts on the list above?