Looking at 2009

Time again for another predictions post looking at what I see ahead for the new year that’s approaching rapidly.   I do these posts more for my own amusement rather than to engage in any serious attempt at prognostication.    For a more in-depth listing of doomer-ific predictions, please check out Kunstler’s latest post.  Lots of good stuff in there.

I’m picking up on a number of the same vibes that Kunstler and others are and think that 2009 will indeed bring in change, although it will not necessarily be the type that people voted in favor of when they elected Barack Obama to the presidency.   I’m thinking more along the lines of the old intro tagline for the fourth season of Babylon 5… the year “everything changed.”

The predominant thinking out there is that we are in a short-term economic slowdown or possibly a moderately painful recession.   I personally feel that we are only in the opening stages of something longer, harder and paradigm-shifting than most of us have ever expected, and we are poorly prepared for it.  2009 will be eye-opening for a lot of people… many of whom have never had to seriously worry about basic surival before in their lives.

Change is Coming… Except in the Economy

The Obama campaign sold two ideas to the American public:  ‘change’ and ‘hope.’   Well, they’ll get one of the two for sure.     The markets will likely experience a short term (less than a year) “Obama bounce” as the new stimulus package(s) temporarily flood the markets with more cash.  Ultimately, I think this project is doomed to fail in it’s ultimate goal of jumpstarting the economy for another bull cycle.   Obama’s incoming economic team come from the same places that the outgoing economic team hailed from, and based on early reports of the stimuli being assembled, they appear to have similar mindsets.

If the Obama team cannot turn around the economy, then ‘hope’ will take on a whole new meaning for most folks.  It won’t be the immediate turnaround of fortunes and return to the good times of old that many people bought on November 4th.  More likely it will mean a long-term goal that we will have to work hard as hell for, and the end result will look a lot different than the past.

Bankruptcy

2009 will see a lot more bankruptcies… both personal and for businesses.   There are already rumblings about a large number of retailers closing their doors after lackluster 2008 holiday sales, and that’s the sort of thing that can snowball as the follow-through effects work their way through the economy.     Retailers, financial firms, home builders, restaurant chains… there are many areas of the economy that will get sicker and sicker as Americans keep their wallets shut.

The wave of insolvency will snap up many city, county and state governments as well.  California is the early favorite among states to declare early, but they are far from alone.

Jobs

If you’ve got one and can manage to keep it, you win.   The mass of corporate bankruptcies and generally piss-poor financial results will mean the layoff parade will continue unabated.  The Obama stimulus package will create some new jobs, but not in the same areas as the ones lost.  I’m sure ex-financial analysts will love their new job pouring cement in an infrastructure project.    One area I unfortunately see major job growth in the next year or two?  Government.

Oil

Prices will stay low as long as the markets do not totally implode.    Equities no longer look safe.  If a panic starts over Treasury Bonds (not unlikely as we continue to add to the debt pile), a run to commodities could take place, as there you’re owning something real instead of pieces of paper with only notional value.    Overall, though, the economy will stay down, and that will force leaders of oil exporting nations to continue to find the sweet spot between lowering production enough to drive prices up and to avoid being lynched in the meantime by rioting citizens that can’t feed their kids.    This will have unfortunate side effects (lower spending on exploration, delaying higher-risk fields, etc.), but we won’t see that for some time.    For now, we should have lower oil prices for at least the next six months or so, and peak oil theory will be ridiculed by those who cannot see more than a year or two down the line.

Geopolitics

Lots of interesting things going on in 2009.  As we start the new year, Israel is assaulting the Gaza strip again, which is having the predictable results of whipping up anti-Israeli sentiments around the Arab world (and in Europe).   If they decide to start an all-out assault to remove Hamas, things could get interesting ina bad way.

Similarly, India and Pakistan appear to be heading for a showdown over the Mumbai terrorist attack back in November 2008.   It appears right now that neither side is willing to back down, and if this turns into war, it could go nuclear, since both sides have weaponry.  The prospect of a nuclear exchange between these countries scares the crap out of me for a couple of reasons.  First it would raise hell with the global economy… especially for those companies who have outsourced to India.  Second, we have a number of troops right next door in Afghanistan.   What affect would a destabilized Pakistani government have on the Taliban?  Finally, there’s just the natural fear of what a nuclear exchange would mean in terms of dead people, wrecked infrastructure, and ruined environments.

Political & economic instability with many of the worlds’ major oil exporters will play a major role in things as well.   Mexico, Venezuela, Russia and other producers are having issues due to the sever drop in oil prices, and the big question is how long they can function effectively with oil prices projected to stay for the next 6 months or more in the same general area as they are now.

To sum up, the operating word for 2009 around the world will likely be ‘instability.’

China

I don’t think China will be immune from econmic problems.  They are still tied very closely to the US consumer, and as long as we have problems, they will have problems.  I have read that the Chinese need their economy to grow at least 8-9% yearly to keep all of the young people migrating to the factories from the heartlands employed and happy.  If they “only” have 5% growth, the prospects for civil unrest will increase.

Another thing to wonder about is the massive number of US Dollars the Chinese are holding, and what they will do with them.   If we continue to throw stimulus package after stimulus package at every field of business that lines up for a handout, sooner or later people will start thinking that their dollars are worth more as detailed & durable toilet paper rather than as a medium of exchange.   If it comes to this, it will be interesting to see if the Chinese telegraph their moves out of the dollar or not.  I suppose it depends on how fast things develop.

The Dollar

Long-term prognosis: not good.  We are issuing way too many of them, and their attractiveness to foreign investors looks to be dropping.    We have this huge mountain of debt crushing companies, governments, and individuals, and the best idea the new administration has is to add to this pile of debt.  Sooner or later the day of reckoning will come, and other nations will tire of funding our lifestyles.     Perhaps the new administration will put that day off for another year or more.

For what it’s worth, if the dollar goes south, it will take most of the other fiat currencies in the world with it, in my opinion.  There are simply too many dollars out there compared to other currencies.

Short Takes

  • Christmas 2009 will look a lot different than previous ones.  See Charles Hugh Smith’s article on the end of the consumer Christmas for some details.    There’s a lot I agree with in his essay, though I also think that many people will cut back on everyday living expenses but still do their best to splurge on the holidays.   Trying to keep some semblance of normalcy in an otherwise strange new world of less.
  • The Yankees will have spent $425 million on three players in the offseason and still won’t win their division.
  • Speaking of sports, the economic contraction will mean the start of the end of the massive corporate sports era.  One juicy rumor:  The Dallas Cowboys are building a new pigskin palace funded in large part through the sale of ‘personal seat licenses,’ which are bought to allow you the right to buy season tickets.   Rumor has it most PSL down payments are not due until 1/1/2009… oops.
  • Another active hurricane season, but unless a big one plows into a major metropolitan area, it will not stick in the news very long, since the few billion dollars’ worth of damage will seem like peanuts compared to the various stimulus packages being doled out.
  • By the end of the year, the word ‘billion’ will not have much economic shock effect anymore.
  • Obama’s popularity numbers will start to slide later in the year with the stock market.  This will not be his fault for the most part.  The scope of the problems he has to deal with and the hype that swept him into office will simply be too big to live up to.
  • Frugality will not replaced conspicuous consumption just for show.  Many of us will be able to purchase less, and hopefully hold those things we do decide to spend money on in higher regard.

Those are the things that jump out at me right now.  2009 is looking to be a very exciting year in a bad way, I think.  We’ll revisit this at the end of the year and see how things stack up.

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One Response to Looking at 2009

  1. Oil prices will rise in 2009.

    Independent studies conclude that Peak Oil production will occur (or has occurred) between 2005 to 2010 (projected year for peak in parentheses), as follows:

    * Association for the Study of Peak Oil (2007)

    * Rembrandt Koppelaar, Editor of “Oil Watch Monthly” (2008)

    * Tony Eriksen, Oil stock analyst (2008)

    * Matthew Simmons, Energy investment banker, (2007)

    * T. Boone Pickens, Oil and gas investor (2007)

    * U.S. Army Corps of Engineers (2005)

    * Kenneth S. Deffeyes, Princeton professor and retired shell Geologist (2005)

    * Sam Sam Bakhtiari, Retired Iranian National Oil Company geologist (2005)

    * Chris Skrebowski, Editor of “Petroleum Review” (2010)

    * Sadad Al Husseini, former head of production and exploration, Saudi Aramco (2008)

    * Energy Watch Group in Germany (2006)

    Independent studies indicate that global crude oil production will now decline from 74 million barrels per day to 60 million barrels per day by 2015. During the same time, demand will increase. Oil supplies will be even tighter for the U.S. As oil producing nations consume more and more oil domestically they will export less and less. Because demand is high in China, India, the Middle East, and other oil producing nations, once global oil production begins to decline, demand will always be higher than supply. And since the U.S. represents one fourth of global oil demand, whatever oil we conserve will be consumed elsewhere. Thus, conservation in the U.S. will not slow oil depletion rates significantly.

    Alternatives will not even begin to fill the gap. And most alternatives yield electric power, but we need liquid fuels for tractors/combines, 18 wheel trucks, trains, ships, and mining equipment. The independent scientists of the Energy Watch Group conclude in a 2007 report titled: “Peak Oil Could Trigger Meltdown of Society:”

    “By 2020, and even more by 2030, global oil supply will be dramatically lower. This will create a supply gap which can hardly be closed by growing contributions from other fossil, nuclear or alternative energy sources in this time frame.”

    http://www.energywatchgroup.org/fileadmin/global/pdf/EWG_Press_Oilreport_22-10-2007.pdf

    With increasing costs for gasoline and diesel, along with declining taxes and declining gasoline tax revenues, states and local governments will eventually have to cut staff and curtail highway maintenance. Eventually, gasoline stations will close, and state and local highway workers won’t be able to get to work. We are facing the collapse of the highways that depend on diesel and gasoline powered trucks for bridge maintenance, culvert cleaning to avoid road washouts, snow plowing, and roadbed and surface repair. When the highways fail, so will the power grid, as highways carry the parts, large transformers, steel for pylons, and high tension cables from great distances. With the highways out, there will be no food coming from far away, and without the power grid virtually nothing modern works, including home heating, pumping of gasoline and diesel, airports, communications, and automated building systems.

    This is documented in a free 48 page report that can be downloaded, website posted, distributed, and emailed: http://www.peakoilassociates.com/POAnalysis.html

    I used to live in NH-USA, but moved to a more sustainable place. Anyone interested in relocating to a nice, pretty, sustainable area with a good climate and good soil? Email: clifford dot wirth at yahoo dot com or give me a phone call which operates here as my old USA-NH number 603-668-4207. http://survivingpeakoil.blogspot.com/

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