Outlook for 2009

This year the experts are expecting more pain. 2009 is going to be tough economically but most of the bad news we already know about. The majority of analysts predict that the markets will end the year in the range of 10 percent up or 10 percent down. Deleveraging by financial companies and other companies cleaning up their balance sheets will lead to lower earnings and return on equity. Rallies and any optimism will be offset by bad economic numbers and earnings reports. Their is an outside chance that the market will go up 15 or 20 percent if the stimulus measures that are put in place are effective and optimism for the economy in 2010 increases. We are no longer in a world where assets are always appreciating and consumers are shopping and taking on credit. Consumers are already starting to save more as their net worths have declined. On the other hand, consumers will benefit from the lower gas prices and from stimulus that is aimed at adding new jobs and giving tax cuts to the middle and lower class. However, all the stimulus and liquidity being added into the marketplace will eventually lead to higher interest rates and inflation once this period of deflation ends which will probably be in a couple of years.

That being said, their are many areas where risk and valuation are not priced accordingly. Their is a tremendous amount of money on the sidelines right now as investors flee for the most quality and liquid investments. Felix Zulauf of Zulauf Asset Management says that "In the past 10 or 20 years risk was high but perceived risk was low...Now we are moving into a world where perceived risk is high but real risk will eventually turn out to be much lower." The key to 2009 will be taking advantage of these misvaluations in these challenging times.