Posted on January 1, 2009 - by Jeflin

Coming To Grips With A Harsh Year Year In 2009

Photo by Misfit

I wish all readers of Jeflin’s Investment Blog a Happy New Year in 2009.

The past year has been sobering for taxpayers, retail investors and fund managers, what with severe declines in housing, mortgages, banking, stock markets, commodities, retail, automotive, shipping industry, etc. The extreme volatility in 2008 may be over but more of the same challenges await us.

Personally, I have made a new year’s resolution to be a more careful reader of financial reports, and by that, I mean reading with an inquisitive mind. Of course, if a management wants to get creative with their financial statements and the auditors are in a collusive mood (remember, the person who pays the piper calls the tune), our money is fair game for the predators.

That said, we should still do our part in poring over the footnotes. A lot of information can be gleaned from the fine print – an innocuous sentence (like lease arrangements) can make a huge difference to assets/liabilities, and cash flow when in fact the company’s prospects have not changed fundamentally.

Another new year’s resolution is to avoid taking unnecessary risks. Sure, a lot of stocks are now near their all-time lows and in terms of price-to-earnings ratio, there is a strong upside potential once the stock market recovers. Nevertheless, I prefer to cherry pick with moderation. While I continue to average down my investments, I frown upon the use of debts or jeopardizing retirement accounts to chase higher returns.

Some analysts expect a wave of optimism to sweep global stock markets before Obama’s inauguration on the 20th. However, this rally will be more for the short term traders who have their exit strategy ready when the momentum dies out.

Overall, I still maintain a gloomy outlook in 2009. Deflation will continue to be the main theme but we may get a whiff of inflation later in the year. Some of the likely scenarios in 2009 are:

1. More bank losses and failures

As businesses cut expenses to cope with the recession, retrenchments will begin in earnest in 2009. The loss of income will have a dire effect on property prices as people default on their loans or are forced to sell their houses below cost. We can expect banks to report increasing non-performing loans.

Not to forget, delinquencies on credit card debts and auto loans which will further weaken the banks’ balance sheets. Credit card write-downs had already increased significantly and if a behemoth like American Express is severely impaired, other banks will not be having a good time either.

2. Commercial Properties Hit Badly

Bargains and discounts fail to prevent US stores from experiencing their worst holiday sales since 2003. This confirms a severe contraction in demand as consumers become more careful with their cash. Frugality is the new craze sweeping America as many people feel poorer with a sharp decline in their assets and lay-offs.

Amid the bleak business outlook, retailers may have to negotiate for lower leases or be forced to close shop. The earnings of commercial properties are expected to suffer. Managers of commercial REITs will have to work extremely hard to maintain the same results in previous years.Read more…

Related posts:

1. 2010 – expect a year of more modest gains compared to 2009….the easy money is over so stock selection and valuations become more important
2. Singapore economy contracts 11.5% year on year in Q1-2009 advance GDP estimates and contracts 19.5% quarter on quarter!
3. HyperInflation Coming But Financial Crisis Not Over Yet