1. In Search of a Bottom: Global Markets will continue to show dramatic volatility for some months. Collective animal spirits seeking a bottom will see several false bottoms across the next months; followed by upward spikes. 2008 may test 6800 (Dow) but also rise to 9300 before the close of the year. Early 2009 will test ~6000 as a lows; expect to see spikes upto 11000 by 2010.
2. USDollar: The rest of 2008 will show the dollar continuing to strengthen against the Euro, Pound, and several emerging market currencies. Q1 (February) 2009 will mark the peak. The search for an alternate reserve currency remains cloudy at best, yet expect to see the weight of US debt, public finance challenges, and the reality (not the hype) of current political realities.
3. Real Estate: Globally Valuations remain high. Several markets will experience a further 25% correction (with a potential for a further over-shooting of 15%). However, real estate will continue to adjust downward on a more sclerotic pace than the stock market. Expect a significant drop in Q1 and then a downward bias for the rest of of 2009. The linkages of real estate to the economy will be a drag on GDP. The nature of regulation/bailout/policy response will determine the speed with which adjustments are accepted in the market, and thus the speed with which GDP growth can return.
4. Gold: The USDollar continues to benefit from deleveraging and the absence of an alternate reserve currency (no, the yen is not it!). Despite the runup of Gold across the last decade, I believe Gold will continue its climb. Its the store of value of last resort -- once we start re-testing some new lows the faint(er) of heart will head for the exits... and gold. If the Fed/Treasury's bailout plan proceeds spectaculary we will have massive inflation on our hands, and again its time for gold.
More to come..
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