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Politics : Welcome to Slider's Dugout

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To: chris714 who wrote (13705)	12/1/2008 10:17:35 AM
From: jim_p	14 Recommendations Read Replies (3) of 50418

In the short run it’s anyone guess because the markets are still being driven mostly by deleveraging. I think we are near the end of the period in which most of the deleveraging has already occurred, but the process will continue on a smaller scale for years to come. With oil in the 50’s a lot of small exploration projects with short led times are getting cancelled which will result in the oil down cycle ending a lot sooner. Longer term we will not be able to keep up with demand despite the reduced demand resulting from the current recession. You should be safe buying oil as it dips below 50, but keep some power dry in case we see a break into the 40’s. As you know the market always over corrects in both directions. On a macro scale the dramatic increase in oil to $147 along with the bursting of the credit/housing bubble resulted in a market more concerned with deflationary which will not be good for oil, gold or commodities in the short run. With the stimulus being provided into the market and with the 10 year treasuries now being bought down by the Treasury below 3% we will start to see a massive amount of refinancing and an improvement in the housing market in general much sooner than expected. My guess is the new administration along with the new Congress will pass some strong tax incentives for buyers of new, foreclosed and used houses in the first quarter which along with the long term rates now below 3% will lead to a rapid recovery in the housing market. This will result in a shift from deflation to high inflation sometime in the first half of 2009. In an inflationary environment you will need to look to the 70’s to see what to invest in. In the 70’s recession led to lower earnings and inflation led to the PE of the S&P 500 going from 16 to 8. My guess is the same will happen again over the next decade or longer once we get past the deflationary thinking and stock index funds and bonds will not be a good place to invest. In addition the baby boomers retiring along with the higher volatility in the markets will result in more money leaving the markets over a sustained time period. The best investment ideas in 2009 will be gold, oil, oil service stocks and alternative energy stocks with exposure to wind, nuclear and tar sands. As usual the only question is the timing. Good luck!! Jim

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