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We’ll revisit the three key sectors discussed by the Nabob last year: The Economy, Energy and World Events. I’ll offer a brief recap and then present the Nabob’s
predictions for 2009 in each area.
Finance & Economy:
 The Nattering Nabob scored big points here last year. He said the Consumer Price Index would push thru the 209 mark and it did, hitting
216 by May. (But it is heading the other direction now as we will see later). He said the credit markets would continue to tighten and boy did
they ever. He said the housing market would continue to decline, and it fell off a cliff. He said foreclosures would rise and they skyrocketed. He said banks would report massive losses, and the whole system nearly
collapsed! He said delinquencies would rise on credit card accounts and they certainly did. He said major US banks would struggle to remain solvent and some would fail after
massive bank runs…well after IndyMac, WaMu, Wachovia, Citigroup and a host of others all needed Federal bailouts or buyouts to survive, I guess he was right. And after Lehman
and Morgan Stanley and Merrill Lynch vanished along with Bear Stearns, I guess he was darn right on his financial forecasts. He also said auto sales would plummet, along with
consumer spending. You can ask Ford, GM and Chrysler if he was right on that one too. He said unemployment would increase, and we lost millions of jobs, pushing
unemployment from 4.4% to 6.7% in “official” numbers. Real unemployment is actually closer to 12.2% now when the marginally employed, part-time employed, and people who
are not drawing benefits are counted. Unemployment spiked 33% in 2008! It is rising faster than it did after the great market crash of 1929.
The Nabob said the stock market would be a great place to lose money in 2008, and that it would suffer a near term 10% correction and then lose at least 30% from its highs. It did
even worse than that, losing 50% of its value at one point! 2008 was the worst year for stocks since the 1930s. He said 401Ks and IRAs would lose money, that hedge funds
would freeze, and that the overall threat would be deflation. He was right on every prediction made—and this was back when the geniuses like Bernanke and Paulson were talking
about having the problem “contained,” and going around insisting the banking system was sound. Just before his nomination to Fed Chief, Bernanke made the outrageous statement
that he did not see the real estate climate as a bubble that would burst. (This is when the Nabob was predicting the collapse of the housing market in his 2005 article “Perfect Storm
.”) Then Bernanke told congress in Feb of 2008 that he expected the housing situation to improve by the end of 2008. And this guy’s in charge of the Fed? $8.5 trillion in bailout
money later, the crisis is still in high gear. The housing market has yet to bottom, and you can forget any rebound in 2009.
What does the Nabob see in 2009 for economic events?
Sadly, the next “Great Depression” you may have heard about will begin to get real traction
in 2009. All of the “gentlemen’s agreements” that constituted the rules of the rigged financial game have been thrown in the trash. When a financial insider like Bernard Madoff,
former head honcho of the NASDAQ, revealed that he had defrauded investors of $50 billion, the complete ruin of all these Wall Street agreements and betting schemes was glaringly
apparent. The NY Times reported: “It may be the largest fraud in the history of Wall Street... Madoff is charged with stealing as much as $50 billion, in part to cover a pattern of
massive losses, even as he cultivated a reputation as a financial mastermind and prominent philanthropist.” Talk about a wolf in sheep’s clothing! The loss of confidence in the system
has now become a deep distrust, tinged with edge of panic and fear of bankruptcy. Investors realize the people they trusted for years were basically crooks, liars and fraud
specialists out to skim off billions before vanishing into the smoking ruins of the stately institutions where they plied their deceptive craft.
The Madoff Ponzi scheme stands as a symbol for everything Wall Street was doing throughout the artificially inflated “housing boom” with its devil’s garden of securities,
derivatives, and Credit Default Swaps. It was a game that saw the investment gurus swap trillions in leveraged wealth, defrauding, bilking, swindling, and duping millions of investors
behind a false front of financial erudition and a business suit and tie. When the rich turn on one another, as in the Madoff fraud, they become like sharks feeding on their own kind.
While the Bush administration pumped out fear with shadow puppets like Osama bin Ladin and others for the last eight years, elevating “terror” as the gravest threat to the nation, the
real terror was being quietly leveraged, hedged, traded, inflated and sold off as a “security” by men like Madoff on Wall Street.
Unfortunately for the nation, it was not just fat cat investors caught up in the net of deception. Millions of Americans bought into the scheme with inflated mortgages, reckless
home equity loans, and a “flip that house” mentality that was itself just another money making game played out at the neighborhood level. In the meantime, the economy is a
smoking ruin, banks and insurance companies have fallen in a systematic implosion, the floors of their artificially created wealth pan-caking down on one another like the twin towers
of the World Trade Center. Indeed, 9/11 stands as a towering metaphor for all that has happened these last eight years under Bush and Cheney. The concrete fell at the outset of
their regime, but the real collapse was staged at the gut wrenching finale. Lives have been ruined, fortunes lost, mega-corporations humbled, and whole neighborhoods reduced to
vacant, copper-gutted ghost towns in cities all across the nation. The American dream, with its aspiration for constant growth and the accumulation of wealth, is decidedly dead. It’s not
coming back, at least not in the form we have been living it these last few decades. The coming year will make that apparent to everyone, even the clueless main stream media.
2009 will be the year the choking, asbestos ridden smoke of the financial collapse settles into the lungs of the broader economy. It is no wonder that all through this eight year agony
under Bush we have been treated to Hollywood mega-buster spectaculars like The Day After Tomorrow, 10.5 Apocalypse, Volcano in New York, Category 7, The Eleventh Hour, Perfect Storm, Children of Men, I Am Legend, and Cloverfield, where a monster of
immense proportions lays waste to New York’s expensive high rises, spawning hundreds of tiny rapacious raptors who do the real damage down on Main Street. The movie moguls
have shown us the destruction of New York in every way possible, but their imaginations pale before the audacity of men like Madoff and the appalling financial scandals that have
brought the economy to the edge of perdition. In 2009 the pain ripples out like a cloud of steel eating nano-bots from The Day The Earth Stood Still, and it will leave no city or town
in this country untouched. It will end as it began, in neighborhoods all across this nation, where real estate loan sharks duped one family after another, people who had come to
them for that hope of the American Dream, with nothing down and a teaser rate, interest only, adjustable loan rigged to go off like an IED.
Average household wealth fell 18% in 2008 with evaporating equity in homes and investment portfolios amounting to $7.7 trillion. (View this table of numbers released by the
Fed showing the destruction of wealth in the last year). Holiday sales were a last gasp for the consumer, and a half-hearted one at that. When national toy retailer K. B. Toys files for bankruptcy two weeks before Christmas, you know the economy is flat out dead. 2008 was
the worst retail holiday shopping in the last 40 years. Apparel sales fell 19.7% and Electronics and appliance chain sales dropped 26.7%. Luxury goods were hit hard with a
34.5% decline. The problem stores face is that they planned retail purchases six to nine months in advance, well before the great financial panic and collapse of Sept-Oct ‘08. They
should have listened to the Nabob. Now they are sitting with unsold inventory, fat with debt, and have restricted cash flow on top of that with the dismal sales. It’s a recipe for
bankruptcy. Don’t expect the traditional holiday shopping binges all throughout 2009 either. Restaurants who roll out expensive New Year’s dinner specials will be sadly disappointed.
Lovers will have to settle for a box of chocolate on valentine’s day instead of those 12 expensive roses. There will be no pot of gold at the end of the rainbow on St. Patty’s Day.
The Nabob says the economy will begin to contract even more in the Winter and Spring of 2009.
Chief among distressed businesses to feel the pain: manufacturing, construction, the airline
industry, transportation, restaurant business, leisure and tourist sectors, and now retail, including all small businesses that do not sell necessities and depend on people having
plenty of discretionary cash or credit available. Even the movie theaters will be hurt as people opt for NetFlix and Blockbuster services and shun the theaters. People will console
themselves by sitting in front of the plasma and high definition LCD screens waiting for the all-digital signal to kick in. Many retail outlets will fail and close their doors, and layoffs will
spike unemployment to the “official” 9% mark, which will be closer to 17% in real terms. In
1994 the Bureau of Labor Statistics decided to exclude long term discouraged job seekers from their official tally. They also exclude people who work part-time because they can’t
find a full time job, and the marginally unemployed, like seasonal workers, are also not counted. It’s a bit like not counting all the votes in an election, something the system
became famous for under Bush & Cheney. This is Pollyanna nonsense, and the reason why the official number is now artificially low. But it’s also the reason why 10% “official”
unemployment will be the equivalent of Depression era figures in our time.
Here’s a current look at where employment loss stands by industry, according to the Bureau of Labor statistics as of Nov 08:
Construction - 12.7%
Education & Health Services - 3.6%
Financial Activities - 5.2%
Information Technology - 5.2%
Leisure & Hospitality - 9.9%
Manufacturing - 7.0%
General Services - 7.0%
Business & Professional Services - 7.0%
Note the first casualty of the housing bust was construction, and as spending contracts in the retail sector, leisure and hospitality is leading the pain index. These number are
conservative, and will go much higher.
So the Nabob predicts that unemployment will be the big threat in 2009. Half a million
people lost jobs each month in the last quarter of 2008. That number may increase by over 30% by the spring of 2009. This is gruesome unemployment, layoffs not seen since the
1930s in this country. There will be a massive game of musical chairs for the few available jobs. Those who don’t find a chair will face the worst possible situation—out of work at the
dawning of a Great Depression. It’s going to be very grim, and not even affluent sectors will be immune. (This mark was reached by June of 2009, and will go much higher by year’s
end).
Big Town, Little Town
If you want a sneak preview of what is coming to America’s cities, just look to Motown.
First hit by the dying US auto industry, Detroit has shrunk from a high of 1.9 million to just over 850,000 as people leave the city looking for work elsewhere. Unemployment there is
already above the official “Depression” mark, 10.1% in Jan ‘09, (but an an astounding 22% my April 1 09). It now has the highest poverty rate and steepest foreclosure rate in the
nation. High rises sit in ghostly silence, empty and forlorn. Whole neighborhoods are abandoned. Bloomberg quoted a developer there as saying: “How do you downsize to the
right level when there doesn't seem to be a bottom?” Long wedded to the auto industry, the city is a microcosm of what is to come as the nation as a whole “moves away from cars.”
Yet there is already alternative land use cropping up here and there—literally. Small “mini farms” have appeared on a few of the city’s 17,000 vacant acres. Only 6 acres have been
cultivated so far, but this will grow to a valuable source of local food production. Expect this to happen everywhere. Detroit is perhaps 9 months to a year ahead of the rest of the nation
in terms of the pain that is coming our way. No town will be spared.
Case in point: I live in a relatively affluent small town that depends heavily on tourist trade
and the spending of wealthy retirees. Virtually every store on the main street caters to this customer: lovely old inns, boutiques, art galleries, antique shops, high end furniture, gift
shops, old clock shops, card shops, salons, cafes, restaurants. In effect, the only stores in town selling things people really need to survive are the hardware, grocery, and two liquor
stores! There’s a bike store in town that will likely see a big surge in business soon, and a decent vitamin/herb store that may or may not survive. The auto repair place may hold on
for a good long while yet, because people who cannot get finance to buy a new car will have to try and keep the old car running. But in chatting with the local merchants I am
already hearing stories of worry and distress. One frilly gift store recently closed, only to be replaced by yet another gift store, this one selling clever gag signs and novelty items. I can
imagine that many of these businesses will fail in the coming years. Some will hold on stubbornly, burning though personal retirement money. But it will be an exercise in futility.
The old economy is not coming back any time soon.
As this retail sector dies, it will take a bit of the charm and magic from the heart of this little
town, but like Motown, the roots of the new economy are already beginning to sprout here. Each Monday the main street is roped off for a little Farmer’s Market. Local growers arrive
and set up booths offering vegetables, plants, craft items, fruits, nuts, and home made jam. I hope this continues and expands. Perhaps the bloated antique store offering some
wonderful treasures at extravagant prices no one could afford will eventually evolve into a place where people can barter or trade useful items. And I wonder what will become of the
eleven old Victorian inns that offer up posh rooms at prices from $150 to $400 per night? Even the constant stream of tourists from overseas is likely to diminish, as this is a world
-wide depression in the making. What happens when the tourist bus pulls up and only three Japanese get off instead of fifty, as is now the norm? The key message here is that frills
and non-essentials will fail as people fall back on spending only for necessities.
Let’s look at some other predictions …
The Markets: The Nabob remains a Bear for 2009. He sees the Dow falling well below
7000 and the S&P well below 700. (The Dow closed at 6763 on March 2, with the S&P 500
falling to 700 at 3:40pm and closing at 701. The crucial line of resistance has been reached in just 60 days. If this line fails to hold, the markets are in deep trouble--But first see the
Spring rally prediction below).
The volatility that has characterized the markets will continue, but the trend is down. This is
not to say that there will not be sharp rallies throughout this period. Drop a dead cat from a three story building and it will still bounce. The Nabob just doesn’t want to try and time
these rallies, though he thinks there will be an Obama rally in the late winter/early spring. (The rally was staged in mid to late March when the market finally moved into official
“Obama Rally” mode with the Dow creeping back towards 8000 and the S&P 500 at 833. The Nabob says this rally is a “Bull trap.”) But the warmer weather will not thaw the
deepening economic freeze. Expect another painful year for stocks, particularly in the Sept-Oct period. The Nabob plays the long odds and stays out of stocks altogether in this
environment. I’ll see if I can get him to clue us in when the bottom arrives.
Gold will rise in value, as it always does in difficult economic times. (Gold broke
$1000/ounce in February, before retreating slightly. It will go higher). Money will flow back and forth between commodities and Treasuries as investors seek havens to protect eroding wealth.
In finance the fantasy world of Derivatives, Credit Default Swaps and other securities will continue to unwind. Hedge funds will come under increasing pressure, continue to suspend
withdrawals, which will exacerbate the problem by further eroding confidence. Boomers expecting a long comfortable retirement from these investments, mutual funds, 401Ks,
IRAs, will see another 30% of their nest egg wither away, if not more. This will create an aging population group that will be shocked to find its golden years tarnished when
retirement money from these investments, and from evaporating equity in their homes, is suddenly gone. There will be many more crotchety old Nabobs around by year’s end.
Credit card usage
and buying on credit will suffer a severe decline, as credit card companies move to avert risk by tightening lending, reducing credit lines and closing dormant accounts. (American Express even offered to pay customers $300 if they would
pay off their balance and close their account by march 31st). The default rate for consumer credit cards will spike sharply higher in the equivalent of a low grade “debt rebellion” at the
consumer level. (The default rate exceeded 10% by mid-year) The SEC will toss a bone to
the consumer by forcing banks to stop unfair practices like double cycle billing, universal default, and high fees, but it will not stop the tide of defaults. The Nabob says that, absent
another fantasy money bailout program for credit cards, the industry will tighten its belt by at least 30%-40%. This means cash and carry will become more prominent as consumers
lose the ability to charge and pay later. The “layaway” will return in the stores that can manage to stay in business, as a means of paying for something in cash installments over time.
New car sales will continue to decline, but there will be a continuing trade in used vehicles. Used cars made by failing US auto firms will lose value on this market as long term
prospects for parts decline. Honda, Toyota, Hyundai and other foreign manufacturers will not be hurt as bad, but they will post no significant gains. Toyota announced its first
operating loss in 70 years for the 4th Quarter of 2008! The trend toward smaller, more fuel efficient cars, will thankfully continue, particularly when oil prices rise again as the Nabob
predicts later in this article. Unless a way can be found to get average (now ‘sub-prime’) borrowers financed for autos, new car sales will continue to decline. The average person
simply cannot pay $20,000 cash for a new car, so if banks continue with tight credit, auto dealerships will close by the thousands. At least one of the American “Big Three” auto
manufacturers will not survive 2009. (It is clear that GM & Chrysler are failed companies in 2009.) All three will struggle to survive, even with a government bailout. A church recently
rolled in a couple of SUVs to the altar and got everyone to pray for them. It was a sad testament to our long love affair with the bloated automobiles, which are now starting to go the way of the dinosaurs.
The travail of the big three US auto makers, and the pain spreading to thousands of dealerships, is symptomatic of the fact that the great autotopia in the US is now in
permanent decline. Think of it like the massive oil fields we depend on to fuel the cars, which are also in decline. The market will flirt with new hybrid and all electric auto
technology, but the trend will be a steady decline in auto sales, production and general usage, which will simply have to be replaced by a new means for people to move about the
country. Radio was once king of the airwaves ... then came television ... the internet. Something else will rise to replace the declining reliance on the personal automobile fueled
by cheap gasoline. I am hoping it will be a revival of intercity mass transit systems and long distance high speed rail.
Food Production
will also decline and lead to shortages in 2009, largely because the distribution system will start to face cathartic convulsions. Food traveling 2500 miles to
reach your plate is inherently inefficient. It will have to transition away from long distance distribution to more localized production. In the meantime, the Nabob sees portions getting
smaller on a lot of people’s plates this year. The 2008 harvest was plagued by propane shortages that hindered operations and drove up costs to dry and store food in silos. These
shortfalls will begin working their way into the supply chain in 2009. There will even be heretofore unheard of shortages and empty shelves at major market chains this year! In
America? Yes, the Nabob says the stresses on the centralized food distribution system will intensify, but this will favor the much needed development of local food growth. Look for
Farmer’s markets to spring up in many places where they never existed before, and this is good.
Electricity will also be under stress in 2009. The infrastructure is old. Power plants are not
being built, energy costs will rise again this year, and the brownouts California residents experienced a few years back will be more common across the nation--this time not due to
fraudulent price manipulation, but actual outages. The Nabob says electricity outages will annoy, but not present major problems this year. The cracks in the system will widen,
making future outages more common down the road.
Foreclosures will continue to rise in spite of government sponsored programs aimed at
modifying mortgages. These modifications do not address the basic issue that has caused all these defaults—the homes were incredibly overvalued due to speculation and appraiser
collusion and fraud. Because of this people are paying upwards of 40% or 45% of their income on these bloated mortgages. (And this is also the case with rents forced up by
landlords with fat mortgages.) The houses are depreciating rapidly, but not the loan debt, not the rents. This leaves people carrying the burden of the housing boom as an integral
part of their daily living expenses. It simply must get cheaper to put a roof over one’s head if we are to survive the hardships ahead. Housing prices and associated rents must come
down. Borrowers are also saddled with student loans for their kids, auto loans, staggering credit card debt. Now throw in that ballooning unemployment rate, and you will see why
people will continue to default until prices deflate to levels they can afford. Face it—we bought on credit to sustain the life we had in this country. We were living beyond our
means for decades, and now the bill has arrived.
But because landlords are locked into bloated mortgages, the rents will stay high. This
means another situation we will soon begin seeing is the formation of communes, or multiple family dwellings—the return of extended family. During boom times we see the
creation of a lot of single person residences. In lean times this contracts as people look for more affordable living situations. Roommates, sublets, house shares will spike upward in
2009. (Craig’s list saw its ads for roomates nearly double in 2008!) This would not happen if rents came down, but don’t expect too much change there. When’s the last time you had
your rent lowered? Landlords will not lower rent until they are forced to by market conditions. Some will stubbornly let property sit empty and unoccupied rather than lower the rent. Go figure.
Commercial real estate will go into steep decline. Strip malls and office parks will sit empty unless enterprising brokers and agents find a way to use the space for the new local
‘underground’ economy that will start to rise in America. The Nabob says the housing market decline is only about half way through its fall. By Dec ’09 housing values in the US
will decline at least another 25%. (Just visit www.deadmalls.com to watch this happening).
The national health care plan we hear about every four years during all the election debates will not happen this year, and health care costs will continue to rise, as will the
number of uninsured. The medical sector will be one growth spot in the economy that remains immune from the recession. Aging boomers will keep it thriving for years to come.
The Dollar:
Our money supply has never spiked up this dramatically before. There will be consequences to this massive movement of dollars into the system, held in check now
only by the stubbornness of the banks, who have finally realized they are insolvent and stopped lending. At the moment, banks are hoarding all this “liquidity” to recapitalize. The
trillions in bailout liquidity the Fed and Treasury have poured on the system are, in effect, trapped like water building up behind a massive dam--the banks. With “consumer” debt at
an all time high, home equity evaporating, unemployment spiking up dramatically, why would banks begin any sustained lending in this environment? All Bernanke and Paulson
have done with their massive interventions is to prove the old maxim: you can drag a horse to water, but you can’t make him drink. The banks aren’t lending and consumers aren’t
borrowing because they can no longer “qualify” for normal financing, and they are finally facing the reality of the debt they have already accumulated.
I believe Bernanke thinks the banks can slowly open their sluice gates in a measured way to manage a recovery, but as more and more of this excess money begins to work its way
into the economy our present deflation will begin to transition to a strong threat of inflation. The timing of this is difficult to know. The current forces of deflation are widespread and
severe, and will be difficult to overcome. In fact, all the bailout money we hear about is not really reaching, or circulating, in the real economy. The greenback holds its value during
deflation, and it will take some time before the multi-trillion liquidity bailouts begin to slowly debase the currency, if they even have the power to do this at all given the enormous
destruction of both wealth and debt now underway. But there will be up and down cycles where the dollar is concerned. Money seeks safe havens, and at present it is hiding in U.S.
Treasury bills. Sudden swings in the value of the dollar are possible when money moves, as in a “flight from treasuries,” where yields are now ridiculously low, virtually zero, back into
commodities or gold. A new bubble in treasuries has been created by the Fed, and it will burst like all bubbles must. Investors are already seeking insurance protection from a
possible U.S. Treasury default! Some even feel the Fed wants the dollar to go lower, as its balance sheet has ballooned with bad debt and weaker dollars paying that debt are less
costly than stronger dollars. But the Fed may be powerless to halt the deflationary forces now underway.
The printing press produces easy liquidity, but it takes time to work its way into the economy where the gremlin we get from all this money infusion is a sharp inflation down
the road. In the short run, however, the Nabob says the problem remains deflation, which will dominate the whole of 2009. The key thought when it comes to dollars in this environment: have them, as many as you can. Almost all other assets lose value in
deflationary times.
The Nabob sees no introduction of an alternate currency, (the Amero), in 2009. This is nonsense. There will be some discussion about a new gold standard … until the geniuses
realize there simply isn’t enough gold to back up all the Federal Reserve notes being printed. But a devaluation of the dollar vs gold is a real possibility.
Energy
 Last December
the Nabob said the price of oil would break the $100 dollar a barrel mark in 2008 and go much higher. It did, reaching $147 a barrel by the summer. Basically this move was a flight to commodities
by traders and investors perplexed by the daunting volatility of the stock market. Why did oil prices collapse? The near global economic meltdown kicked in and forced the traders to unwind their badly
overleveraged commodity positions. Oil futures were a sure sell in a tough market, and sell they did, sending oil on a rollercoaster ride to the $50 mark by
year’s end. Oil also fell in price because the dollar rallied in value, still being a currency of last resort. Investors unwound commodities positions and fled instead to Treasury Bonds,
denominated in dollars. This dollar demand drove the sagging greenback up in value relative to other currencies and so it took fewer dollars to make oil purchases. The higher the dollar
, the lower the cost of a barrel of oil. But the Nabob’s prediction, as stated, came true, and he also correctly predicted the ongoing depletion of the world’s major oil fields, the rising
cost of heating oil, natural gas, and electricity, the rising cost of car ownership, the rising cost of food, the trouble in Venezuela, Nigeria, and the forced mergers in the airline
industry. He thought “Free Shipping” would slowly vanish as a sales incentive on the Internet. It’s still there, but shipping costs were a bear for most on line retailers in 2008, and they know it.
What does the Nabob see for 2009 where energy is concerned?
Don’t be lulled into a false sense of security now that the price of a barrel of oil is relatively cheap again. The basic fundamentals of our energy situation have changed, but not for the
better. 1) We import over 60% of what we need. 2) Production will continue to erode with ongoing field depletion. The IEA reported that there will be a general 9.1% depletion in oil
production on an annual basis. Do the math. The world’s major fields are in steep decline, and we are not making discoveries that will in any way offset that shortfall. To put this in
the clearest possible terms the Nabob says: “We would need to find reserves equal to a new Saudi Arabia every 18 months from here on out to keep up with present demand.” That
demand is declining now due to the global recession, but that is temporary. We will also see foreign oil producers retaining more of their oil for internal use and exporting less. The
economic slowdown will inhibit, but not destroy, demand for oil.
The Nabob therefore predicts: “In 2009 we will see the inverse of the oil price curve we saw
in 2008. In ’08 prices started high, peaked in the summer, then fell near year’s end. In 2009, prices will be lower at the outset, and even fall further, then rise again by year’s end. The
same financial and economic pressures that temporarily reversed the price of oil will be balanced by declining production. Oil will be badly undervalued due to the economic
slowdown, but as the dollar weakens, and people realize declining production will not be able to fuel another big economic recovery, the price of oil will move up again.”
What does this mean in terms of the change we have all been hoping for? It means that if you think change will be a return to low, stable gas prices year after year, and easier utility
bills, you are sadly mistaken. Enjoy cheaper gas in the short run. In the long run, it will go higher. If anything, the temporary reprieve in oil costs has caused as much harm as it has
brought relief. Many projects aimed at alternative energy, or difficult to extract oil sources, have been canceled because oil is now too cheap to make them profitable. This is a delay
in alternative sourcing we simply cannot afford. So…if you’re thinking that SUV parked outside doesn’t seem too bad now, think again. Oil is going up by year’s end, and it will
continue to be more costly year after year from here on out. The Nabob has spoken. (And gas was well over $3 per gallon by June.)
Political & World Events:
 Last year the Nabob called the US Presidential race for Barak Obama in December of 2007, well before the primary victories that made him a
contender! This guy must have a crystal ball, great tea leaves, or maybe he just reads a lot. He also correctly predicted Israel’s “Hot Winter” Gaza
Strip operation in March, (the sequel underway again in late December). He said Pakistan would be a bigger trouble spot than Iran or Iraq, and it
certainly seems that way after Musharaf’s exit and all the squabbling over cross border attacks and now the trouble with India over the Mumbai terror attacks. He
also correctly predicted the hurricane strikes on New Orleans and Huston, the ongoing drought, though he did not “hit” on the 6.0 earthquake predicted for Southern California, (but
there was a 5.1 in that region on December 7. Close but no cigar.)
The Neo-Con inspired attack on Iran he saw brewing also went bust when the banking
crisis made that impossible for Bush to contemplate. The big terror incident he saw happening around October was apparently postponed and staged in November for a nice
Thanksgiving show from Mumbai. Let’s give him half a point on that one.
What does the Nabob see in 2009 for world and political events?
Israel is not going to sit idly by and watch Iran continue to enrich uranium. They had strong hopes that Bush would support an operation against Iran, and they were bitterly
disappointed. Some time during the year they will again revisit the long planned operation to use their air force to strike key facilities in Iran. The route will overfly Turkey, and cause a
bit of a stir. If this happens Iran will not sit idly by and take the attack lying down. There will be an outbreak of violence in the Middle East again because Israel, a nuclear armed state,
wants to make sure none of its local rivals ever reach parity with her on that score. They consider this a matter of their national survival, for a single nuke going off anywhere in Israel
would pretty much be the end of the game there. The Palestinians would also suffer tremendously if this should ever happen. Let’s hope the Nabob is decidedly wrong on this
one, but he says: “The IAF will be used to delay or curtail suspected Iranian enrichment operations some time in 2009.” This will be one of the big stories of the year--a conflict
between Israel and Iran. Before this happens, however, expect a larger military operation in Gaza, a reprise of the 2008 “Hot Winter” plan, only on a larger scale, which will act as a
flash point and catalyst for this larger conflict. (Update - Israel obliged the Nabob by launching this operation early: “Operation Cast Lead” in Gaza, underway in Late December
and extending into the new year.)
Under Obama, the US will begin to draw down troops in Iraq, and redeploy them to
Afghanistan, but to no avail. The Taliban will not be defeated on the ground there, and only a political solution will end the fighting. The Taliban will have to become a part of the
governing structure of the country, much like Sadr and his militias were neutralized by power sharing agreements in Iraq. The US will build up from its present 32,000 troops in
Afghanistan to over 50,000 troops, including heavy armor to support certain operations in the west. This will be an exercise in futility. The United States will eventually be forced to
withdraw from Afghanistan, just as the Russians were. Shortly after the Russian retreat, the entire Soviet Union collapsed. The economic collapse underway now for the US will be a
haunting echo. This withdrawal will not happen in 2009, which will make Afghanistan the grinding war many had hoped Obama would finally end. Iran will watch the American
buildup closely, particularly in light of Israel’s continued bellicose statements about “going it alone” if the US will not support an attack. The presence of strong, mobile US forces in
Western Afghanistan will be a thorn in Iran’s side.
Pakistan will again be a major trouble spot. They will spar with India, and significant
clashes are possible along the Indian border. They will continue to have internal unrest, and the US will be forced to take some action to secure its Khyber Pass supply lines, recently
under pressure from militants. Look for Pakistan to be the big flash point for war in 2009.
Elsewhere in the world, the Nabob says Nigeria will continue to destabilize with additional
violence threatening the Niger delta region and major incidents involving foreign oil production facilities there. There will be continued violence in Africa, the Congo, Zimbabwe,
Somalia and Ethiopia. The West will be forced to take strong action against Somali pirates. (On January 8th the US announced the creation of Combined Task Force 151 to combat
piracy and other related mischief on the high seas off Somalia).
Here’s one the Nabob has been worried about for some time. There will be an
assassination attempt on President Obama some time during 2009. In fact, a plot against his life was already foiled during the election campaign.
Other things the Nabob sees happening soon: The United Kingdom will edge closer to adopting the Euro as its national currency. Hugo Chavez will circumvent term limits and find
a way to remain in power in Venezuela. The prison camp at Guantanamo will be closed, and the Russians will again appear 90 miles off our coastline in Cuba, this time bringing oil
rigs and production personnel instead of nuclear missiles. But the Cuban off shore oil find will be a disappointment for all concerned.
Conclusions:
The Nabob says that by the end of 2009 the numbers that define a deflationary depression will be near at hand, that is 10% “official” unemployment, and a 10% contraction of GDP
from its previous high. The economy suffered a 5% contraction in the third quarter of 2008, so it has a ways to fall yet. In terms of unemployment, California, for example, is already
“officially” at 10.2%, Michigan at 9.3%. Most of the Southeast is at 7% and rising, along with rust belt states like Illinois, Missouri, Indiana, Ohio. Expect no broad economic recovery in 2009. If anything, the coming year will be far more difficult than 2008, in almost
every respect. The Nabob says that: “Cash will be king in 2009 as credit remains difficult to obtain. But by year’s end, the dollar will be weakening, particularly relative to gold. If you
aren’t wealthy enough to buy gold, just build savings. You will need every dollar you can save in the months ahead.”
People who are not already out of debt will have great difficulty servicing it. Paying it off now
with strong dollars is not as wise as waiting until the dollar falls in value again —assuming you can pay it off at all. But debt is your great enemy in 2009, and building savings is wise
under any circumstances. The investment gurus say 3 month treasuries are a relatively safe haven, though they yield next to nothing at the moment. If you have money invested in
stocks, bonds, mutual funds, but still have credit card debt, you are a motley fool. Paying off the credit card debt nets you a gain equal to the interest rate you are burdened with on
the cards--some as high as 30%. There is no investment that will net you a 30% gain in 2009, except perhaps gold, and if you have credit card debt at 30%, you can’t afford gold. Get out of debt!
The Nabob is also very nervous about the general social order. In the last quarter of 2008 we have seem severe social dislocation in smaller countries like Iceland, Thailand and
Greece, but there have been protests in France, Russia, and China as well. He thinks these severe economic conditions will stress the existing social arrangements and civic
unrest will begin in major US cities, particularly those with large lower, and middle class populations. (There were riots in Oakland California on January 8, leading to the arrest of
over 150 people and the use of “chemical deterrents” to quell the crowd violence. It was a Rodney King like incident, when 22 year old Oscar Grant was shot by a subway police
officer. This was exactly the sort of incident that sparked weeks of violence in Greece. CNN Reported that an unnamed female protestor said: “We live a life of fear, and we want them
to be afraid tonight.” This is a grim illustration of the potential violence already existing just beneath the surface of our society.) Property crime will increase when the have nots resort
to desperate measures to keep themselves warm, and put food on the table. Squatting in abandoned real estate will become more common. The sale of home safes and guns
increased 50% in late 2008—a foreboding of hoarding behavior and violence that may come to a neighborhood near you in the not too distant future.
The large number of guns in our country will make violence an increasing possibility, and some of this violence will be directed at the visible symbols of our distress—the banks.
This is already happening. When Rodney King like rioting broke out in Athens in December, banks were fire bombed, and gas bombed. A bomb went off in an Oregon bank days later.
People, long the victims of banks, will take out their frustration on visible signs of the wealth that they now fairly associate with greed, corruption, and fraud. Wall Street, banks, wealthy
“investors” are seen as ‘the evil elite.’ Conspicuous wealth will fall out of vogue by year’s end, as it only advertises the presence of resources others will covet and target with this
violence if it comes. The law enforcement situation in the country will get difficult. General wide scale violence can be avoided, however, if the new Obama administration can find a
way to give these distressed populations vision and hope, and a job in building the new economy, restoring our bridges, roads, rail systems and waterways. In short, Obama faces
challenges more severe than FDR. He has to find a way to prevent large scale unemployment at depression era numbers and get people back to productive work. His
success or failure will determine whether the nation holds together over the next four years. But the key is this: Obama must see his work as aimed at restructuring our society at a
lower, more sustainable level—not restoring the old status quo of the past, where constant economic “growth” was the norm.
The theme in all these predictions is that things we have always taken for granted for decades like cheap gas, abundant food, uninterrupted electricity, not to mention cheap
credit and houses that always appreciate in value—all these notions will falter and fail. They already have failed. 2008 has already shown us the fallacy of that way of life. The
cornucopia life style in the US ends definitively in 2009. Words like outage, shortfall, deficit, scarcity, and rationing will enter our collective lexicon, and our lives will get much leaner by
year’s end. This is the year that all the glitz, fluff, and frivolous nonsense in the economy withers and dies. But this is good, believe it or not. Think of it like a tree that looses its
leaves. The branches and trunk of our economy will survive, but by the spring of 2010, something new will be growing to replace the art galleries, nick nack shops, boutiques, and
even failed big box retail outlets. In their place we will see more pawn shops, co-ops, farmer’s markets, auction houses, flea markets, garage sales, used car lots, street vendors
, and service bartering, all gathering steam by the end of 2009. Alternative energy will grow in investment. Storable food sales will spike upward, along with local food production—even
to the individual household level. Back yard grass will give way to vegetable gardens. This is good.
In 2009 our society must begin to redefine itself at a lower and more sustainable level. This
contraction is going to be painful, and it could also be violent. The Nabob sees potential bank holidays, curfews in major cities, though he does not think Martial Law will be
declared. What good would it do? Our army could not prevail and keep order in Iraq, a nation of 26 million accustomed to being ruled by a harsh military for decades. What would
make the government think it could enforce Martial Law here in a nation of 300 million people who are accustomed to doing whatever they please, whenever they please? So
these hard times do not portend the dawning of a police state dictatorship as the real gloom and doom web sites predict. No, the Nabob says: “we will be asked, in 2009, if we
really are Americans—if we really do hold certain truths to be self evident, if we really do love our country, if we really can pull together as one people, and one nation, to do the
work necessary to recover from this crisis.” Our lives will no longer be about getting, watching, and doing what we want. They will be about Food, Fuel and Freedom.
When will the recovery begin? The Nabob says that when he sees financial and economic resources being invested in the foundation of what must surely be our new way of life, the
recovery will finally begin. This means a new way of looking at transportation in this country, with rejuvenation of local light rail and high speed long distance rail, along with renewed
use of our excellent navigable rivers and coastlines. When a new energy model like that of MIT researcher Daniel Nocera is properly funded and is scaled up, then we will finally be
headed the right direction. When Big Box retailing fades away and is replaced with new localized commerce and rejuvenated neighborhoods…when food production and distribution
becomes local…when rigorous regulation restricts rapacious greed on Wall Street…these will be the hallmarks of “recovery” from the awful place we find ourselves heading now. It will
take nothing less than all of the above, and the more we invest in old failed models now, the longer real recovery will take.
And not to put icing on this unhappy cake, but we still have to contend with the possibility of Mother Nature tossing us a hurricane or two, or that big earthquake that’s been lurking
under the West coast. All in all, it’s going to be a hard year. Change will come hard to many, easier to others, but we will all be affected. Along the way we will discover how to
cope, survive and take care of each other—at least that is my hope.
The Nabob’s final advice:
Do stay hopeful and believe we will come through the hard times intact…
But prepare yourself.
Abandon spending for non-essentials
Eliminate debt. Debt is your worst enemy during deflation.
Build cash savings. Cash is king during deflation.
Don’t buy on credit--use cash
Store necessities, particularly food, medicine, even water
Stay healthy
Stand ready to help those you love, your neighbors, and community.
How we answer this challenge now will determine the fate of “The United States of America
.” It doesn’t really take a crystal ball to predict the things the Nabob lays out here...One has only to read, but to do that you have to first have a strong enough mental and
emotional core to weather the bad news and formulate some sense of hope for the future in spite of the gloom. The Nattering Nabob, and the other commentators presented in the
sidebar to this column, are not being “negative” or pessimistic. They are simply looking at the world and recording what they see in light of their judgment and reasoned intuition. And
unless you first see the world the way it really is, you will be unable to change it to the way you dream it could be.
See the world. Know what is happening, and what the likely consequences will be. But don’t abandon your hope and dreams. Become the change necessary to move us beyond
this crisis to the new world we must all build together to survive. The Nabob offers this quote as a final word on all this:
“We will endure, sometimes even find ways of loving our new lives. There will be acts of
remarkable courage and heroism, and acts of the most profound evil and selfishness. There will be enormous losses - but we will also discover that most of us are more than we
think we are - can tolerate more, and have more courage and compassion than we believe of ourselves.” – Sharon Astyk
Article By: John Schettler
December, 2008
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