2008 in review, 2009, and random thoughts….

The following is a guest post from Bob Costello (not his real name), a financial consultant in Michigan.

Much could be written about the events of 2008 but in a broad sense, an economy fueled by debt met its limits. As reported in the Wall Street Journal, GDP grew 5.9% annually since 1983 while total debt grew 8.9%. Disturbingly, GDP increased $10.9T and debt rose $45.9T. At the least, a period of adjustment is in order. A new approach to growth will have to be found. Thus far, Washington’s response has been to pour on record debt.

Who knows what the long-term consequences will be, but some thoughts for piece of mind: Currency values are based upon relationships with other currencies. The U.S. is not the only government throwing money at their flailing economy. Also, if Asian currencies appreciate in value relative to the dollar, it will make Asian goods and services more expensive, which is good for U.S. industries.

All things considered, long term, I side with Warren Buffet and agree that we have a tremendous long term opportunity.

In the short term it should be positive for gold, a traditional alternative to “funny money” and financial trickery in general. Precious Metals funds jumped over 70% since November 21 as investors may have pondered the same long term implications.

Most pundits and professionals agree that a well managed portfolio should have at least 10% in non correlating assets. Whether that is REIT’s, commodities, or interest rate plays, take a page out of the Ivy League Endowment playbook and add some non correlating assets.

All the negative aspects aside, odds strongly favor the bear market ending in 2009. After the technical washout that occurred during this past October and November, it would be desirable for stocks and commodities to gradually build a base over the next three to six months in preparation for a sustainable advance. Any improvement in the economy
later this year could help to establish new uptrends that result in meaningful gains before year end. I believe that the worst might be over for stocks and commodities for now—and that worthwhile opportunities could appear later this year.

With the amount of money being distributed by the world governments, a positive reaction seems almost certain. It’s like a man taking an entire bottle of Viagra and then nothing happening…

But you never know!