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Ten Themes for 2009

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This ain't no garden variety, one-and-done recession.

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"A year has passed since I wrote my note. I should have known this right from the start."
–The Police


2008, with all the twists and turns and credit burns, will be remembered as the year when perception finally caught up with reality.

The writing was on the wall for all to see as the cumulative imbalances steadily built since the back of the tech bubble. As time and price are the arbiters of financial fate, it was simply a matter of time before the wheels fell off the wagon.

As we edge into a tense twelve-month stretch, pundits are furiously offering fresh predictions, prophecies and price targets. While we at Minyanville pride ourselves on adapting rather than conforming, we're happy to toss our hat in the ring and gaze across the financial horizon.

We did so last year with some success but know all too well that you're only as good as your last trade.

Alas, without further adieu and in no particular order, I humbly submit ten themes for this coming year.

The Not So Quiet Riot


The age of austerity has officially arrived and we'll see a steady stream of social strife as the rejection of wealth increases in size and scope. While societal acrimony began to percolate last year, this dynamic will manifest through social unrest and geopolitical conflict as we edge ahead.

This is, without question, the single biggest socioeconomic risk as we stand at a critical crossroads. On the one side, there is orderly debt destruction that will ultimately pave the way for true globalization. On the other, there is isolationism and protectionism as sovereign nations protect their interests at any cost.

If calmer heads don't prevail and the global community takes a turn for the worse, history books will likely point to Shock & Awe as the beginning of WW3. You don't have to agree with this assessment; you simply have to respect it.

Hedge Fund Overhaul

Once upon a time, in the early 1970's, the mere mention of Wall Street was taboo at cocktail parties. The more things change, the more they stay the same as Main Street casts blame, in many cases rightfully so.

Early last year, I opined that 50% of existing hedge funds would cease to exist. The perfect storm of 2008 will expedite this process, as will reactive regulation following the Bernie Madoff scandal.

Typical hedge fund terms are "one and twenty," or 1% management fee and 20% performance fee. Expect industry standards to shift to a three-year aggregate performance structure that eliminates the annual payout and weeds out the excess capacity in this space.

Seismic Readjustment

Entering September, we offered that the disconnect between equity and credit would manifest as a car crash or a cancer.

Four months later, despite lower equities and massive government intervention, the equilibrium between equity, credit, commodities and currencies remains elusive.

In a free-market system-such as the one we used to have-these inefficiencies would be naturally resolved by supply and demand. In the current world, a "man made" readjustment, such as a meaningful currency move that significantly devalues the U.S. dollar, becomes increasingly likely.

Motion and Movement

When asked about my year-end price target on the S&P, my answer is constant. Tell me what the dollar will do and I'll offer an educated guess on stocks. Indeed, since the beginning of 2002, our financial machination has operated through the lens of "dollar devaluation vs. asset class deflation."

My sense for 2009 is that-all else being equal-we'll see wild movements and a wide range, perhaps with S&P 600 as a nadir and one (if not two) 20% bear market rallies filled with false hope and empty promises.

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No positions in stocks mentioned.

Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at todd@minyanville.com.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

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