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Ten Themes for 2009


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

The January 20th transfer of power is an important inflection point, for if we can collectively navigate past that date without geopolitical conflict, stocks have room to run into March or April, when the bloom begins to fade on the new administration's rose.

Pension Panic and Puny Munis

The unfortunate aspect of our current conundrum is that in many ways, the cancer is bigger than the patient. It is analogous to a financial dike springing holes faster than the government can invent fingers.

Unfunded pension plans and bankrupt municipalities should jockey for mindshare in 2009 as the financial crisis evolves. The government will fight fire with fire - perhaps allowing citizens to withdraw from their retirement accounts without tax penalties - but that solution is transient at best.

As Bennet Sedacca recently wrote on Minyanville, "Municipals have no liquidity, no natural buyers, virtually no research and awful fundamentals. Unlike mortgages and other items you can trade electronically, it would be much harder for Uncle Sam to manipulate municipals, with the notable exception of state general obligations. I would not be surprised to see massive failures in this space."

The Employment Conundrum

Acute market watchers have long derided the Bureau of Labor Statistics for producing economic figures that aren't representative of true market conditions. Indeed, if we calculate unemployment to include discouraged workers, as it was measured prior to the Clinton administration, current readings would be closer to 15%.

While it's no stretch to assume a further uptick in unemployment-remember, it was 25% during The Great Depression-the ironic twist is that those with jobs will also feel the pinch.

Expect relative pay cuts, rather than salary bumps, to be a central theme this year despite folks working twice as hard to absorb the productivity chasm.

Industrial Revolution

The financial crisis of 2008 was akin to a forest fire; scary and dangerous but a necessary evil that will ultimately allow for fertile rebirthing and greener pastures.

The entire spectrum of industries-from finance to media to retail to philanthropy to academia-will be forced to reinvent themselves as the new world order emerges. This isn't necessarily a bad thing, as a phoenix will rise from the scorched earth in each of these sectors. The leaders coming out of a crisis are never the same as the leaders that enter it.

Through that lens, I view The Great Depression as a framework for optimism. Disney (DIS), Texas Instruments (TXN), Continental Airlines (CAL), Hewlett-Packard (HPQ) and The Washington Post (WPO) are proof positive that the greatest opportunities are bred from the most profound obstacles.

A Yen for Japan

While comparisons abound between our current stateside situation and Japan in the 1980's, there aren't many folks talking about Japan as a relative winner in the global marketplace.

There is clearly risk to that region but we must remember that they have a 25-year head start down Deflationary Road. Japan has the highest level of savings relative to private debt. Their public debt is horrendous but what is happening over time-and why the Yen is appreciating-is that Japanese savers are bringing those savings back to Japan.

You can't spend relative performance, we know, but I expect Japan to out-perform U.S. equities this coming year.

Alpha Bits

Now that the equity epitaph has been written for the "buy and hold" strategy, it may be time to begin looking for babies in the bathwater. There will be deep value opportunities in small and micro-cap stocks, creating an environment where real value investors step up and stand out.

This will not come easy and it will require due diligence. Debt free companies with strong balance sheets, free-cash flow and trustworthy management will trade at a premium. Integrity, as a whole, will be a commodity in the coming years as distrust in the system permeates.

As a savvy seer once told me, "I don't invest in companies, I invest in people." Look for the cream of corporate America to rise to the top-and the entrepreneurial spirit to awaken-as once trusted companies fall by the wayside.

You Gotta Believe!

We often say that it should never take something bad to make us realize we had it good and 2008 was a harsh reminder that profiting is a privilege rather than a right.

This is no garden-variety one-and-done recession; it will be a prolonged process as we attempt to regain respectability on a global stage after eight years of mismanaged affairs. It would be myopic to expect a V-shaped recovery despite the historic stimuli being injected into the marketplace. Keep it in perspective, no matter what comes our way.

The upside to the anger sweeping the Street is that we, the people, will band together as we find our way. Communities such as Minyanville will flourish as folks surround themselves with trusted peers that have skill-sets that compliment their own.

We will, in many ways, yearn for simpler pleasures as we appreciate the little things and each other. We'll revisit our religious beliefs, support our local businesses and strive to provide a safer world for future generations.

There will be better days and easier trades. The onus is on us to find our way, one step at a time and together as one.

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