Financial guru foresees tougher times aheadAs Americans prepare to turn the calendar and begin a new year, many are happier than they've ever been to see one year leave and a new one arrive. That's due in large part to the nation's struggling economy, one that ensured 2008 will be remembered as a year many would like to forget.
By the end of 2008, words like "bailout," "foreclosure" and even "recession" had taken over the national headlines. While some look back on the last 12 months in shock, for others the drastic turn of events in 2008 came as no surprise. Such was the case for popular radio host Lou Scatigna, otherwise known as "The Financial Physician." Just 12 months ago, Scatigna offered a dreary forecast for 2008, predicting the failure of large financial institutions and a drastic decline in the stock market among other things. Though his dire forecast for 2008 earned him the nickname "Dr. Doom" among his loyal listeners, Scatigna's forecasts, as many now know, were eerily accurate, leaving many to wonder just what Scatigna foresees for 2009 and beyond.
With the new year upon us, Scatigna once again finds himself offering a bleak forecast for the months ahead. And just like he always does, the man known as The Financial Physician prefaces the following predictions with a simple phrase: "I hope I'm wrong."
Much like 2008, Scatigna sees trouble ahead for the American economy in 2009, expecting a continued weakness in consumer spending coupled with declining corporate capital expenditures, resulting in drastically reduced corporate earnings.
"Unemployment will continue to accelerate in the first half of 2009 as employers facing rapidly declining revenue and profits aggressively trim payrolls," says Scatigna. "By the end of 2009, the official unemployment rate will exceed nine percent."
As if that's not bad enough, even those who keep their jobs can expect banks to tighten their belts. Scatigna predicts tightness in credit markets will exacerbate the economic downturn and only the most creditworthy consumers will be able to secure loans for homes and vehicles. The belt tightening at banks will, according to Scatigna, not only make it harder for prospective homeowners to secure loans, but make it even harder for existing homeowners to sell their homes at top dollar.
"I anticipate housing prices will fall by at least another 10 to 15 percent in 2009, as inventory levels rise and foreclosure sales depress market prices," says Scatigna.
If investors thought 2008 made for a wild ride in the stock market, Scatigna says an even more exaggerated roller coaster ride awaits investors in 2009. While Scatigna predicts the inauguration of President Barack Obama will help the markets get off on the right foot come January, such a rally won't last forever.
"I expect the U.S. stock market to hit new lows by the end of the first half of 2009," offers Scatigna. "Investors will come to the conclusion that the worst for the economy and corporate earnings is still ahead of us."
While that might sound bleak, Scatigna notes that just like any roller coaster ride, there will be highs for the stock market as well. Come the end of 2009, for instance, Scatigna predicts the market will recover the entire loss for the year and close over 9,000.
By the end of 2008, "bailout" had become the buzzword sweeping the nation. According to Scatigna, that word will prove to have some staying power in 2009, particularly with respect to the nation's financial institutions. Although only 26 banks failed in 2008, Scatigna expects that number to exceed 300 in 2009, thanks in large part to debtors defaulting on their loans.
"There is a chance the government will call a 'bank holiday,' wherein banks are closed for a significant length of time as runs on banks become more frequent," says Scatigna.
While the failures of banks will no doubt grab headlines, Scatigna sees the solvency of the insurance industry as an area of even greater concern. Such concern is thanks in large part to the sinking value of insurance stocks, which fell by as much as 85 percent in 2008, as investors grew increasingly concerned about the liquidity of insurance companies.
"I expect at least one major insurer to fail in 2009 or need a bailout to stay alive," says Scatigna. "This is a major concern because many people have money in cash value life insurance and annuities deposited with insurance companies, and their failure would be catastrophic."
In terms of inflation and deflation, Scatigna predicts 2009 will be the exact opposite of 2008. Whereas 2008 witnessed deflationary forces begin to hit the economy in mid-summer and result in dramatic declines in the prices of oil, commodities and stocks by the end of the year, Scatigna warns that the second half of 2009 will likely see heavy inflation across the board.
"The final part of the year will experience the beginnings of inflation as the Fed's reflation scheme begins to take hold," says Scatigna. "Inflation will accelerate into 2010 and may morph into a dreaded hyper-inflation in the 2010-2011 period."
The U.S. Dollar
Arguably the biggest story in 2009, Scatigna predicts, will be the dramatic decline in the value of the U.S. dollar. When coupled with governement borrowing needs expected to exceed a trillion dollars, the Federal Reserve's historic inflation of the money supply will result in the U.S. dollar declining by as much as 20 percent against gold and foreign currencies. As a result of the declining dollar, Scatigna predicts gold will reassert itself as a safe haven, possibly reaching record highs in value during 2009. Currently valued at $850 per ounce, gold could, according to Scatigna, nearly double in value over the next 12 months.
"I expect gold to trade over $1,200 per ounce in 2009," Scatigna says. "If there is a dollar crisis in 2009, as there very well may be, gold could rise to $1,500 per ounce."
Currently working on his first book, "The Financial Physician: How to Cure Your Money Problems and Boost Your Financial Health," Scatigna is also preaching frugality, debt elimination and living within one's means as a way of surviving what he predicts will be another difficult year ahead.
For more financial forecasting, including predictions on the fluctuating prices of oil in the coming year and what scandals lie ahead for Wall Street in 2009, visit Lou Scatigna online at www.thefinancialphysician.com.