Finance: Trend setting: In a volatile economy, experts speculate what 2009 will bring

November 1, 2008

As we near the end of 2008 - one of the most economically volatile years in my memory-it seems natural to wonder what the coming year will bring. Even in the most stable of economic times, predicting future developments is an unwise indulgence at best. In times like these, it's pure madness.

Key Points

Still, attempting to pierce the veil of the unknown is a human weakness that many of us, including me, simply can't resist.

As I write this, much of our financial world is in turmoil. Consumer confidence is hovering near record lows, the subprime mortgage mess shows no sign of easing, and the failure of IndyMac - one of America's largest banks - has shaken confidence in our most trusted institutions.

Still, there is no shortage of predictions out there in money land. Economists, financial writers, even government officials are showing no reluctance to share their visions of tomorrow. So, why should I be different?

Inflation

The signs are all there. Oil, the commodity that affects almost every aspect of our lives - food, transportation, clothing, even medical care - continues to exert its influence over the health of our basic economy. Some industry experts are now saying that it's no longer a matter of whether the Middle East oil producers are willing to increase oil production.

Writing in his financial newsletter, Stephen Leeb, Ph.D., says, "Our good friends in Saudi Arabia, long thought to be sitting on the world's largest oil reserves, have apparently been fudging the truth about their ability to meet demand.

"If you tracked Saudi oil production, you'd know that production there actually peaked 25 years ago. Even with today's sky-high prices, the sheikhs can't suck more oil any faster."

Dr. Leeb is not alone in his feeling that harvesting the world's remaining oil reserves can only become more difficult and, thus, more expensive.

The bottom line: inflation is going to rise significantly in 2009. I don't believe that it will hit double digits as predicted by some, but I do think that it is set to begin another march toward that eventual end before retreating back to more acceptable levels.

With that in mind, this is probably a good time for you to consider adding some inflation-protected securities to your portfolio. The federal government's TIPS bonds, as well as I bonds, are designed to cushion your investments from the ravages of inflation.

You'll find everything you need to know about these and all types of Treasury securities at the official Treasury Department Web site at http://www.treasurydirect.gov/.

Alternative energy

While the development of alternative energy sources has been growing gradually for some years now, the 2008 oil crisis has had at least one positive effect - a growing awareness that we'd better get down to the business of finding new ways to satisfy our insatiable thirst for energy.

I believe that far more money will be spent in 2009 on alternative energy sources than ever before. Alternative sources come in four basic "flavors" - wind, geothermal, nuclear and solar.

Nuclear energy has long been a significant part of our energy production. In my view, the other three are destined to join nuclear as major players in our energy future.

That's why you may want to consider adding companies involved in developing alternative energy to your investment portfolio. Worldwide, wind energy is now the fastest growing source of alternative energy.

While there are American companies dipping a toe in the wind energy waters, some foreign companies are far ahead of us.

In Denmark, wind power already accounts for approximately 19 percent of electricity production, In Spain and Portugal, it's 9 percent. Germany and the Republic of Ireland are up to 6 percent. All of these countries are far ahead of us.

However, recent changes in our tax laws are sure to stir up more action here in America.

If you're interested in investing in the future of alternative energy, your broker can tell you about leading companies, foreign and domestic.

The real estate market

Even among the industry experts who remain in sharp disagreement over the timing, all seem to agree that the housing market will eventually bottom out and start a slow climb back to health.

The question, of course, is when. Some see a very long and painful wallowing around in an abyss, the depth of which is still a long way off; others have a more sanguine view, suggesting that we are getting close to a reversal in the declining trend.

After hours of reviewing the written opinions of a broad spectrum of industry observers, I've come to believe that early 2009 will see an even further dip in the average selling price of homes.

However, I also believe that the bottom of the broad real estate market will be reached sometime in late 2009, with the first indication that prices are set for a gradual recovery. The timing will vary from one geographic region to another, but the national trend will be established.

So, if you're thinking of selling your home, it may pay you to wait at least another year. Of course, if you're buying, grab that bargain while it's still there.

Information in this article is provided for educational and reference purposes only. It is not intended to provide specific advice or individual recommendations. Consult an accountant or tax advisor for advice regarding your particular situation.

Mr. Lynott is a former management consultant and corporate executive who writes about business and financial topics for various consumer and trade publications. His latest book, Money: How to Make the Most of What You've Got, is available through most bookstores. Reach him at lynott@verizon.net or through his Web site: http://www.blynott.com/.