Another Experts 2009 Predictions

excerpts from Timothy Morge's 2009 Outlook
http://www.medianline.com/home.html

(Recap of why gold and other commodities fell in 2008)

"More and more, the world's other large economies are diversifying themselves out of their dependence on the dollar, both as a safe haven currency, and as the currency of choice when it comes to transactions. This was evident in July of this year, when the dollar reached its peak against the euro currency. Most long-only hedge funds and other investment vehicles and portfolios were holding large amounts of non-US currencies (euro currency and Canadian dollars, for example), rather than holding any significant dollar-based assets. They were either net outright long these currencies or had at least hedged their US dollar exposure completely.

When the credit crisis started to unfold in July, the hedge funds and investment portfolios that relied on lines of credit to fund their positions got calls from their lending institutions-calls that cancelled their trading lines of credit. These calls signaled the beginning of a huge liquidation of long-held positions in everything from currencies to gold and oil, and even corn, soybeans, and wheat. The mass liquidations meant two things: 1) Hard assets like oil, gold, and agricultural products plummeted in price, and 2) The US dollar came off its lows across the board, as short US dollar positions were closed, and some of the proceeds from these asset sales were turned back into US dollar assets (mainly medium- and long-term US Treasury bonds)."

(Fast forward to his predictions fro 2009)

"But as prices for commodities continue to strengthen, and as the US dollar continues to sell off, I believe people will begin to see the resurgent strength in commodity prices as a growing threat to the economy-as they should-and a sign that inflation is beginning to spiral out of control. The US Federal Reserve has been pumping money into the US economy at an annualized 78% year-over-year rate of growth. And that will eventually translate directly into a great deal of inflation. In fact, if it doesn't translate into double-digit inflation (as measured by the US government), it's a sign that the US economy is in a deep depression, not a recession.

To summarize:
I see the current sell off of the US dollar as the catalyst that will cause traders, investors, and consumers to buy commodities. I expect that most hard assets will experience "V" type bottoms and head higher as the dollar continues its fall. I believe we will see crude back at $90-$100 a barrel in 2009, and gold well over $1000 an ounce. This resurgence of commodity prices will bring double-digit inflation to the US, though it might take the US government's official numbers some time to reflect this move higher in inflation. Last, I see the US stock market making some upward progress heading into 2009, but I feel that any significant rally (a rally approaching 9600-9700) will end in an abrupt and deep sell off, most likely ending in a test of the 5700-5900 area of support."