Shoes To Drop In 2009

2008 was a very eventful year filled with many manmade & natural disasters. Stock market participants suffered torrential shoe storms, getting hit on the head many times throughout the year with so called 'shoes' dropping, sometimes they came in pairs. After each historic shoe event, the question was... will more shoes drop & from what closet will they come?

I'm here to give fair warning that there are more shoes to drop, some coming from closets we aren't even paying attention to. Arguably, we should all be prepared & ready for these shoe showers, as the economic data & corporate reports are foreshadowing more weakness that will last for a longer time. With that backdrop, here is my 2009 shoe drop forecast.

1) Commercial Real Estate is going to face the same challenges that the residential housing market went through & continues to go through...except it will be worse. This shoe has implications for banks & insurance companies as well as the commercial real estate developers, both public & private.

2) There will be at least one automobile manufacturer(GM) bankruptcy by early spring. If this shoe drops, a second automobile bankruptcy (Chrysler) should follow shortly thereafter. And, a European automobile manufacturer could also go into Administration as well.

3) Corporate pension plans will show a big problem. Specifically, most if not all corporate pension funds are significantly underfunded & will require companies to shore up those pensions using up vitally needed cash.

4) Private Equity will suffer severely as funding continues to be very difficult & operations of the businesses will be impacted by the recession & will require capital. In addition, the IPO market will provide no relief for P/E to monetize investments & exit businesses.

5) Hedge Funds will continue to face redemptions & underwhelming performance. This will continue to pressure the markets & reduce liquidity. It will also impact the brokerage industry.

6) Municipalities all across the country will face huge budget deficits & will be forced to cut services & raise taxes. A major municipal default will occur before year end.

7) More small & mid-sized bank failures will occur...these will be the flip flops of the shoe storm.

8) The housing depression will conitinue as prices continue to fall & demand for homes does not materialize even with all the government programs being put forth. Housing inventory will rise to historic levels. at least one major homebuilder will go bankrupt.

9) There will be at least one, more likely many, major retail bankrupcty and at least one major commercial retail landlord, REIT, will go bankrupt.

10) Warren Buffets Berkshire Hathaway will face the slings & arrows of the ongoing economic weakness & financial crisis. The stock will be cut down to size...maybe $50,000/share or so. The legendary CEO Warren Buffet, having just won the CEO of the year award for 2008 will be unable to defend his empire from the current economic situation. As with many other pillars of the financial markets & wall street, it would only be fit for the company to show its vulnerabilities and succomb to the forces that have impacted every company in every business that Berkshire Hathaway owns or operates.

As you can see, the closet is full & the shoes are ready to drop...heads up.