None of my friends want to talk to me about economics, which is frustrating. Because I think we are in for an almighty wipeout in the financial markets, which has only barely begun to get going. And that is interesting, and worth a conversation.
As I have posted previously, I think a lot of exotic financial products, and a lot of very exotic investment strategies done with borrowed money, are about to fail spectacularly. As a side effect, a lot of perfectly solid markets (in stocks, bonds, property, commodities) are going to be cut in half, and a lot of institutions, to their intense surprise, are going to be wiped out.
More specifically, I predict the implosion of a very large number of hedge funds over the next year or two (and probably a lot sooner than that). Let's be more specific: I suspect that more than 25% of the hedge funds in existence today will not exist in two years time. (Oh come Julian, don't be shy, what do you REALLY think? Well, I really think at least half of them could vanish, but I'm trying to sound conservative and thoughtful here.)
And I think we'll lose more than one really, really big, globally known bank, insurer, and/or pension fund.
We may not lose them technically: governments and central banks will probably try to coordinate a rescue. But if they survive, they'll have been artificially resuscitated after having gone under.
Also, a lot of junk bonds will turn out to be junk. A shedload of private equity firms will go bust, and a stack of grossly overleveraged companies will collapse before 2010.
And residential property prices will fall through the floor in real terms over the next couple of years in a bunch of countries, including the USA and my dear and darling Ireland. (Put a figure on it... OK, from peak to trough, a fall of over 30 % in real terms. There. The trough may well take a lot more than a couple of years, mind you, and inflation may mask the fall, but in real terms I'd be surprised if it's less than 30% in Ireland's case. America, being vast and varied, I'll call a fall of over 30% on the coasts and large urban areas, before it eventually bottoms out. Again, I'm being conservative, and secretly think it could be more.)
Note that I think the real-world economy is in pretty good nick right now. But the financial world, across many asset classes, is about to have the biggest crash (in dollar terms) in the world's history. Bigger than the dotcom blowout? Yes. Will it wreck the real economy? Don't know. Haven't I predicted enough for ye? Don't be greedy.
Ah, sure, while we're at it, we'll lose at least one of the Big Three American car companies.
Well, that has the potential to make me look very stupid indeed in 2010...
Anyone want to argue?