2008 In Review

2008 will be remembered quite well by historians. It started with Kerviel and ended with Madoff. It started with Bear and ended with Citi. It started with oil rising nonstop, to $147, and ended with oil falling nonstop. The year threw houses and ANY mortgage-backed paper under the bus (including GSE paper) and then in September/October threw everything else under the bus. 2008 formalized many things that were so far said only by a minority: (1) that the world economy is leveraged (2) that Americans consume too much (3) that the American auto industry is almost worthless (4) that Peak Oil theories won't change the fact that inflation is ALWAYS followed by deflation (5) that using corn to make energy is stupid (6) that Wall Street became a casino uncontrollable by anyone (7) that government intervention is imperfect, to say the least (8) that this is the worse economic downturn since the Great Depression (9) that there won't be quick-fix bail-outs, not from the Fed, not from the treasury.

For next year, my best prediction is this rally continues, then gives up its gains (for most credit-spread products), at which point treasuries make their ultimate top.