I Drink Your Milkshake

whats new since I last wrote?

1) The financial crisis is continuing to play out. Demand for EVERYTHING is down, oil, electricity, steel, copper you get the idea. So prices are down, investment is down, exploration down, rig count down etc...

2) No bottom in sight yet. The Dow spent december in the 8000 range and closed above 9000 for the first time in a while today, it may be signalling a bottom but that would be a leading indicator - plenty of other things will unravel before demand would pick up in commodities. Some others are prediciting the big upswing in the next few months, I tend to think we wont see a strong bottom signal until after March or much later. Caterpillar is battening down the hatches big style - Like i have never seen before. Cancelling 2010 bonuses (which actually really hurts the higher level executives) and laying off agency and contract workers. There is also plenty of effort to move engine assembly away from the Unions - imagine that. 2009 will be an interesting year, im sure we havnt seen the last of the layoffs yet.

3) I have become obsessed with making an old 5hp Craftsman Tiller work. A good friend gave it to me. I think he gave it to me - if he wants money for it then I might need to reconsider because this thing is trouble. I think Adam and Eve used it in the Garden of Eden, did I mention that its old? When I picked it up it had a simple fuel leak (looked like the rubber hose was bad) and dry rotted tires. While fixing the fuel leak I managed to break the carburetor (nice work Phil). Luckily a mower shop had a similar carb on their dusty shelves. It wasnt exactly the same though and was full of varnish. Long story short but the carb is on and the engine runs but it runs like crap, I think the idle circuit is plugged because its hard to nail the mixture at idle and high speed running. I turned my attention to the tires and ordered some new tires for it. They arrived yesterday and I managed to get one off and the new one on today. Turns out they need to have their "bead seated" which generally involves using a compressor to pump lots of air into it. I dont have a compressor so I tried an old trick which sometimes works. Spray starting ether into the tire and light it - the woof/bang inflates the tire so quick it seats the beads. Well it only succeeded in burning the hairs off my hand. I guess I will need to use a compressor. All this so I can make the tiller work - till a spot in my garden and plant some vegetables which will likley fail anyway.

4) It turns out that Cleveland likes to eat Sophia's wax crayons. I act mad at him but I dont really mind too much, we have a billion crayons anyway.

So much has changed but there is much to look forward too in 2009, crappy home grown vegetables for example.

But since I made some predictions in 2008 (with varying success) I thought I should take another stab at it in 2009.

To recap:

I said the Cubs would take the world series. Not a terrible call - they made the playoffs and won their division, but somehow the dodgers stomped them in 4 games. Ouch, not even a pennant. OK so I conceed that one - whoda thunk it the Cubs didnt really win the big one? :)

I said Obama would win the election. I think that was moderatley prescient, I dont think he had even won the primarys when I made that call but I had a feeling about him and I was right.

OK so Im 1 for 2 a real nostradamus.

Oil prices were the fun topic last year and I didnt see the big one. I had a feeling at $130 we were close to top and I was right, we made it up through 140 but not for long. While some were calling for 200+ (A number I knew wasnt yet supported by fundamentals) we started to slide back towards 100. I think 100 to 120 was an appropriate price for the first half of 2008 but by the second half the demand was tanking quickly and I didnt see that coming. I guess I wasnt looking in the right places because the recession had already begun in December 2007!

So I give myself half credit for that one. I saw the reversal (Or overshoot) but not the extent.

So here we are in 2009 in the 30 to 50 dollar range until something big happens. Some are calling for $25 due to some nightmarish economy. Others think by April we'll be slowly marching up to 60+ I tend to think the latter.

Im not assuming that by the end of 09 we will be back over $100.
So what am I saying?

Well give or take about $10/bbl heres what i think.

April $50
August $60
December $70

To do this the economy will need to show signs of strength - unemployment will top, home inventory will start to fall. We may even see some inflation and dollar weakness.