Adios 2009

It’s hard to believe that we are about to put 2009 in the books. We would be hard pressed to single out a more, um, interesting year for investors. We had outright panic early in 2009 as stocks sank to 20-year lows. Then we saw the strongest rebound in history. And the ironic thing is, most investors are still unsure of what the economy and the stock market’s next move will be.

It seems clear that we’ve gotten through the worst of the fallout from the financial crisis. Housing prices are improving, unemployment seems to be bottoming, industrial activity is expanding, and the Fed is mulling how to reverse the stimulus that helped avert financial disaster.

But will unemployment actually improve in 2010? Will the housing market continue to improve after the Homebuyer Credit is removed? Can the stock market survive an interest rate hike? We’ll get the answers to these questions in the months ahead.

*****One relationship we’ve watched – and profited on – has been the seemingly ironclad relationship between the US dollar and asset prices. A weak dollar has helped stocks and commodities move higher throughout 2009.

But stocks, oil, and even gold prices have started to move independently as compared to the dollar. Even this morning, oil prices remain around $79 a barrel, even as the dollar strengthens.

Of course, we get the most recent oil inventory data later this morning. And after three straight weeks of falling inventories, traders are expecting more evidence that demand for oil is improving. It should be no surprise that oil prices respond more to demand numbers than the value of the US dollar.

We will see a similar situation with stocks. If spending continues to rise and the corporate profit outlook improves, stocks will move higher, regardless of the US dollar.

Even gold can move higher as the dollar strengthens. That’s because any hike in interest rates will be at least partially a response to inflation. And even interest rates of 1% or 2% are not exactly an inflation deterrent.

*****For Daily Profit readers who took me up on my Maguire Properties (NYSE:MPG) recommendation, let me just say hang in there. It’s mildly disappointing that the stock did not hold the initial 20% move it made. I thought we had caught a breakout perfectly, but the stock has dropped back to support at $1.50 where I recommended it.

One of the biggest catalysts for Maguire will be a debt refinance. The company has already showed that it will walk from properties that are hopelessly underwater. Shareholders should be glad to see that management is committed to preserving cash and focusing on core assets.

I would expect that anyone who’s lent Maguire money, be it a bank or bondholder, would be eager to refinance with Maguire. Otherwise, Maguire might leave them holding the bag. There can be no doubt that banks do not need more property on their books. So I expect we’ll see Maguire get the financing it needs to get on more stable footing.

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