The year 2008 is coming to a close and none too soon. 2008 will long be remembered as the year when the chickens came home to roost for America's brand of "extreme" capitalism.

2008 will also be remembered as the year which nearly halved many pension and retirement accounts. I'm sure that this type of action has forced many investors out of the stock market, perhaps permanently.

What follows are a few of the things I believe we will see in the financial markets in 2009.

1) Short-term yields will rise and the US dollar will fall.

The dimwits on Wall Street, after being burned by their wild speculation, are now in full panic mode. They have poured every remaining penny they have into short-term US Treasury bills. This has driven rates on Treasury bills to zero!

However, due to the ever expanding bailout of Wall Street, Uncle Sam will need trillions of dollars to fund the bailout. This bailout will depend almost entirely of the kindness of foreign investors. But, thanks to Wall Street, foreigners have problems with their own economies.

MY PREDICTION? The foreign money will mainly stay home in their own markets and will not be brought to the US to bail us out. This will cause another panic with investors dumping the US dollar. This will cause short-term Treasury rates to rise and the value of Treasury bills already held to decline. The result will be that Wall Street will be burned by their holdings of Treasuries, incurring more huge losses which will in turn be funded by US taxpayers.

2) The beginning of the end for hedge funds - Thankfully!

The latest hedge fund scandal was the unveiling of the Bernie Madoff $50 billion Ponzi scheme. Many people have been affected by this scandal, including many Jewish charities which have been wiped out thanks to Mr. Madoff.

Hedge funds are among Wall Street's wildest speculators and are extremely opaque and lightly regulated. Yet, people's greed drove them to "invest" in such instruments.

MY PREDICTION? I believe hedge funds will eventually go the way of their predecessors. Their predecessors in the 1920s were called investments trusts. Investments trusts were run similarly to modern-day hedge funds. These investments trusts disappeared in the 1930s with their investors being wiped out. Look for something similar to happen to hedge funds in the next few years.

3) The closure of some money market funds

It looks like many money market funds many be closing in the near future, at least temporarily. Why? Once again, Wall Street is at the center of it.

Many money market funds invest in Treasury bills. With the Wall Street crazies driving Treasury bill rates to zero, money market funds cannot make money for themselves or their investors. After all, these funds do need to charge fees to stay in business. They can't charge a customer fees for a 0% return on investors money, so they will simply close.

4) Look for a bear market rally

Some time in 2009, we are due for a strong bear market rally. It will be only a bear market rally, not the start of a new bull market. Why? The Wall Street Banksters still have not come clean about all of their losses. Also look for more scandals similar to the Bernie Madoff $50 billion Ponzi scheme.

I believe that the strongest global stock markets will be in the countries that actually have funds and do not have to borrow money like the US has to do.
The world really has changed - these countries are countries such as China, Brazil, and the Middle East.

As to when the bear market rally happens, my guess is that it will happen early in 2009. Why? Simply because of most of the "pundits" on CNBC are saying a rally will happen in the 2nd half of 2009. CNBC is never right.

5) As in 2008, gold will outperform stocks

Gold did not have a great year in 2008, but it did outperform stocks. The gold price actually did much better outside the US than inside the US. Why? As with other commodities like oil, Wall Street likes to play "games" with gold. These "games" usually do not occur in other countries. Look for gold to, at the least, to climb to over $1000 per ounce.

I will have some more predictions in next week's article. Please feel free to contact me directly or at the forum about any of my predictions.