In the spirit of hedge fund manager Doug Kass' annual outlier prediction list (Jan 2: Doug Kass 20 Predictions for 2008), last year I decided to write my own. You can read my 13 Outlier 2008 Predictions here (Dec 31, 2007: 13 Outlier 2008 Predictions) and a self assessment this past October (Reviewing Our 13 Outlier 2008 Predictions). Ironically, Mr. Kass and I actually had a lot of similar calls for 2008, although I posted mine first (and I do so again this year so it doesn't appear I am stealing ideas) Even more funny, we both went wrong on the same ideas (major home builder failures, a bubble forming in tech stocks, etc) It was very strange how the ideas were very similar so I'll be curious what this year's list brings and I'll post it when it comes out in a few weeks - I did less on the stock market, and more on economics this year.

Keep in mind the idea behind these lists are not consensus predictions but potential outlier events that theoretically, if they come to fruition, could provide some out of the box money making opportunities. Of my 13 2008 Predictions through October 2008, I graded myself 80% or higher on 7 of them - with 3 complete misses. The other 3 came to fruition to some degree. Considering the outlandish nature of some of what I though, and the environment in early winter 2007 (before the Federal Reserve began any historic actions, before Bailout Nation ensued) and the historic nature of the year we just witnessed, many were remarkably spot on.

Once more, this list differs from my economic thought/roadmaps which I update every so often - the things I truly believe have high conviction will happen - even if those, as well, many times stand different from the crowd - my latest is found here (November 2008 Thoughts & Roadmap) My track record on earlier economic predictions of this nature is running closer to 90% success. (December 2007 Thoughts & Roadmap)

One note: the economy and the stock market are two different things; despite the "darkness" of the outlier events listed below keep in mind they should be (a) outliers and (b) even if they come to fruition, the stock market will eventually assimilate the bad data and then look "forward". I could make a case that by 2nd half 2009 a very positive investing environment may emerge. But that's Wall Street, not Main Street.

Since it is hard to remember the "environment" a year from now, I've tried to write within most entries the current "consensus" or claims by the financial pundidtry.

#1 Housing Mortage Market: I've spent the last month working on this entry piecemeal as I think through theories and decide what topics to discuss and which to remove to limit myself to 13 topics. Unfortunately, for topic #1 - housing - the government has already begun their act so I'm already looking late to the game with what I was theorizing. I've already begun laying out this prediction in earlier pieces the past few weeks, but let me put it all in 1 spot. After the mere mention of buying serious amounts of mortgage backed securities dropped the mortgage rate from the low 6s to middle 5s range, I saw the light - these guys were going to buy mortgages until they can semi-reinflate the housing market. My inclination at the time was the Federal Reserve would just buy, buy, buy (assets that, based on their quality, have no place for their balance sheet of course) mortgage backed securities until they engulf the market and get rates to mid 4%s. But it appears the Treasury is going to come out of left field to help them based on the things that are floated - so this one two punch could be even more serious than I imagined on rates. Can you imagine the bubbles we shall create with a potential sub 4% 30 year mortgage rate? But larger than that - my prediction is Fannie/Freddie and then above and beyond that, for people who do not have 20% down and won't pay for insurance, the FHA - will wage a war against current mortgages. We'll see interest rate buydowns, we'll see principal reductions, we'll see anything and everything that basically gives a big (bleep) you to people who have been honoring the system. In return we will tell those people, well if your neighbor's house goes into foreclosure we will all suffer, so it's a necessary evil. By the back half of 2009, refinancing will reach levels (and above) seen in the bubble years of 2005-2006. Obama & Co will also come up with myriad plans for buyers to suck up excess inventory - the government will be our partner. Nothing should surprise you - this will be an all out assault - we are already seeing the first inane ideas such as no appraisal refinances. The "private" mortgage industry will be almost completely crowded out as no one can compete with what the government will offer.

#2 Housing - Prices & Stocks: Since housing has been so central to our vortex of pain, I'll devote two entries to it. While most of the government initiatives will be focused on existing stock of homes, the "free market" advocates that live on Wall Street will clap endlessly in the socialism that washes among us, and housing stocks anticipating a "bottom" in (a) spring 2009, (b) summer 2009, (c) fall 2009, (d) winter 2009-2010 will be driven up continuously (and then fading as no bottom is found) - but in the back half of 2009 housing stocks will be among the best performers in the market as investors anticipate the 97th housing bottom, that of spring 2010. (sort of like the great housing bottom sold to investors in 2008, but just 2 years later) Contributing to this optimism will be the fact that after housing prices fall sharply in 1st half 2009, they will begin to fall "less" than previous periods in many of the hardest hit areas in the 2nd half of 2009. After all, 40% year over year drops just cannot continue forever. Even as job losses accelerate, and the natural cycle of a housing cycle begins in earnest - so much damage has already been done to prices that eventually the rate of decline shall slow. Wall Street, looking for any glimmer of hope, will step on the gas in pushing early cycle stocks on the first reports of housing prices falling as a smaller percentage year over year than the previous month/quarter. With the "generous" government mortgage rates created from prediction 1, this should happen by summer 2009.