While Buffett has suffered just like any other investor during the current bear market, it is still important to listen to what he is saying.

Billionaire investment guru Warren Buffett has underscored dire times ahead for the United States, declaring the world’s biggest economy has “fallen off a cliff”. 

While praising repeated efforts by the US Federal Reserve to stimulate the economy, Mr Buffett said the economy “can’t turn around on a dime” and that the combined stimulus efforts could trigger higher inflation once demand returns. 

“We are certainly doing things that could lead to a lot of inflation… in economics there is no free lunch,” Mr Buffett said.

No one is right or wrong all of the the time but Buffett’s experience and exposure to economic data demands we listen.  If we believe what he says is another story.  While we are facing the largest period of deflation in recent history, I believe inflation will come back with a vengeance.

The last post about the S&P volatility got me thinking about what 2009 has to offer for the stock market (and the economy).  I don’t have a crystal ball, so don’t take what I am saying as gospel truth… just putting two and two together based on information that is publicly available.   

1. The economy will stay in recession for most, if not all, of 2009.
2. Stock markets will continue to have volatility and remain range bound until October, shortly there after the market begins to move out of the range toward the positive in anticipation of the Recession ending in 2010.
3. Due to the massive amount of capital put into the market the dollar will remain weak unless there is a major war that breaks out.
4. The housing market is in the crapper for most of the year, values continue to fall and foreclosures will continue to rise – the fed will take more action to stop the decline in values which will create an environment that will allow for the housing market to bottom late in the year.
5. Unemployment will catch most people off guard and may go higher than 10%.
6. The credit market will being to defrost (and in some regards it already has) which will help the economy come out recession.  The big indicator here will be when Companies start to merge/buy each other out by returning to the credit market.
7. Inflation will be a non-starter in 2009 but will come back in full force come late 2010/early 2011.
8. More bailouts to come…

Again, I have no clue what is going to happen, no one does.  Just experience and a bit of knowledge talking.  

The big unknowns are the global and geopolitical factors.  A war breaking out, a major terrorist attack or huge natural disaster in a major economic zone can change the playing field in the blink of an eye.

Jim Rogers is a hedge fund pioneer who retired at the age of 37, he is always a great interview and you need to take a listen to what he is talking about now.

If you don’t wish to view the video, here are the highlights:

• Worst recession since WWII in the US
• Could be as bad as the depression because politicians are making big mistakes
• Worried because Mr. Obama wants to tax capital and move toward protectionism
• China will be the great country of the 21st century, no way seen how American will be the great Country of the 21st centry
• America is propping up everyone in sight, which will lead to run away inflation
• American Government needs to let companies fail
• Commodities are in short supply and will continue to over the next 10 years, we will have serious supply problems
• US Dollar is a terribly flawed currency

Here is the full video, if you have 20 mins.