Bermuda could be set for its worst fiscal year in a generation and face a recession in 2009 due to bigger than expected job cuts and a continued fall in visitor numbers.

That is the stark prediction from Jon Heckscher, executive vice-president of LOM Asset Management Ltd., who said that the Island is likely to be impacted next year and into 2010 by the knock-on effect of the contracting economies in the US, the UK and Europe over at least the following two quarters.

But he said that investors who had heeded LOM Investment Policy Committee's advice in October that the market had bottomed out had reaped the rewards of a mini-rally, with the Dow Jones Index up about 13 percent in the past month.

However Mr. Heckscher warned that the market was still extremely volatile and investors should remain diligent when making investments, looking at mutual funds and exchange-traded funds as less risky places to put their money compared to choosing individual stocks.

His comments came at the same time as the release of LOM's Investment Policy Committee report for December, which forecast that the market will continue to be dogged by uncertainty rather than risk that can be priced as future events are both indefinite and incalculable, only becoming quantifiable when events happen with measurable probability in 2009.

The report stated that commodities are poised for a rally and have generally bottomed out, while low levels and mining capacity reductions could cause a supply squeeze and result in higher prices if economic activity or confidence picks up even slightly, with LOM increasing its commodity allocation from four percent to five percent at the same time as watching out for any signs of a rebound.

It also states that the recent 'Bull market' in bonds will come to an end next year, with yields for US Treasuries lower than in the past 50 years, subject to change when current market risk become quantifiable, resulting in a drastic sell-off in bonds.

The report concludes that government bonds are likely to be the worst performers as a fall-off in the flight to quality coincides with governments across the world being forced to issue large amounts of debt to pay for the bailout plans announced, recommending shortening duration and employing absolute return fixed income strategies and dropping its target allocation for bonds by one percent.

Its recommended global allocations are split between equities (56 percent), bonds (24 percent), hedge funds (10 percent), commodities (five percent) and cash (five percent) for asset class and US dollar (61 percent), Euro (18 percent), Yen (eight percent), Swiss Franc (four percent), UK Sterling (four percent) and dollar bloc (five percent) for currencies.