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Hello 2009! Goodbye 2008!
Happy New Year to everyone. Well we think everyone is happy that 2008 is behind us and 2009 is underway. We are all hopeful of a much better year in 2009.
Let’s first review quickly some recent headlines:
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Governor Bill Richardson has withdrawn as a nominee for Secretary of Commerce.
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The Bush administration expanded its bailout of the U.S. Auto industry by buying $5 billion in equities of GMAC and lending an additional $1 billion to GM. GMAC is the lending arm of GM and provides the bulk of financing for car buyers at GM dealerships. As a result, GM increased their incentives to car buyers.
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Israeli tanks and ground troops invaded Gaza after suffering through months of mortar and rocket attacks.
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An investor group consisting of several hedge funds and private equity firms agreed to buy Indy Mac bank for $13.9 billion. The FDIC said the cost to the insurance fund would likely cost between $8.5 and $9.4 billion.
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The Euro celebrated its 10th anniversary. Slovakia became the 16th country to adopt the single currency and the Czech republic took over the revolving six month presidency for the first time. The economic problems of Europe may have been far worse without the single currency. However the Euro zone’s outlook is far from rosy as they are also mired in recession.
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Investigators are only weeks into the Bernie Madoff inquiry. They are trying to determine if funds are located in offshore tax havens. The list of investors with Madoff is long and includes many celebrities and charities.
The biggest financial story of 2008 was that the world’s financial system came dangerously close to collapse. For a few nerve wracking weeks the world appeared headed for financial Armageddon. We will not rehash all the events here, but the stock markets suffered their worst one year decline since the Great Depression. Only the 89% decline between 1929 and 1932, and the 54% drop between 1937 and 1938 were worse. The Dow dropped 33.8% in 2008 and the S&P 500 did even worse, falling 38.5%. Virtually every asset class except Treasury notes and bonds fell in 2008. It was the first time in more than 50 years that asset allocation did not mitigate risk.
Guarded Optimism for 2009
We will soon have a new President and a new economic team running the country. Although the task is formidable, there is reason to believe that President-elect Obama and his team are up to the task. They will start off with a major stimulus package of $750 to $850 billion. However it may not happen until a few weeks after Inauguration Day.
Economists expect the Recession to last until mid to late 2009. Corporate profits are likely to keep falling through at least mid year. However the stock and bond markets seem to have priced in a Depression. Frightened investors are pricing in excessive gloom and doom.
Wall Street firms are predicting a major rebound in 2009. The S&P 500 year end targets from these firms are:
JP Morgan Chase +24%
Strategas Research Partners +24%
Standard & Poor’s +15%
Citi Group +12%
Morgan Stanley + 9%
This, by no means, assures us of a wonderful 2009. However, there is guarded optimism due to:
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The coming stimulus package
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A new president
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Lower oil and gas prices
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Low interest rates
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Lower mortgage rates
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Hope for a stabilization of the housing market
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Hope for a recovering economy by the end of the year
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A postponement of the increase in taxes
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Eventual credit loosening and lending by the banks
2009 – The year of hope!
We are hopeful that 2009 will be a year of recovery for the economy and the stock and bond markets. Thank you for the confidence you have shown in our firm during this time of crisis. We look forward to working with you in 2009 and many years to come.
Best Regards,
Edward J. Kohlhepp, CFP®, ChFC
Edward J. Kohlhepp, Jr., CFP®, MBA
“Be always at war with your vices, at peace with your neighbors, and let each new year find you a better man.” Benjamin Franklin
“A New Year's resolution is something that goes in one year and out the other.” Author Unknown
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