The new year is dawning, hopefully leaving an ugly recession behind. But consumer confidence still lags, and the stock market continues to waver. It …
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The new year is dawning, hopefully leaving an ugly recession
behind. But consumer confidence still lags, and the stock market
continues to waver. It is getting difficult to predict what news
will throw the world in a tail spin from day to day.
I believe the falling housing market and record high oil prices
set 2008 up for failure. This led to the first recession with
inflation, causing the announcement of a true recession to be
delayed. The loose credit and collapse of real estate appreciation
led to the worst credit crisis in history. Then we had a heated
presidential campaign mired with bail-out programs. The unspoken
recession caused a domino effect around the world leading to closed
factories in the United States and China. Other countries followed
suit, especially those oil dependant countries when oil prices fell
from a record of $147 barrel to $38.
Now we are finally enjoying lower prices since oil came down and
we can have a real recession, one where prices actually fall.
The economic problems of 2008 will not be over now that we’ve
turned the calendar page to January. However, there is always new
hope with a new year and a new president. We can dwell on the
negatives, but additionally, there is a lot of optimistic news,
Americans should be proud they were able to reduce their
dependency on foreign oil and imports from China. Our drop in
consumption, while corporate profits will suffer, is important for
a true contraction. Food prices also should start to decline.
Interest rates are at all-time lows, which should in turn help the
housing market. When we start to see the housing inventories
decline, we should see the framework for a better economy.
With the dawn of a new year dragging the recession in tow, Wall
Street analysts announce what to expect. While many said similar
things, like recovery will eventually occur, and certain sectors
may provide more opportunity than others, I feel they were
predicting the obvious. What was interesting is the way they stated
our economic situation. Here are a few highlights:
UBS had an optimistic outlook and warned, “the light is not a
train.” I believe this is its line to indicate we won’t get blown
off the tracks but we are in a tunnel, so to speak. The UBS outlook
is for recovery at some point in 2009 starting with the U.S.
economy just as the crisis did. Hence, it is choosing domestic
positions for faster rebound over foreign holdings. It expects
earnings to be weak, but that’s no real surprise. They state
government policy will continue to have a significant role and
stock market gains are probable.
UBS sees the consumer struggling to find sign posts that it is
OK to be positive again. Falling interest rates, lower credit costs
and stabilization in housing prices will be catalysts for improved
Milton Ezrati, senior economist for Lord Abbott, stated the
extreme pessimism that has been baked into the existing market may
begin to recede. Markets should start to see better days, not from
a positive outlook, but from relief we didn’t actually go into a
depression. This analyst believes that would be impossible with
today’s government intervention and breadth of a resilient economy.
Ezrati said, “Markets will return to economic and financial
realities because markets tend to ultimately reflect fundamentals.”
Policy makers here and abroad are helping to stabilize economies
around the globe and we can be the beneficiaries of that being the
largest economy in the world.
Other analysts had similar views, some predicting improvement on
Wall Street ahead of economic recovery. Others warn for a second
wave of housing problems resulting from increasing
All in all, the forecasts were positive if we can comprehend the
government will not let banks go under and the bail-outs will
continue until we get back on track.
This holiday weekend should be more about ringing out the old
and bringing in the new than ever before.
Patricia Kummer has been an independent certified financial
planner for 22 years and is president of Kummer Financial
Strategies Inc. at 8871 Ridgeline Blvd. in Highlands Ranch. She is
a financial consultant offering securities through AIG Financial
Advisors Inc., and investment advisory services through KFS Inc.
She welcomes your questions at www.kummerfinancial.com.
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