Jan

3

Where Economy is Headed… ???

January 3, 2009 |

It slays me that the pundits and experts are still reporting everything on the short term. Many have begun talking like investing has become a thing of the past, at least for the time being.

A few have even posed the question “what will the upcoming job loss report do to the market?” The answer typically is that the markets are “forward looking” and this is a “backwards looking” statistic.

Certainly, there are huge behaviorial drivers that shape our economy. Hence, it is hard to say with certainy how the markets will react to this macro economic news. From a pragmatic perspective, a loss of jobs means that businesses are contracting in order to adjust to the current economic conditions so they can still be profitable. People losing their jobs sucks, but rising unemployment is an appropriate response to the times. I think it is possible that we will see double digit unemployment by mid year. I think it is a safe bet that most consumers that our conservative with their money will continue to tighten spending when they see this statistic rise.

Many seem aghast by the impending news that unemployment is projected to hit 7%.

How soon we forget.

Many view the Reagan presidency fondly, though forget that the first six years were NEVER below 7%. In fact, twice it went over 9%, almost hitting 10% once. Another fact, the first five years of his presidency saw an increase in unemployment higher than at any time during the Carter administration. [source of unemployment statistics http://www.miseryindex.us/urbyyear.asp].

The Reagan period was a time of government spending and escalation of National debt, about 1.4 trillion actual, 2.6 trillion if you adjust for inflation in todays dollars. These statistics are readily available from US Government websites.

Hindsight is 20/20. One can access statistics and news from eras past. When examining the data one can find that even during the great depression businesses started, and there were pockets of opportunity.

I do not believe for a minute that the stock market has hit bottom. This is not to say that there are not opportunities in the market. For instance, Obama is convicted to rid our dependence from foreign oil. Natural gas will be one of the big tickets to punch in doing this. Formulation of a new energy grid will be part of this plan. Utility companies have been viewed in the past as conservative, boring investments. Their 52 week swings are typically very low when compared to other business sectors. These companies consistently pay dividends. They are commodities that we continue to need, even in dire times. Demand WILL increase due to government expansion of our national infrastructure. I see these as the next darlings of wall street.

If you have a good cash position you can get into stocks like Chesapeake (CSK) and Duke Energy (DUK) with tight stops to minimize your risk. These companies have good balance sheets and are currently paying dividends more than double what you can get in cash accounts.

Once Obama gets into the big chair and his stimulus plans get announced you will see upward movement on these stocks. If you afford to take bigger risk, energy transmission and distribtution stocks which are trading near the bottom will also take off. These have wider swings than utility stocks so you need to be careful.

Remember, your goals for 2009 are to stay as liquid (cash) as you can!


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