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Monthly Archives: February 2009

What’s Next?

The stock market, measured by the S&P 500, is retesting the low of this bear market. Last week’s losses took the S&P 500 down 100 points, or 11%, from February 9 to Friday of last week’s close of 770, close to the November 20, 2008 bear market low of 752.

Retests are a normal part of making a stock market bottom. In October, we wrote that bear markets of this magnitude nearly always pull back after an initial relief rally – and that a retest of the low typically takes about three months. Of the bear markets since 1950, 10 of 11 retested. Only after the August 1982 low of the long bear market and recession did the stock market move steadily higher without retesting the low. Retests do no always revisit the prior low, but result in a …

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Still Looking for Signs of Stability

Seven weeks into the New Year and market participants are still looking for signs of stability in the U.S. and global economies. At best, the U.S. economic data released in recent weeks has been mixed: for the most part, the data on housing, manufacturing, and employment in January and early February is still decelerating to the downside. On the other hand, readings on weekly retail sales, weekly mortgage applications and homebuilder sentiment in January and early-to-mid February have beaten expectations and have stabilized somewhat. Thus, it is probably too soon to sound the "all clear" on the U.S. economy just yet, and at this point we (and most market observers) would simply settle for a sustainable deceleration in the pace of the decline economy.

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Financial Stability Plan: Not Clear Yet

Financial markets remain choppy and distressed as markets apparently view Treasury Secretary Geithner’s rollout of the “Financial Stability Plan” as a disappointment.  I certainly was underwhelmed by the plan and its lack of details.

As it stands, the plan outlines six big steps.  The first is to “stress test” major banks, increase disclosure, and if needed inject more capital and encourage private investment.  For me, despite my view that of some big banks deserve a lot of the blame for the mess we’re in, this idea falls in the “if I wasn’t laughing so hard, I would cry” category.  These banks are already totally stressed out and struggling to stay afloat.  Another round of major regulatory reviews and disclosure requirements may not be the best use of anybody’s time or money in the midst of this financial crisis.


Mid Quarter Update on the the U.S. Economy

February 15th marked the halfway point of the first quarter of 2009 (Q1 2009), and that admittedly artificial benchmark allows us to look back on the performance of the U.S. economy over the "first half" of quarter and look ahead to the "second half" of Q1 against the backdrop of our 2009 Outlook, which was published in December 2008.

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I’m From the Governement and I’m Here to Help

Ronald Reagan once quipped that the most terrifying words in the English language were: "I’m from the governement and I’m here to help." Yet, the public perception of the role of government in the economy has changed markedly from what it was 25 years ago. All eyes were on Washington last week as the Obama administration unveiled the Financial Stability Plan intended to address problems with banks and lending and Congress completed its roughly $800 billion economic stimulus package, the American Recovery and Reinvestment Act of 2009. However, the market was not impressed with what the government had to offer.

Last week, the stock market slid back to near the low end of its range of the past four months on disappointing labor market data and frustration with Washington’s lack of clarity. Not all of the data was bad. For example, the retail sales in January were suprisingly strong, posting the first gain in seven months. However, the uncertainty and delay in policy action left a negative tone to the data – good news was viewed as unsustainable and bad news was greeted as a sign of a deepening recession. While we continue to believe te economy and market are likely to follow our base case for 2009 (described in the 2009 Outlook Publication), the risk of our bear case unfolding increased this week.

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What is a Structured Product?

The term ‘structured products’ covers a wide range of complicated investments created to address specific investment needs. Some structured products provide exposure to a specific security or asset class, while others are designed to hedge against existing exposure. Structured products typically have two components, a note and a derivative, and have fixed maturity.

In general, the structured products offered through LPL Financial Services are notes issued by an investment bank that offer the investor some protection from downside risk in exchange for the investor’s forgoing some upside potential to achieve that protection.


Bank-Owned Real Estate May Be Plentiful, But Learn the Ropes Before You Invest

Last month, RealtyTrac, a leading online market for foreclosure properties, reported that over 3.16 million foreclosure filings were made in 2008, up 81 percent from 2007 and up 225 percent from 2006. There was one more stunning fact – that one in 54 U.S. housing units received at least one of the following — a default notice, auction sale notice and/or full-scale bank repossession – during the last year.


Taking a Step Back: The Next 10 Years

Market particpants have been demonstrating a very short-term persepctive. That makes sense since the short-term matters a lot right now. The bank rescue plan and fiscal legislation being presented this week will have a significant impact on the course of the market and economy in the coming quarters.

While it is easy to get caught up in the short-term news and events of the financial crisis and recession, a long-term perspective can be helpful during these trying times. The next 10 days or 10 weeks (or even months) might be difficult to predict with a high degree of accuracy. However, taking a step back and looking out over the next 10 years, we may be able to see more clearly where returns may be headed.

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Massive Job Loss in January but U.S. Economy Still Tracking to Our Base Case For 2009

The  U.S. economy suffered another horrendous month of job losses in January, shedding 598,000 jobs, which was the worst single month for employment in the U.S. since 1974. While the report was worse than expected – the consensus was looking for a 540,000 decline in jobs in January, the unemployment rate rose more than expected to 7.6% and there were sizeable downward revisions to job counts in prior months – financial markets shrugged off the news, looking ahead to the bank rescue plan to set to be announced this week.

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Consumer Borrowing in 2009 Will Mean Making a Plan

If you’re planning to buy a home or a car in 2009, the process is going to be a lot tougher without an excellent credit score and a significant down payment. So that means you’re going to have to work harder—and possibly wait a little longer—to make those key purchases.

What’s a good credit score? According to credit scoring giant Fair Isaac Corp., the best FICO score range as of late 2008 stood at 760-850, according to reports; that minimum is roughly 20 points higher than it would have been a year ago.