Time to make post-recession investment moves?
John Newland
Monday, September 21, 2009
Like a tiresome dinner guest, the recession has long outstayed its welcome. But there are some clear signs that the economy has begun to turn around. If that is indeed the case, how should you, as an individual investor, respond?
Before we get to that question, let’s quickly review some of the key factors that suggest the recession may be ending. First, we’ve seen four straight months of gains by the Conference Board’s Index of Leading Economic Indicators. Also, the job market is improving somewhat and bank lending is increasing. The Federal Reserve’s efforts to stabilize the financial system have improved conditions in the corporate credit markets, as indicated by a dramatic increase in the amount of new bonds issued by companies thus far in 2009. We’ve also seen improvements in the housing market and in industrial production.
Even if all this evidence indicates the recession is ending, does that necessarily mean that boom times for investors will follow? A look back in time shows reasons for optimism. In 10 recessions, extending from 1949 through 2001, the S & P 500 rose, on average, 9.5 percent six months following the recession’s end date, and 15.5 percent after 12 months, according to Ned Davis Research. Of course, as you have no doubt heard, past performance is no guarantee of future results, but in years gone by, staying in the market rewarded long-term investors -those who could look beyond the recession at hand.
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reddog (K. B. Thomas Jr.) says...
If Ben Bernanke is right and the recession is over, Why are bonds in more demand now than 3 months ago? The national housing market shows that there are 2.8 million active interest only home loans worth 908 billion dollars. In the next 12 months 71 Billion will reset, the year after 100 billion and watch out for 2011 400 billion will reset. Right now 18% of these loans are at least 60 days delinquent. To stable the market a 15,000 dollar tax credit for everybody will be passed by congress. There are 400 banks on the FDIC watch list but, there are 2256 banks that rate an F on the IRA list. They project over 1000 banks will fold or be taken over in the current cycle. The banks rated F have total insured assets of 4.46 Trillion dollars. Banks that have been taken over show losses of 25%. In the 1980's the losses were 11%. The cumulative loss might be 300 billion dollars. FDIC reserves are about 10 billion. The FDIC has only about two-tenths of one cent for every dollar of asset. The FDIC can get 500 billion dollars through 2010. Commerical real estate loans are now 9% delinquent. The next result is going to be much higher interest rates on everything and that will not sustain the recovery. Several housing benchmarks will be due this week and they will be postive but, we have a big hole to crawl out of and I am keeping my fingers crossed that we won't have a run on the dollar. If we have a catastrophic dollar collapse that will change our nation forever. Good night and God Bless.
September 22, 2009 at 12:31 a.m. ( permalink | suggest removal )
reddog (K. B. Thomas Jr.) says...
Warren Buffett who supports President Obama said, "The frantic spending and money creation underway right now will cause the U.S. to experience a currency destroying inflation that is going to be more severe than in the 1970s." While all curencies on the globe are falling against tangible assets, the U.S. dollar is falling faster. The best plan you can make is to find out how you can protect yourself from a 75% dollar collapse. 99% of Americans will be caught off guard. It currently takes about 9 ounces of gold to buy a share of the DOW. Yet as recently as 1999, it took 44.8 ounces of gold to buy a Dow share--that's a whopping 80% crash in the real value of the DOW.
September 22, 2009 at 11:01 p.m. ( permalink | suggest removal )
reddog (K. B. Thomas Jr.) says...
The best hedge against a fall in the greenback is a stable small town Real Estate market with industrial growth.
September 22, 2009 at 11:43 p.m. ( permalink | suggest removal )