December Newsletter

End of the year cheer?

After 3 grueling months of panic selling is it over?

Without a doubt the market over the past couple of months has been the worst I have witnessed in my career but now I wonder, could we actually see a positive month to end the year? While the answer isn't set in stone the tide does seem to be turning a bit. There are many subtle signs that the market is now giving to indicate that the intense selling pressure is subsiding. Many of the most beat up stocks held up during the November downdraft and some sectors such as retail, banking and transports are beginning to perk up. While it is still to early to tell if this is the ultimate low, this week may mark a change where investors begin to fear losing out on bargain prices as opposed to selling indiscriminately anything and everything.

I am watching the 890 level on the S&P, if the market can break above this level it has a fair chance of a December rally of 15% or so. What a welcome gift that would be as we enter the Holiday season.

One important item to watch is what happens if we do in fact rally into the New Year. Will the gains hold or will we roll back over after a 4 to 6 week reprieve?

Keynesian Economics:

John Maynard Keynes was a prominent economist whose theories are widely followed today. For macro economics Keynes stated that the cause of an economic slowdown was simply insufficient aggregate demand. So what are the sources of demand and what could actually pull us out of this recession?

• Consumption: We all hear that the consumer is the driver of the economy. We also know that the consumer is tapped out for awhile as credit has tightened and folks are naturally gravitating toward saving.
• Investment: Business investment / personal investment has also been a driver in the past economic cycles. If the consumer was not spending then we had businesses investing in new plants or equipment to help sustain demand. This recession has caused businesses to tighten the purse strings just like the consumer.
• Exports: This would be the global economy buying our products or services. With a global recession and a stronger dollar recently, this area isn't helping either.
• Government spending: This was the last of Keynes 4 demand drivers. If the other 3 weren't producing the burden fell on the Government to fill in the void and create aggregate demand with policy and stimulus measures. This is where we are currently.

After selling quite a bit of debt to investors the Treasury is now trying to make interest rates so low that folks are forced back into the market for better return on their money. Watch closely what they do to try and make treasury yields so depressingly low that consumers have no choice but to gravitate back toward "riskier" investments for a return on their money. If it works we will pull out of this recession next year and the other 3 demand drivers will kick in.

ID Theft - Don' t let scrooge get you:

A down economy doesn't deter ID theft and actually may spur more clever thieves to steal your personal information. Be on guard this holiday season:

• Shred all mail with personal or financial data on it.
• Never ever ever respond to emails, letters or phone calls requesting you to "verify" an account number, social security number or credit card number.
• Criminals are very sophisticated and use company logos and copycat websites to try and steal this data from you. Always be suspicious. If in doubt call first.
• Visit www.annualcreditreport.com for a free report from the 3 bureaus.
• Visit ftc.gov/idtheft for free information on protecting your Identity and what to do if your personal data is stolen.

Have a safe and happy holiday. Let's look forward to a better 2009!

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