Week of 01/29/09
Darkest Before Dawn
Over the past few weeks, we have been readying ourselves for an onslaught of bad news. What we felt in Q4 2008, is now being realized in the paper every morning. Earnings are down or non-existent, GDP is expected to show a contraction of over 5%, and layoffs are coming in by the thousands, as companies pull back on their efforts to grow. Even healthy companies are jumping at the opportunity to prune their ranks of employees.
President Obama has a trillion dollar stimulus plan. Let’s call it TARP 2. In the plan, our politicians promise a new, more effective approach to the markets. Bigger government is most likely here to stay over the next 4 to 8 years. This result should come as a surprise to no one, as we respond to years of overspending by consumers and the Government, by “fixing” the problem with more money that we do not have.
The markets, acting efficiently, have thumbed their nose at the efforts thus far, and will continue to correct on its own timeline. We expect the numbers (whether earnings, GDP, or unemployment) to reach their respective lows or highs this quarter. The market will respond to the relative state of those numbers versus the projections provided. The market can appreciate in this environment, and even more so in Q2 if the numbers are trending toward a recovery (GDP being less of a negative, unemployment stabilizing, etc).
We do not see a repeat of last year’s calamity. The bad bank debt must be dealt with, credit must flow and counterparty risk must return to normal. The road to recovery is complex, but if we show signs of stabilization in Q1 2009 numbers versus those of Q4 2008, then the only question is the timing of the recovery (versus the depth of the recession). We believe that Q4 2008 numbers are the darkest we will witness and the economy will start mending in the early part of Q2 2009.
As always we appreciate your business.
Scott Airey
Darkest Before Dawn – 01/29/2009
Week of 01/29/09
Darkest Before Dawn
Over the past few weeks, we have been readying ourselves for an onslaught of bad news. What we felt in Q4 2008, is now being realized in the paper every morning. Earnings are down or non-existent, GDP is expected to show a contraction of over 5%, and layoffs are coming in by the thousands, as companies pull back on their efforts to grow. Even healthy companies are jumping at the opportunity to prune their ranks of employees.
President Obama has a trillion dollar stimulus plan. Let’s call it TARP 2. In the plan, our politicians promise a new, more effective approach to the markets. Bigger government is most likely here to stay over the next 4 to 8 years. This result should come as a surprise to no one, as we respond to years of overspending by consumers and the Government, by “fixing” the problem with more money that we do not have.
The markets, acting efficiently, have thumbed their nose at the efforts thus far, and will continue to correct on its own timeline. We expect the numbers (whether earnings, GDP, or unemployment) to reach their respective lows or highs this quarter. The market will respond to the relative state of those numbers versus the projections provided. The market can appreciate in this environment, and even more so in Q2 if the numbers are trending toward a recovery (GDP being less of a negative, unemployment stabilizing, etc).
We do not see a repeat of last year’s calamity. The bad bank debt must be dealt with, credit must flow and counterparty risk must return to normal. The road to recovery is complex, but if we show signs of stabilization in Q1 2009 numbers versus those of Q4 2008, then the only question is the timing of the recovery (versus the depth of the recession). We believe that Q4 2008 numbers are the darkest we will witness and the economy will start mending in the early part of Q2 2009.
As always we appreciate your business.
Scott Airey