The following information and quotes were extracted from the April 30, 2009 Wall Street Journal:
- Chrysler filed for Chapter 11 bankruptcy protection today, kicking off what the Obama administration predicts will be a 30- to 60-day restructuring of the third-largest U.S. auto maker. At the same time, it entered into a partnership with Italian auto maker Fiat SpA. I don’t like to see a large U.S. company go into bankruptcy; however, it is necessary. Hopefully, a leaner and more competitive car company will emerge. Unfortunately, Chrysler stock and bond holders will get the short-end of this stick.
- The U.S. Labor Department reported this week that new applications for unemployment declined last week. In addition, companies drew down inventories at the fastest pace since the start of the decade. This is due to a huge contraction in consumer spending and companies dramatically lowering production in response. However, now that inventories are down, it could lead manufacturers to ramp up production as consumer spending stabilizes or even improves.“We think we’re moving toward stabilization in the economy,” said Joseph Brusuelas of Moody’s Economy.com. “We expect to be at a point later this year where firms will feel much more comfortable taking risks and cautiously rebuilding stocks.”“There was a modest upgrade to the economic outlook, and (confirmation) that consumer spending is stabilizing,” said Sean Simko, head of fixed-income management at SEI Investments.
- The Federal Reserve signaled it has no intention of pulling back from its aggressive efforts to revive the financial system, even though it acknowledged that the intensity of the recession has eased in recent weeks. It will continue to purchase mortgage-backed and U.S. Treasury securities in the months ahead in an effort to keep interest rates low. Long-term interest rates remain at historically low levels, which combined with the new tax-credit for first-time home buyers, has brought new life to the housing market and mortgage refinancing for current homeowners.
- China’s stimulus package is helping U.S. businesses. Caterpillar, Goodyear and Yum Brands (KFC, Pizza Hut & Taco Bell) are just a few examples of U.S. companies reporting positive results directly related to an uptick in demand from China. The Chinese government’s $585 billion stimulus program has quickly funneled money into everything from bridges to consumer’s pockets and some of the money is now flowing back to the U.S.
- U.S. oil inventories are at 18-year highs and gasoline demand is at its lowest level in a decade. In addition, it was just reported that a massive natural-gas discovery was made in northern Louisiana. The discovery is estimated to hold the equivalent of 18 years’ worth of current U.S. oil production. Other large natural-gas discoveries have been found in other areas of the U.S.. One industry-backed study estimates that the U.S. has enough reserves to satisfy nearly 100 years of current U.S. natural-gas demand.Lower demand and new discoveries will keep energy prices low in the near term as we work our way out of this recession. In addition, if efforts are made and we can successfully switch transportation and other industries over to natural gas over time, then our dependence on foreign oil will decline accordingly. Then, we (the United States) will be able to have much greater control over our energy prices and hopefully minimize foreign influences over our economy and keep more of our energy dollars at home.
I believe all of the items listed above help support the belief that the U.S. and other economies may be beginning to stabilize. As such, this does not mean the stock and bond markets are ready to take off and it’s all rosy from here. No, what it means is that it is becoming much easier for investors, whether they be individuals or institutions, to start leaving low-yielding checking, savings, money markets, CDs and short-term U.S. Treasury bills for potentially greater rewards in mutual funds, ETFs, stocks, bonds, etc. If this trend continues and long-term investors come out of hibernation, we should see some very positive impacts in our portfolios within the next 12 months.
Saving is becoming chic
The following is an excerpt from the April 30, 2009 Wall Street Journal regarding Americans seeing the folly in just charging on their credit cards. As a result, a more “pay now” and savings-oriented mentality is starting to take hold.
“The painful realization is that I need to be an adult, and this is a time to save,” said Mr. Sagara, a 26-year-old consulting-firm analyst who lives in Tucson, Ariz. The urge to not splurge by thrift-conscious consumers is giving the debit-card revolution a new push. On Wednesday, Visa Inc. reported that the total dollar volume of purchases made using its branded debit cards surpassed credit-card purchases for the first time during the last three months of 2008….‘The reality is that the vast majority of consumers want to pay as they go,’ said Stacey Pinkerd, who oversees Visa’s debit-card business….
Now the recession is giving many consumers second thoughts about their credit cards. Lenders also are making it more expensive to charge purchases and lowering credit limits on credit-card users. The U.S. government said last month that the personal savings rate rose to 5% in January, the highest level in nearly 14 years. Revolving debt, which mainly reflects credit-card loans, fell 9.7% to $955.7 billion in February, the Federal Reserve said.
‘A big group of consumers like the discipline that debit spending can bring them, and that is particularly relevant in this kind of environment,’ said Tim Murphy, who oversees MasterCard Inc.’s main payment products around the world….
‘Consumers are being more conservative in the way they manage their finances and that leads to a greater willingness to put transactions on debit cards,’ said Cliff Cook, chief marketing officer for retail-payment solutions at (U.S. Bancorp) the Minneapolis bank.”
I believe this is some of the best economic news we could read. A more responsible American consumer will go a long ways toward creating a much more vibrant and stable economic future for this country.
Could the “swine” flu impact my investments – let alone my health?
As I noted previously, there are many signs that the U.S. and other economies are beginning to stabilize, and this has been the main driver behind the stock markets’ recent rise around the globe. That being said, the potentially pandemican virus (i.e., epidemic of infectious disease that spreads through populations across a large region; for instance a continent, or even worldwide) could hurt investors in the short-term.
If the situation worsens, then consumers will venture out less whether it is shopping for necessities or discretionary items. In addition, travel and entertainment will be impacted. Currently, Mexico is being hit the hardest due to it being the epicenter of the outbreak. Today’s Wall Street Journal report that Mexico City’s local business associations reported that businesses are losing more than $100 million a day due to the forced closings. If the flu virus spreads and school and business close temporarily, along with decreased or restricted travel, then we will see an economic hit which could cause the recent uptick in optimism for the economy and stock markets to take a pause. Remember, the virus and its impact is temporary and once it runs its course, things will return more to normal and we won’t see daily images of people on the streets with surgical masks.
A financial success story in the making!
In the past two months, I had a meeting with a retired couple who told me of the problems they were having trouble keeping up with their monthly expenses. Upon further discussion, I recommended they meet with a local Dave Ramsey’s Certified Financial Counselor I had become acquainted with. This counselor performs no investment advisory services, but focuses on helping individuals budget and implement and stay on a focused financial game plan. At first the husband stated that it was embarrassing sharing their story with another stranger. However, he did note that “it was helpful to get a fresh set of eyes on the problem.” Also, it was very helpful that the counselor kept me updated.
Without going into great detail, this couple has made some significant financial changes in their lives. Yes, it was somewhat painful at first. However, they have paid down a significant amount of debt and now have an additional $700/month of cash flow. Their goal is within the next two years they will be able to discontinue all withdrawals from their IRAs and live solely on their pensions and social security payments.
It was quite obvious from my conversation with the client, that they have made a huge transition from being embarrassed to becoming proud and empowered from their new actions and mindset.
If you or someone you know is in a similar position, please let me know. I can meet with you to discuss your situation and forward you to the appropriate professional if need be. I am extremely proud of this client and the action steps they’ve taken, and I am very thankful to the financial counselor for the role she played in this success story. This is just another example of why I like to affiliate with outside professionals, who can offer additional areas of expertise to our clients.
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“Is your life the way you want it?”
Strategic Life Planning Workshop, A Journey of Discovery
May 12 and June 17, 2009
Visit www.iia-kc.com/life-and-business for details and other events.
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“The ultimate measure of a man is not where he stands in moments of comfort, but where he stands at times of challenge and controversy.” –Martin Luther King, Jr., clergyman and civil rights leader
“If you create an act, you create a habit. If you create a habit, you create a character. If you create a character, you create a destiny.” –Andre Maurois, author
“You will be happier if you will give people a bit of your heart rather than a piece of your mind.” –Author unknown
Tony Moeller, President
Integrity Investment Advisors, LLC
12721 Metcalf Ave., #202
Overland Park, KS 66213
tmoeller@iia-kc.com
913-897-2074
The information listed in this commentary is a compilation of various publicly available sources and is for informational purposes only. It is not a recommendation or solicitation of any particular investment or strategy. A risk of loss is involved with investments in the stock and bond markets.
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