Will 2009 be a better Year?
We all know that 2008 will go down as a year to remember. We had Oil trading at $150 a barrel. Lehman Brothers and Bear Sterns now have corporate tombstones that declare that they "passed away" during the 08 year. AIG and Citigroup had to be bailed out to avoid the same fate. The Big 3 automakers, Ford, GM, and Chrysler, have had to beg for government funds to remain solvent. The U.S. banking industry has, in effect, been nationalized and put under government control.
After all is said and done, the government will have put more money into the economy, and struggling companies, than it spent on all of the previous wars combined and the McCarthy Plan to rebuild Europe after World War II. I would say that these events have made 2008 one for the record books, but I think that we are pulling out of the recession. Here is why.
Gas Prices are at 6 year lows
The dramatic fall in gas prices is directly correlated to the chaos in the economy. However, with gas prices averaging $1.60 nationwide, the lowest point in 6 years, I think that this will have a very positive effect on the consumer. It will give them more money in their pockets, and moral will be greatly improved by not driving past gas stations advertising a gallon of gas at $4.50. It should have a positive effect on the mindset of consumers that will help to encourage spending. In addition, the cost of goods like plastics and other products that are dependent on oil will come down as well.
We are Seeing Improvements on Many Fronts
I was opening up a new business banking account on Thursday, and I had the opportunity to speak frankly with the assistant vice president. They were able to mention a few very interesting facts.
Small Business Owners are reporting an increase in business
CD's and Money Market Funds are at record highs
Mortgage rates are expected to fall below 5%
These are very interesting economic trends that portray a little bit more optimistic viewpoint of the current economy. If you listened to the talking heads, you would think that we are doomed.
Small Business is doing better
Small business is usually much more nimble than large corporations, so they are usually the first to see a direct increase in business, resulting in an economic recovery. It takes big business at least a few quarters to have the ability to report these same reports. I think that this is a good indicator that things are improving.
Cash is King
Cash and CD deposits are at all time highs right now. This is directly correlated to the general fear and anxiety that the public is feeling currently. However, my experience tells me to view this negative as an opportunity. Usually when things are the bleakest, and most people give up on the markets, that is a sign that we are headed for a rebound. Average investors usually miss out on this move because they have given into the fear and liquidated their portfolios at the worst possible time. I have seen it happen time after time.
Are Mortgage Rates going to 4.50%?
The Housing Market is what started this domino effect that lead to the recession of 2009. When rates were at their lowest point a few years back, everyone who was even remotely in the market to purchase a home did so. This absolutely sapped up the supply of buyers, and coupled with rising mortgage rates, the foreclosure rate skyrocketed. Then came the resulting decline in the price of homes.
Mortgage rates below 5% should provide much needed relief from this activity. Homeowners can refinance to get out of punitive ARMs and teaser rates. Plus, people on the homeownership sidelines will once again be able to get the type of home that they are looking for due to the lowered rates. This should help the foreclosure rate, and right the real estate market. Oh.....and by the way.....this will help to stop the flow of defaults on Mortgage Backed Securities that caused Bear Sterns and others to go the way of the passenger pigeon. This will be really good news!
Obviously, We will just have to wait and see
I really hope that the reasoning that I have given in this blog will result in a much better 2009. There are many external factors that could throw the markets back into chaos. However, with a new president, and the economic reasoning we have discussed, I think that 2009 will be much more revered than 2008.
