April 30, 2009, 4:34 am – Wealth Dimensions Group
The tug-of-war continues to intensify as equity markets rally against the backdrop of challenging economic information. As of yesterday’s close, the 25 percent rebound in the S&P 500 is now the largest since 1938, coming off of the lows of early March. Quite remarkable that the S&P 500 is still down 8 percent for the year and 42 percent from the October, 2007 high.
Investors are finding encouragement in economic data that is being interpreted as “less bad”. While the rate of decent may be slowing, it is difficult to find much improvement. Yesterday, GDP growth for the first quarter was reported as down 6.1 percent for the first quarter and jobless rates rose in all 372 metro areas. In addition, the Case/Schiller real estate index was reported down another 2.2 percent in February and 31 percent below its peak with no evidence of a turnaround.
This tug-of-war will continue as additional economic news emerges and Washington justifies record deficit spending as the solution to the economic woes. The Obama administration in coordination with the Treasury and Fed are intent on borrowing and spending at record rates to do “whatever necessary” to stimulate the economy. While this rally is certainly welcome, it should be viewed with some skepticism. Emotions run high in difficult times and investors can easily move from overly pessimistic to optimistic as the markets and the economy progress through normal cycles.
April 22, 2009, 11:20 am – Wealth Dimensions Group
This morning, Treasury Secretary Timothy Geithner addressed the Economic Club of Washington. In his presentation, he stressed that, while the United States is prepared to incur big budget deficits now to spur economic activity, it is vital to set out a path for getting spending under control over the medium term. President Obama has pledged to cut the deficit in half over the next four years. With a deficit of $1.875 trillion for this year, cutting it in half in four years would still leave it more than double the largest deficit in US history.
In a review of the proposed Obama budget submitted to Congress, the Congressional Budget Office recently projected the United States will run deficits of $9.3 trillion over the next 10 years.
If that is what Mr. Geithner means when he says getting it under control, we better think long and hard about this new policy in Washington. The United States’ standing as the safest world currency will be erased and we may be buying oil and other raw materials priced in Chinese Yuan.
