A Look at the Coming Week - February 2, 2009
We just ended the worst January ever for the stock market.
The S&P 500 was down 8.6%. Our Trust Company of America accounts were up 2.24% for
the Aggressive Strategy and up 1.6% for the Moderate Strategy. By trading
frequently and staying abreast of the changing market conditions we were able
to outperform the stock market averages by over 10%.
There is an old saying on Wall Street, "as January goes, so
goes the year." If you are a superstitious type, this axiom has proven true in
60 of the last 80 years. In January of 2008, the market dropped about 6% and
2008 was not a fun year for most investors. Could we see a turnaround soon?
Yes, we can. Once the outlook for the future brightens then we should see a
rebound in the financial markets.
One of the amazing things about this recession is the
savings rate. People are at last starting to save again. In the last recession
of 2001, Americans spent their way out of the economic downturn. The Obama
Administration is counting on the same thing happening again. They think that
all of us are going to resume our spending habits after they pass the new
stimulus bill. Unfortunately the stimulus will not work simply because the
savings rate is going up. I expect to see it go to at least 5%-6%. In 1982 which
was another time of severe crisis, the savings rate jumped to 10%. The problem
with saving, dear reader, is the recession deepens with every dollar we
squirrel away. This is why they are preaching "stimulus" which is another fancy
word for spending money we don't have, to buy things we don't need to impress
people we can't stand. Greed is gauche and cheap is chic!
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Every day we are getting news of corporate layoffs,
decreases in sales and profits, and problems with state and local governments.
Right now, things are still escalating and there has not been a slow down yet
in dire news. We continue to look for the silver linings. One thing that is
positive is the expose of corporate greed and theft. As greed is uncovered and
hopefully punished, it will start to send a clear message to the perpetrators.
We see that this is a good thing. After the Bernie Madoff $50 billion Ponzi
scheme, four or five more Ponzi schemes have been uncovered. Also, as the
current administration continues to have their appointees confirmed by
Congress, the tax cheats are being uncovered as well. This, as one reader
points out, has been a great source of revenue for the IRS.
Things are relatively quiet on the economic news front for
this week. The most watched number is still the unemployment data. Economists
are expecting the unemployment rate to go up from 7.2% to 7.5%. These numbers
are still somewhat deceptive. There are many self-employed people who are not
reported in these numbers. Also discouraged workers are excluded. A new
phenomenon is the number of people who are working but have had hours cut or
wages reduced. My estimate is somewhere between 15% and 20% are really workers
who have been severely affected in one form or another. So, when someone says
unemployment will never reach the 25% levels of the Great Depression, they
should dig just a bit deeper to see what the overall impact really is. Using
government statistics only tells a very small part of the story.
I hope all of you are enjoying our weekly Vance Advance. Many of you who have had
brokerage accounts with other firms are probably all too familiar with the
dull, mundane boilerplate stuff that finds its way to your mailbox. Many of you
may not know that we research and write all of our own material. As an economics
research firm, we are scanning the globe not only for ways to manage portfolios
but to stay on top of what is happening on a day-by-day basis. We write all the
newsletters that we send you. Gene (yep, another one of my kids!) writes the
print newsletters that you receive each month and I write the weekly Vance
Advance email. Do let us know if you
have comments or ideas; we appreciate it!
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Working for your wealth and peace of mind,
The Vance Capital Management Team
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