The decade that begins in 2010 is being referred to as “The Tens.” The next ten years will prove pivotal to the United States as we weather through the terrible and the triumphant. The first decade of the 21st Century has proven to be eventful in historical proportions... Presidential election goes to the Supreme Court, 9/11 terrorist attacks, Enron and Worldcom fraud, Afghanistan War, Iraq War, Hurricane Katrina, financial meltdown of 2008,... the list goes on and on.
The question becomes does history repeat itself? How ironic that the 20th Century’s beginnings had similar circumstances occur in 1907. The Panic of 1907, which was also known as the 1907 Bankers’ Panic, was a financial crisis that occurred in the United States when the New York Stock Exchange fell close to 50% from its peak the previous year. Check your history books to see that it was due to unregulated transactions and large financial institutions. Sound familiar? Do we ever learn from our past mistakes? Funny, but it was this event that lead to the creation of the Federal Reserve. In 1908, the first ball was dropped in New York City signifying the beginning of a New Year. William Durant started a horseless vehicle company know as General Motors while on September 27, 1908, Henry Ford produced the first Model T Ford automobile. A hundred years later, we watch as General Motors asks the country for bail out money. Oh, and by the way, that same year, Teddy Roosevelt held a White House conference which ultimately formed the National Conservation Commission. Today, the environment has become an issue once again as we debate global warming, carbon emissions, and bovine flatulence. Teddy, where are you? Is this a whiff of things to come?
In our December eNewsletter, I elaborated about similarities of today in relation to 1972 and 1987. (Visit our website and click the eNewsletter button if you are not already a subscriber). That said, I think I need to briefly make reference here as well. Both the 1972 and 1987 peak have other things in common. Right after the market downturn, stocks were overbought, advanced significantly over prior weeks, bond yields inched higher and the investment firms had become extremely bullish. We are observing those same similarities now.
One of our main concerns in the recovery of this economy is that we are going to hear new phrases like “too small to bail” or “too weak to wait.” While the “too big to fail” banks are prepaying their TARP money so they can have the government out of their business and pay out their executive pay bonuses, the regional banks will suffer and become the next victims of this economy. While the Federal government is budgeting a decade of endless debt increases to build the kind of green economy they want, the regional bankers and small business people will see higher taxes, reduced economic growth, and higher inflation.
Keep your eye on Canadian banking as it is currently financially stronger than the U.S. banking system and there are fewer of them. Could this become our nations role model? One of my favorite recent quotes is by former Fed Chairman Paul Volcker at a conference in London who said, “You can innovate as much as you like but do it within a structure that doesn’t put the whole economy at risk.” He said that derivatives, such as credit swaps and collateralized debt obligations had taken the economy “right to the brink of disaster.” It was Volcker who pointed out the economy had grown faster during the 1960’s when such instruments didn’t exist. Oh, and by the way, Canadian banks didn’t get as involved in this financial creativity and the U.S. banks who have paid back the TARP money have gone back to creative financing as usual. What’s wrong with that picture?
There is so much I want to discuss with you. Case in point, will gold prices continue to rise? Watch it closely throughout this year. Keep your eye on India and China. India will mark a historic transition as manufacturing will surpass farming in that country. China will reach a statistical landmark as it overtakes Japan to become the world’s second largest economy. There is no doubt that China will be a central issue in the coming year, especially since it holds so much U.S. debt in the form of Treasuries.
My list of topics could cover many more hours of your time. Hopefully, though, I have emphasized to you that at fi-Plan Partners, we are always thinking, analyzing, and ready to take action for you as events unfold. We know the role we play in your life and understand fully that regardless of what transpires nationally or globally, your main concern is your personal economy as it relates to your life and decisions. In the decade of “The Tens” we want you to win and each and every day we will strive to make that possible. And as I have always emphasized, open dialogue between us allows us to make sure the right doors are open in Your Financial House. Have a prosperous, happy 2010 and we are thankful to be a part of it.
Greg Powell, CIMA