October 19, 2009:
On October 19, 1987, I watched painfully as the stock market crashed down by 500 points. In my past 28 years, I have experienced these types of historical events. This October 19, 2009 may not be any different. We may not see a dramatic crash, but every investor needs to be on alert. Is it possible that we could see the next down turn of the Great Recession starting to unfold? Granted Friday, October 16th saw the Dow Jones Industrial Average close at 9,996. However, on Friday, the Treasury and the White House confirmed that the U.S. government ran a deficit of $1.4 trillion dollars in fiscal 2009. That number is more than triple the short fall recorded in 2008.
Speaking of 2008, the government has now posted twelve straight months of budget short falls with September 2009 having a deficit of $46.6 billion. The question becomes if government is experiencing shortfalls, how are we coming out of this Great Recession? Our economy is currently like a patient with a weak immune system that is receiving medication. The medication just happens to be huge government spending and massive debt. At some point, the patient has to come off the medication or he will remain sick and dependent.
There is also the question at what point do we end the medication? If it were removed today, the stock market would start to go lower, which could still happen depending on how the dollar reacts in value or if interest rates move up. Until we see consumers feeling better about their personal debt load and start spending without government programs, like Cash for Clunkers, we will continue to remain cautiously defensive in our portfolio strategies. One thing the 1987 stock market crash taught us is that the market can react quickly whether the news of the day is temporary or the beginning of a long term trend.
As we communicate our thoughts regarding the economy and the markets, we want to have dialogue with you. Don’t hesitate to share your opinion or how our comments relate to your situation.
President and CEO
Fi Plan Partners