The Bottom Line
By Chad Wilson
February 29, 2008
Foundation Bank --
The Bottom Line
Does Recession Really Matter?
Volume IV Issue I – Friday, February 29, 2008
A monthly newsletter of financial commentary for our friends
Does recession really matter for the stock market going forward? We are all still feeling the pain of the first 12 trading days of the year. Is it possible that this was the market pricing in the assumption of recession? Could it be possible that even if the economy slips into recession the market will rally, since at that time it would be old news? We know that the stock market is a forward-looking indicator, but it’s hard to know just how far down the road it is looking. And even though it is trying to look forward, the events of today can change the hue of the crystal ball. That’s one of the reasons there are times when the market doesn’t make sense. What is happening today may not be what the stock market thinks will happen tomorrow. So though no one knows if we will be throwing a party in the second half of the year or still singing the blues, the market could be performing opposite the economy. Mr. Market is a moody man indeed.
Here are a few economic tidbits for the gurus who like numbers: Best Buy says that traffic in January was weaker than expected. Not good news when Super Bowl month is one of the best for big ticket retailers. Despite that warning from Best Buy, retail sales were up .3% in January. GDP was quite abysmal is the 4th quarter of last year – a mere .6%. The most recent Unemployment claims number came in at 373,000 (400,000 is the number you want to avoid.) Oil is above $100 per barrel. Gold is setting new highs every day at $967 an ounce today. The 10-year bond is sitting around 3.7%. Admittedly, there is not a lot of positive news to hang your hat on.
In the world of credit, it is getting tighter. Banks are turning back the clock to the days of conservative underwriting. 100% financing is becoming a thing of the past. Lenders are requiring more money down. They want to see borrowers with skin in the game. Sub-prime borrowers are running out of options quickly. It’s amazing that the seemingly noble quest of getting every American into a home is one of the primary contributors to the current housing crisis that we find ourselves in. Maybe we should recharter that quest to “getting every American who can afford a home into a home”. For those who can borrow easily, you have very attractive rates in front of you. We would recommend you locking those rates in for as long as you can. Rates may not get much better than this on a long-term basis.
Let’s talk about gold for a minute. Gold has historically been the safe haven in times of turmoil. It is the proverbial harbor for nervous money. One of the things driving the demand for gold lately is the ability to buy it through Exchange Traded Funds (ETF’s). No longer do you have to purchase gold bullion to participate in the market of gold. You can trade the ticker GLD among others, and track the price of gold in your very own IRA. This does not mean that we are recommending that you do this. As a matter of fact, the current high price of gold makes me very nervous. Anytime anything has been on a run with it’s price moving up relentlessly, I tend to become skeptical of its continued streak. I will concede, however, that fear is gold’s best friend. And there is no shortage of fear these days. The gold rocket may continue to scream upward, but I won’t be on board. The bursting of the housing bubble has already reminded all of us that things can’t go up forever. I’d rather not have to learn the lesson twice.
Chad P. Wilson, CFP
Foundation Bank – a division of McKenzie Banking Company - 731-554-2423
The above is strictly informational commentary and does not constitute any sort of recommendation. Please consult your own financial advisor for specific tax, loan, or other investment advice.
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