Economic outlook: ‘Time is the investor’s ally’
February 2, 2009
A small group of investors shaken by 2008s turbulent markets gathered in the conference room of Edward Jones in Granby recently to hear what the companys predictions are for the 2009 financial landscape.This recession is far from the magnitude of the Great Depression with todays bank deposits insured by the FDIC, unemployment insurance and massive government responses, they heard. Everything about todays policy responses are different than in the 1930s, said Jeremy Siegel, professor of finance with the Wharton School of Business in a video presented to the group.In spite of this, the realities of today are not taken lightly. At years end, the DOW was down 34 percent, NASDAQ down 41 percent and the Standard & Poors slipped 38 percent. The Gross Domestic Product ended 2008 with an annual growth rate of 1.1 percent (down nearly 4 percent in the fourth quarter) and unemployment rose to 6.8 percent.Foreclosures are up, home values are declining, and deficits are becoming larger as the Federal Reserve fights deflation. The first decade of the new millennium already is being summed up as a Loss Decade, said Edward Jones Financial Advisor Jan Knisley. And were not out of the woods yet. Recognizing that times are challenging for those close to retirement, the weary investors were told to stick to their well thought-out plans with a tempered pep talk. The economy is not broken, said Edward Jones Chief Market Strategist Alan Skrainka in the video. This is not 1933, its not even 2008 anymore. Dont look back, look forward. Time is the investors biggest ally.According to The Blue Chip Economic Indicators poll of 52 economists from top financial firms, Reuters reported, a tepid recovery is expected to begin later this year with growth returning to more normal levels in 2010.That will add up to the longest downturn since World War II.More than half of respondents thought unemployment would peak no earlier than 2010, making it the highest employment in more than two decades. The unemployment rate is the last variable to start responding, Siegal said. That variable peaks and hits its maximum after the business cycle has turned. So we wouldnt look at the unemployment rate as the first thing to turn. His prediction is that an economic turnaround could start as early as the second half of this year. If we look at historic data, the stock market usually bottoms about six to eight months before the economy starts turning around, he said. After a bad 10 years, odds are overwhelming the next 10 years are going to be better than average, Skrainka said.Knisley explained that there is a difference between the economy and the market. They are correlated, but they dont walk hand-in-hand, she said. The market is way undervalued right now from where it should have corrected itself, she said. All advised that its a solid time to buy quality shares at attractive prices.On an encouraging note, the Edward Jones advisory committee has increased projections of returns for the next decade, she said. Average recessions since the 40s have lasted 10 months, and theres only been two since then that have lasted more than 10 months, and those lasted 16 months. Were already over 12 months. How long its going to last, I dont know, Knisley said. But we are very resilient. And the economy will come back and the market will come back. Weve read this book before, we know how it ends, we just dont know when. Tonya Bina can be reached at 887-3334 ext. 19603 or e-mail firstname.lastname@example.org.