With one week until President-elect Barack Obama assumes control of the White House, it appears investors are becoming less optimistic that he could t...
With one week until President-elect Barack Obama assumes control of the White House,
it appears investors are becoming less optimistic that he could turn the U.S. economy around in the foreseeable future. Negative bias is driving the current trading, as the DOW fell for the fourth straight session yesterday. Concern about the economy and earnings, along with Obama's ability to get funds flowing, are making investors nervous about the length of the recession.
Only a few weeks ago, there was optimism in the market that drove stocks up in a mini-rally, but the enthusiasm has faded away with the news that Obama may need time to get the proposed $800-billion infrastructure program up and running. The reality is that the funds need to be spent carefully after analysis and not just given out for the sake of handouts.
It is a given that significant government fiscal spending is required. Federal Reserve Chairman Ben Bernanke has come out and said that the stimulus plan could help the economy. Yet, at the same time, he expressed his concern for the fragile financial system, which we believe could be in line for some more shocks. A few weeks ago, analysts at Goldman Sachs issued a report predicting that banks are only about halfway through a three-year credit cycle, while suggesting that the loss of home value and the worsening jobs market are to blame for the credit crisis. Given what we have seen in the financial area in 2008 with the numerous financial bailouts, it could easily get worse in 2009.
Just talking with friends, the optimism out there is fading. People appear set for a major slowdown and are avoiding any unnecessary spending. In fact, we are seeing a rise in the savings rate across America. The problem is that the hoarding of money is counterproductive for the economy and could pose more problems down the line, which could extend the recession.
There is more evidence that deflation could soon become a significant problem for companies. According to a poll done by America's Research Group, about 90% of 1,000 people surveyed said they would generally buy only advertised specials compared to 84% in November. The strategy to wait for cheaper prices could force more retailers to discount going forward and this could drive down prices and eventually result in a deflationary climate.
Obama may have one of the most sought after jobs in the world, but he will also be faced with a mess not seen probably since the pre-Depression years in the 1920s. The U.S. will have no choice but to increase the deficit via massive spending and stimulus. The current U.S. national debt is at $10.62 trillion and growing at about $3.42 billion a day. That is about $34,775 per person in the U.S. in proportionate debt.
So, unless Obama can turn things around as quick as possible, the financial stability of the country may be at risk. And if you consider that China holds about $1.2 trillion in U.S. debt and is considering moving some of the funds away from U.S. debt, it becomes that much more worrisome.
Profit Confidential
---
http://www.profitconfidential.com/
LOMBARDI PUBLISHING CORPORATION
News, Analysis, and Information Services Since 1986.
One Million Customers in 141 Countries.
Lombardi Publishing Corporation
Financial Publications Division
350 Fifth Avenue, Suite 3304
New York, NY 10118-3304
---
Copyright 2008; Lombardi Publishing Corporation. All rights reserved. No part of this e-newsletter may be used or reproduced in any manner or means, including print, electronic, mechanical, or by any information storage and retrieval system whatsoever, without written permission from the copyright holder.
