The losses have been massive this year. Nearly two months into the year that has been filled with hope and Obama-based optimism, investors have been h...
The losses have been massive this year. Nearly two months into the year that has been filled with hope and Obama-based optimism,
investors have been hard hit. The small-cap sector has been the focus of selling because of its link to the movement of the economy. The Russell 2000 index is down 20% already, with the large-caps down over 16%. Technology has fared the best, down about 11%. Everywhere I go, there is talk about jobs and housing. People are seeing housing prices fall and are fearful there will be more hurting ahead. I know homeowners who are delaying any home renovations, buying a new car, or any big-ticket item. Data on Thursday pointed to record jobless claims and weaker-than-expected orders for big-ticket items.
The market is starving for positive news, while digesting only bad news. There is lot of hope resting on the shoulders of President Obama to try to rectify the situation and get America on its feet once again. In his speech last Tuesday, President Obama was enthusiastic as expected and showed an air of confidence when talking about the role of America going forward.
As I listened to Obama speak, there was clearly a reason to be optimistic, yet, at the same time, you have to wonder about the cost of his plan and the fact that he is battling three major issues at once. President Barack Obama delivered a budget proposal to Congress last Thursday. The budget estimates the national deficit will climb to $1.75 trillion, or 12.3% of GDP this year! But unless Obama's stimulus plan works this year, we could see more funding and the deficit rise. Of course, this would hinder the President's objective to reduce the deficit in half by the end of his first term.
Fed Chairman Ben Bernanke also tried to add some optimism after suggesting the recession could end this year if the stock market stabilizes. The comments were positive, but I feel this is clearly the best-case scenario and assumes the crisis in housing, jobs, and the economy will improve significantly to get people to spend again. This could happen, but I'm not convinced it will in 2009, and believe sometime in 2010 will likely be more realistic.
The reality is that the economy is worsening and the jobs market is predicted to sink. According to the National Association for Business Economics, the unemployment rate in the U.S. is expected to surge to nine percent this year, up from the current 7.6%. Jobs continue to be lost across America. The end result could be more chaos and impact on the economy and consumer confidence.
As I walk through my neighborhood and see "for sale" signs languishing, it reminds me of the horrific situation we are in. I'm seeing more businesses closing. Already, three restaurants on a main strip near me have closed their doors. There are less people shopping. The situation will likely get worse before we see any signs of life. A major economy like the U.S. will take time to turn around. With consumer confidence remaining extremely low, there is little reason to get excited at this time. Perhaps it is time to sit back and reflect, and believe things will get better.
Profit Confidential
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