Historical data states stimulus packages do not generate $1 for $1 return on GDP growth. Do we need to let the companies who are hoping for a stimulus package consolidate and close down? Do we need the natural process occur? The first 6 months may hurt us but maybe we will start to recover in the last 2 quarters of 2009 looking for a ramp up in 2010. Companies like Nortel considered the top technology company who stock in the early 2000’s was at $1,200 per share now declaring bankruptcy.  U.S. trade deficit is at its lowest in five years. Canada’s trade deficit is lowest in the last decade. With all this information does it make sense to invest in failing companies like the auto industry or do they need to consolidate.

US employment rates are crossing the 60 year median level taking into count 10 post war recession levels. Are we near the end or are we heading for the harshest recession in history?  Do we really know how to correct this market downturn?
When you read Obama’s goals for the stimulus package they differ from Bernanke’s comments.   Bernanke speaking in London today admits US government may need to invest further in the financial industry to stimulate economy. Paulson’s originally recommended investment in unsellable mortgage backed securities which may be the way to go. Crude oil prices stopped plummeting after Bernanke’s speech stating stimulus package will provide a significant boost to the economy. Check out the Bernanke video discussing US market situation at the London School of Economics.

Recent announcement by Alco declares a $1.9billion loss due to reduced demand for metal. A reduction in productions from auto and airplane manufacturers to dramatic reductions in constructions has negatively impacted Alcoa.   Further uncertainty in stock market due to economic concerns of further job losses.  Northstar Healthcare suspends dividend payments due to non receipt of payments supporting many investors concerns that company losses will reduce/suspend dividend payment. Check out Bermans opinion on dividends which is evidenced by Northstar’s recent announcement.  There must be many more company losses and dividend suspensions to come.

Flaherty is looking to bail out the auto industry in the same fashion as they did with the banking industry the latter part of 2009. Last year GMAC stopped offering their popular GMAC leasing program due to lack of funding. This new budget change would stimulate auto leasing and support auto sales. The big banks are recommending that the new budget should be focused on reducing taxes and increase infrastructure spending. Tax cuts need be a long term offering vs a short term cut as consumers may make purchases today but it does not support consumers in the long run. The private sector is also recommending further rate cuts vs bailouts.
Madoff is now giving away his personal assets to friends which are considered a violation of his bail terms. Many want Madoff to go to jail today due to violation. Now Madoff may faces charges in UK . This is bigger than many of us thought.
Russia is abusing their powers due to their monopoly power in the natural gas market as they now at day 7 of withholding natural gas distribution. This will just force the now 12 EU countries currently impacted to really look at other avenues to obtain natural gas.

Russia has cut back on gas deliveries to Ukraine impacting 6 EU countries while countries hit cold temperatures. Some cities were even left with no gas to keep households warm in frigid temperatures.  This put EU countries looking for other sources for Natural Gas.  Russia’s reduction in supply may not increase revenues from countries it may just take Russia out of the Natural Gas market.  The dispute between Russia and Ukraine puts strains of supply to other EU countries due to Natural Gas Pipeline running across Ukraine limiting supply outside of Ukraine negatively impacting countries not involved in dispute.  This is not the first time Russia and Ukraine have had this type of dispute.
India stock values are now in question due to recent announcement from Chairman of Satyam Computer Services Ltd acknowledging he cooked the books.  India’s stock market has been leading in growth now investors wonder how many other companies will come out with the same announcement.
Obama is now stating he expects to see Trillion dollar deficits. Also, 2009 is still expected to decline sharply with jobless rate rising. Will this put jitters back into the stock market after seeing approximate increase of 20% since June 2008 low?

As we see deleveraging there is increased investment in bonds. We know we are in a bubble as the bond market is good and growing today the concern is when will the bubble burst. . I am not convinced we will see a burst in the short term but as we see confidence in the stock market there is increased risk in the bond market. The question is when in 2009 will the bubble burst.

Some of the other highlights in today’s news is the SEC is now under the magnifying glass due to many officials within the SEC ignoring complaints about Madoff which go back 1992
Investors concerned about Apple’s CEO Steve Jobs brings Jobs to disclose his illness is strictly a hormonal imbalance to bring faith back into Apple

If you look at the past couple of years there have been ongoing warning signs.  The sub prime market did not just happen in 2008. The housing market home price increases could not continue forever. Stock market growth could not continue to grow forever.  We all should have known somewhere it had to stop.  We were so busy living in the luxury of home equity growth and stock market growth our greed would not let us see the fact that a correction had to happen….we just chose to avoid the inevitable?  Blinded by the trust we had in the experts.  Many homeowners took teaser rates thinking the euphoric world of low rates and home value increases will continue.  Enron should have been a tip our financial system needed further transparency and tighter regulations.  We should have known the bubble would soon burst with creative securitized packages traded off to investors who really did not understand these complicated investments.  Even sophisticated investors did not question the returns when they blindly invested with Madoff.  Every country felt they would not be significantly impacted by the US but they were wrong. The mortgage market is linked to so many economic variables that these worldwide issues just magnified to the extent all countries, even the Far East, are impacted.  Will all these bail out packages across the world show positive impacts in 2009 and if we do see positive impacts will the average consumer learn from the past years or start back where they were in buying again thinking they are safe for quite a few more year in the future.  I think we will quickly forget the past and get back into old habits.

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This is the time of year when we look at how much we made, how much we have saved (if any) and how much we are in debt.  Based upon our economic environment over the past few years, it has been spend, spend, spend as credit was available and our assets are growing. This is now gone.  I truly believe this is a good thing as many of those in their 20′s have never truly experienced a recession.  Those in their 30′s now have good jobs, may be married and are now homeowners with major debt.  The value of the home continuously grew so we could refinance and buy more things that we want today vs what we really need and saving for the future.  Let’s look at what you should really look to get started with debt management and personal budgeting for 2009.  You can do this on paper or purchase a program linked into your banking activities, what ever is best for you.  Start simple.  My suggestion is first get a piece of paper or draw up an excel sheet and track the following.  First right down what income you take home on a monthly basis. If it is more than one person then record them separately. If your income varies then take your annual income and divide it by 12 to give yourself a better picture. Personal budgeting consists of tracking your personal expenses.  Without making it too difficult I would first suggest either pulling your bank statements where your bill payments are drawn from or pull the actual receipts.  The first category for your personal budgeting should be on household and other necessary expenses. For example, rent/mortgage, property tax, condo fees, house insurance, life insurance, car insurance, heat, hydro, telephone. If you also have a good idea of your grocery expenses either by bank statements or just a guess is good at this point.  Then start recording your liabilities.  Debt management consists of not only recording your monthly payments but also record how much you owe. For credit cards please note what you normally pay on a monthly basis.  This whole process may take an hour or two of your time but well worth it.  Over the next week or two start tracking your spending habits.  For example, lunches, coffees, cigarettes, alcohol, take out meals, etc.  Really anything that you pay for that is not a regular bill.  You should get a receipt and write it down at the end of the day or record in a small notebook that you can keep with you and track as the expense occurs.  This will be the beginning of an awareness the next step will be planning for the future.

We have heard of many corporations managing their pension funds by reducing equity content and increasing investments in bonds/fixed income.  Now we are actually seeing countries looking at their Pension Funds portfolio mix.  For example, Korea is now reducing their position in equities and investing these funds in low return, highly secure bonds.  The decrease in equity values such as Japan’s stock market   has decreased values 50% lower than it was in 2007, this will have a significant impact in retirement investments.  You wonder if investors jump out of equities today will they ever recover the loss position. Concerns are, we are not near the end of an economic crisis. Evidenced even in China where supermarkets are seeing the worst market in 30 years.  When we start seeing improvement in market conditions in the Far East how long can we expect to see light in North America or will we need to see an end to the decline US housing market before there is light.

 

The G20 met with an outcome of activities to perform avoiding future global crisis. What about today?  They did not directly blame Bush for his policies of tightening up credit created even greater crisis vs stopping the economic crisis.  Stephen Harper (Canada) has agreed to invest in correcting the economy.  G20 agreed to ensure emerging markets gain access to finances/financial stability plus have a greater voice. IMF and World Bank will ensure they have sufficient funds to support markets in the future.  What I am not hearing is what are they going to do today?