Economic Concerns Slide Show 2 09


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A discussion of the financial concerns caused by the economic downturn

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Economic Concerns Slide Show 2 09

  1. 1. Financial Concerns i il in challenging times Mark J. Deschaine President & Chief Investment Officer Deschaine Company, L.L.C. D h &C A Registered Investment Advisor Belleville, Illinois 1
  2. 2. Is not to scare you It’s It’ not to confuse you tt f And it’s certainly not to sell you anything It’s to Inform you ’ f Our Objective today 2
  3. 3. Today, all investors are faced with three important questions: How d I get the Right Information do h ih f i On the Right Topics g p In time to make the Right decisions 3
  4. 4. Failure of major financial institutions Government “Bailouts” Economic “Stimulus” Plans Stock market losses Rapidly declining home values Historically LOW interest rates Ever present threat of Terrorism h f Social Security Funding Economic Concerns 4
  5. 5. All threaten our Economic Security Economic Security 5
  6. 6. In the Great Depression real GDP declined 4 years in a row y for a total of 27% 1930 1931 1932 1933 1934 -8.6% -6.4% -13.0% -1.3% +10.8% Another Great Depression? 6
  7. 7. In the current downturn real GDP is expected to fall for 4 q p quarters For a total of 3-5% 2008 Q3 2008 Q4 2009 Q1 2009 Q2 2009 Q3 -0.5% -3.8% -4.9% -1.5% +0.8% Another Great Depression? 7
  8. 8. Longest Since the Great Depression Post-War Recessions Months Average: 10 Previous Post-War Recessions 10 mos. Longest (1973-75 & 1981-82 16 mos. Current Recession (Since December 2007) 14 mos. Current Forecast (12/07-12-09) 24 mos. The Great Depression (1929-1933 42 mos. Another Great Depression? 8
  9. 9. Consumer confidence sinks Conference Board’s measure sinks amid di id dismal j b market l job kt and credit crunch. NEW YORK, ( A k measure of YORK (CNNM ) key f consumer confidence fell to an all-time low in December 2008, amid a dismal job market and uncertain outlook for the new year. y The Conference Board, a New York based business research group, said that its Consumer Confidence Index fell to 38 in December form the a revised 44.7 in November 2008 h id iN b Some Reason for Concern 9
  10. 10. Auto Sales worst in 26 years NEW YORK, ( Auto ,( y ) sales tumbled 38% in January, plunging even more than expected to their worst levels since 1982 during the depths of the last major recession. Sales declined for all major automakers for the first time ever. Some Reason for Concern 10
  11. 11. Worst January ever for Dow S&P 500 Dow, NEW YORK, ( The Dow Jones Industrial average and the Standard & Poor s Poor’s 500 finished their worst January ever, as investors eyed abysmal reports on economic growth and quarterly corporate earnings outlook. Some Reason for Concern 11
  12. 12. Are banks safe? The FDIC is watching 171 banks b k out of about 8,500 t f b t 8 500 in the U.S. Bottom line: the vast majority of banks are in good financial shape, and when banks do fail, customers fail rarely lose money because of deposit insurance. Some Reason for Concern 12
  13. 13. Worst year of jobs since 1945 NEW YORK, ( The hemorrhaging of American jobs accelerated at a record pace at the end of 2008 2008. Total job losses for the year was 2.6 million, the highest in more than 6 decades. Some Reason for Concern 13
  14. 14. Home prices continue to plunge NEW YORK, ( Home prices continued to tumble in the fi l t bl i th final months of 2008, d th f 2008 dropping at a record i t d rate of 16.9% in December. The silver lining? Home prices are at their lowest levels since 2004. Will that be enough to stop prices from falling further. g Some Reason for Concern 14
  15. 15. Six obstacles to rescuing the economy: OBSTACLE #1: America’s accumulated debt now totals $294 trillion. That s That’s 300 times larger than the combined government rescues to date. Economic Obstacles 15
  16. 16. OBSTACLE # TWO: Massive wealth destruction is already underway An estimated $10 trillion in U.S. household wealth has been lost in the last two years. Economic Obstacles 16
  17. 17. Obstacle # Three: Plunging incomes Unemployment, declining investment income, home values etc, are all lowering the average , g g household’s ability to weather the storm. Spending will drop considerably over the next few years, leading to a slow recovery Economic Obstacles 17
  18. 18. Obstacle # Four: Wealth destruction is fast; ; government rescues are slow The rescue plan is the wrong prescription, which rescues the wrong people, for the wrong reasons reasons. Economic Obstacles 18
  19. 19. Obstacle # Five: Sinking Confidence Yes, the government can buy bad debts, preferred stocks and even a little time. But it can’t buy confidence That’s why the trends are still down y as selling continues (at any price) to cover debts—slowing any recovery. Economic Obstacles 19
  20. 20. Obstacle # Six: Financing the Rescues Yes, the government can borrow (at least for now) all it needs to finance its folly. But it can’t do it without eventually driving inflation and interests higher, undermining higher the very recovery its trying to ignite. Economic Obstacles 20
  21. 21. The question is, How do we protect our assets from: Declining prices Declining real estate values D li i l tt l A long economic recession Rising tax environment Rising prices long-term Specific Concerns 21
  22. 22. How do we protect our income from: Record low interest rates Dividend cuts An increase in taxes Inflation The unknown Specific Concerns 22
  23. 23. What h ld Wh t should we d ? do? And when should we do it? The two big questions are: 23
  24. 24. We’re in a Long-Term Bear Market ◦ Long term bear markets do not end until price/earnings Long-term ratios reach single digits ◦ Th current p/e ratio on the S&P 500 i about 13.5x The t/ ti th is b t 13 5 Still 50% “Overvalued” by historical standards ◦ Protecting principal as P/E ratios erode to single digits is critical to equity portfolio results The Stock Market Outlook 24
  25. 25. The Stock Market Outlook 25
  26. 26. In B ll M k I Bull Markets Returns come from Capital Appreciation Like 1982 to 2000 The Stock Market Outlook 26
  27. 27. In B I Bear Markets Mk Returns come from Dividend Income Like 1966 to 1982 The Stock Market Outlook 27
  28. 28. The Current Bear Market Returns come from Dividend Income Like 2000 to 2008 The Stock Market Outlook 28
  29. 29. Record Low Interest Rates Pose a challenge to earning income Interest Rates Outlook 29
  30. 30. The great debt unwinding continues The Th recession deepens i d More corporate bankruptcies Growing unemployment Declining real estate prices Declining stock p g prices Declining bond prices Economic Recovery Outlook 30
  31. 31. The economic stimulus package will not “stimulate” the economy The recession is likely to last longer than is generally expected Additional major corporate bankruptcies Unemployment will reach d bl di it U l t ill h double digits before year end Economic Recovery Outlook 31
  32. 32. A glut of Residential Real Estate and tight credit means: There is more downside pressure on real estate prices Home prices are not likely to reach recent high prices for years Economic Recovery Outlook 32
  33. 33. If you are waiting to sell Residential Real Estate or downsize: Keep in mind: Home prices are not likely to reach recent high prices for years Economic Recovery Outlook 33
  34. 34. Record low interest rates puts all long-term bonds at risk: g Raising interest rates means lower prices Rating down grades, possible bankruptcies and defaults add additional downside risk t all bonds d id i k to ll b d Bond “Funds” are at particular risk Economic Recovery Outlook 34
  35. 35. Some suggestions to help p protect y your assets Build the biggest nest egg of cash you can Sell all long term bonds and bond “Funds” Consider an inverse interest rate ETF Consider a Gold ETF Protecting Your Assets 35
  36. 36. Some additional suggestions to help p p protect y your assets Don’t chase “high yields” Be particularly weary of scams and “get rich quick” schemes Hold cash in the event of a bank “holiday” Protecting Your Assets 36
  37. 37. Gathering information takes time Interpreting information takes experience p g p Do you have the time and the o a et et ea dt e resources to do all this? Getting Information You Need 37
  38. 38. We gather financial and economic g information constantly We filter and sort it into usable formats We would be happy to pass on data that’s relevant to you We’ll t t W ’ll try to answer your questions . . . ti When You Need it 38
  39. 39. Complete th economic concern checklist and the C l t the i h kli t d th contact information card. When we encounter news or information of value to you, we’ll sent it to you by email. You can email us with questions anytime and we will q y do everything we can to provide useful answers. If something develops quickly, if you like, we’ll happy be to give you a call and will leave you a voice message with the information. What to do next 39
  40. 40. Your information will never be provided to any outside third party—ever. You are under no obligation to retain our services—ever. i Confidentiality 40
  41. 41. We feel an obligation to help as many people as we can can, survive the most difficult economic and investment i di t t environment of our lifetime. Why Help? 41
  42. 42. Mark J. Deschaine President Deschaine & Company, L L C L.L.C. 128 South Fairway Drive Belleville, IL 62223 618-397-1002 618 397 1002 Your questions? 42