economic concerns slide show 2 09
DESCRIPTION
A discussion of the financial concerns caused by the economic downturnTRANSCRIPT
i i li i lFinancial ConcernsFinancial Concernsin challenging timesin challenging timesin challenging timesin challenging times
Mark J. DeschainePresident & Chief Investment Officer
D h CDeschaine & Company, L.L.C.A Registered Investment Advisor
Belleville, Illinois
1
Is not to scare youIt’ t t f It’s not to confuse youAnd it’s certainly not to sell you anything
’ fIt’s to Inform you
Our Objective todayOur Objective todayOur Objective todayOur Objective today2
Today, all investors Today, all investors are faced with three are faced with three are faced with three are faced with three important questions:important questions:
d h i h f iHow do I get the Right InformationOn the Right Topicsg p
In time to make the Right decisions
3
Failure of major financial institutionsGovernment “Bailouts” Economic “Stimulus” PlansStock market lossesRapidly declining home valuesHistorically LOW interest rates
h fEver present threat of TerrorismSocial Security Funding
Economic ConcernsEconomic ConcernsEconomic ConcernsEconomic Concerns4
All threaten ourEconomic Security
Economic SecurityEconomic SecurityEconomic SecurityEconomic Security5
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?Another Great Depression?Another Great Depression?Another Great Depression?6
In the current downturn real GDP is expected to fall for 4 quarters p q
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?Another Great Depression?Another Great Depression?Another Great Depression?7
Longest Since the Great Depression
Post-War Recessions MonthsAverage: 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?Another Great Depression?Another Great Depression?Another Great Depression?8
Consumer confidence sinksConference Board’s measure sinks
id di l j b k t
Consumer confidence sinks
amid dismal job market and credit crunch.
NEW YORK (CNNM ) A k f NEW YORK, (CNNMoney.com) A key measure of 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 h i d i N b the a revised 44.7 in November 2008
Some Reason for ConcernSome Reason for ConcernSome Reason for ConcernSome Reason for Concern9
Auto Sales worst in 26 years
NEW YORK, (CNNMoney.com) Auto
Auto Sales worst in 26 years
, ( 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 ConcernSome Reason for ConcernSome Reason for ConcernSome Reason for Concern10
Worst January ever for Dow S&P 500
NEW YORK, (CNNMoney.com)
Worst January ever for Dow, S&P 500
NEW YORK, (CNNMoney.com) The Dow Jones Industrial average and the Standard & Poor’s 500 finished their worst Poor s 500 finished their worst January ever, as investors eyed abysmal reports on economic growth and quarterly corporate earnings outlook.
Some Reason for ConcernSome Reason for ConcernSome Reason for ConcernSome Reason for Concern11
Are banks safe?
The FDIC is watching 171 b k t f b t 8 500
Are banks safe?
banks out of about 8,500 in the U.S.
Bottom line: the vast majority of banks are in good financial shape, and when banks do fail customers and when banks do fail, customers rarely lose money because of deposit insurance.
Some Reason for ConcernSome Reason for ConcernSome Reason for ConcernSome Reason for Concern12
Worst year of jobs since 1945Worst year of jobs since 1945
NEW YORK, (CNNMoney.com) NEW YORK, (CNNMoney.com) The hemorrhaging of American jobs accelerated at a record pace at the end of 2008 at the end of 2008.
Total job losses for the year was 2.6 million, the highest in more than 6 decades.
Some Reason for ConcernSome Reason for ConcernSome Reason for ConcernSome Reason for Concern13
Home prices continue to plungeHome prices continue to plunge
NEW YORK, (CNNMoney.com) Home prices continued to t bl i th fi l th f 2008 d i t d tumble in the final months of 2008, dropping at a record rate of 16.9% in December.
The silver lining? Home prices are at their lowest prices are at their lowest levels since 2004. Will that be enough to stop prices from falling further.g
Some Reason for ConcernSome Reason for ConcernSome Reason for ConcernSome Reason for Concern14
Six obstacles to rescuing the economy:
OBSTACLE #1: America’s accumulated debt
now totals $294 trillion.
That’s 300 times larger than the That s 300 times larger than the combined government rescues to date.
Economic ObstaclesEconomic ObstaclesEconomic ObstaclesEconomic Obstacles15
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 ObstaclesEconomic ObstaclesEconomic ObstaclesEconomic Obstacles16
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 Spending will drop considerably over the next few years, leading to a slow recovery
Economic ObstaclesEconomic ObstaclesEconomic ObstaclesEconomic Obstacles17
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 reasonsfor the wrong reasons.
Economic ObstaclesEconomic ObstaclesEconomic ObstaclesEconomic Obstacles18
Obstacle # Five: Sinking Confidence
Yes, the government can buy bad debts, preferred stocks and even a little time.
But it can’t buy confidenceThat’s why the trends are still down yas selling continues (at any price)
to cover debts—slowing any recovery.
Economic ObstaclesEconomic ObstaclesEconomic ObstaclesEconomic Obstacles19
Obstacle # Six: Financing the Rescues
Yes, the government can borrow (at least for now) all it needs to finance its folly. (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 inflation and interests higher, undermining
the very recovery its trying to ignite.
Economic ObstaclesEconomic ObstaclesEconomic ObstaclesEconomic Obstacles20
The question is, How do we protect our assets from:
Declining pricesD li i l t t lDeclining real estate valuesA long economic recessionRising tax environmentRising tax environmentRising prices long-term
Specific ConcernsSpecific ConcernsSpecific ConcernsSpecific Concerns21
How do we protect our income from:
Record low interest ratesDividend cutsAn increase in taxesInflation The unknown
Specific ConcernsSpecific ConcernsSpecific ConcernsSpecific Concerns22
Wh t h ld d ?What should we do?And when should we do it?
The two big questions are:The two big questions are:The two big questions are:The two big questions are:23
We’re in a Long-Term Bear MarketLong term bear markets do not end until price/earnings ◦ Long-term bear markets do not end until price/earnings ratios reach single digits
Th t / ti th S&P 500 i b t 13 5◦ The current p/e ratio on the S&P 500 is about 13.5xStill 50% “Overvalued” by historical standards
◦ Protecting principal as P/E ratios erode to single digits is critical to equity portfolio results
The Stock Market OutlookThe Stock Market OutlookThe Stock Market OutlookThe Stock Market Outlook24
The Stock Market OutlookThe Stock Market OutlookThe Stock Market OutlookThe Stock Market Outlook25
I B ll M kIn Bull MarketsReturns come from Capital Appreciation
Like 1982 to 2000Like 1982 to 2000
The Stock Market OutlookThe Stock Market OutlookThe Stock Market OutlookThe Stock Market Outlook26
I B M kIn Bear MarketsReturns come from Dividend Income
Like 1966 to 1982Like 1966 to 1982
The Stock Market OutlookThe Stock Market OutlookThe Stock Market OutlookThe Stock Market Outlook27
The Current Bear MarketThe Current Bear MarketReturns come from Dividend Income
Like 2000 to 2008
The Stock Market OutlookThe Stock Market OutlookThe Stock Market OutlookThe Stock Market Outlook28
Record Low Interest Rates Pose a challenge to earning income
Interest Rates OutlookInterest Rates OutlookInterest Rates OutlookInterest Rates Outlook29
The great debt unwinding continues
Th i dThe recession deepensMore corporate bankruptciesGrowing unemploymentGrowing unemploymentDeclining real estate pricesDeclining stock pricesg pDeclining bond prices
Economic Recovery OutlookEconomic Recovery OutlookEconomic Recovery OutlookEconomic Recovery Outlook30
The economic stimulus package will not “stimulate” the economy
The recession is likely to last longer than is generally expectedAdditional major corporate bankruptciesU l t ill h d bl di it Unemployment will reach double digits before year end
Economic Recovery OutlookEconomic Recovery OutlookEconomic Recovery OutlookEconomic Recovery Outlook31
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 Home prices are not likely to reach recent high prices for years
Economic Recovery OutlookEconomic Recovery OutlookEconomic Recovery OutlookEconomic Recovery Outlook32
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 OutlookEconomic Recovery OutlookEconomic Recovery OutlookEconomic Recovery Outlook33
Record low interest rates puts all long-term bonds at risk:g
Raising interest rates means lower pricesRating down grades, possible bankruptcies and defaults add additional d id i k t ll b ddownside risk to all bondsBond “Funds” are at particular risk
Economic Recovery OutlookEconomic Recovery OutlookEconomic Recovery OutlookEconomic Recovery Outlook34
Some suggestions to help protect your assetsp y
Build the biggest nest egg of cash you canSell all long term bonds and bond “Funds” Consider an inverse interest rate ETFConsider a Gold ETF
Protecting Your AssetsProtecting Your AssetsProtecting Your AssetsProtecting Your Assets35
Some additional suggestions to help protect your assetsp p y
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 AssetsProtecting Your AssetsProtecting Your AssetsProtecting Your Assets36
Gathering information takes timeInterpreting information takes experiencep g p
Do you have the time and the o you a e t e t e a d t eresources to do all this?
Getting Information You NeedGetting Information You NeedGetting Information You NeedGetting Information You Need37
We gather financial and economic ginformation constantlyWe filter and sort it into usable formatsWe would be happy to pass on data that’s relevant to youW ’ll t t ti We’ll try to answer your questions . . .
When You Need itWhen You Need itWhen You Need itWhen You Need it38
C l t th i h kli t d th Complete the economic concern checklist and the contact information card.
When we encounter news or information of value to 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 ydo 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 be to give you a call and will leave you a voice message with the information.
What to do nextWhat to do nextWhat to do nextWhat to do next39
Your information will never be provided to any outside third party—ever.
You are under no obligation to retain our iservices—ever.
ConfidentialityConfidentialityConfidentialityConfidentiality40
We feel an obligation to help as many people as we can as many people as we can, survive the most difficult
i d i t t economic and investment environment of our lifetime.
Why Help?Why Help?Why Help?Why Help?41
Mark J. Deschaine President
Deschaine & Company, L L CDeschaine & Company, L.L.C.128 South Fairway Drive
Belleville, IL 62223618 397 1002618-397-1002
Your questions?Your questions?Your questions?Your questions?42