Friday, December 19, 2008

Happy Holidays to Detroit and More!

As the holidays rapidly approach, I would like to take a few moments to wish you a HAPPY and JOYOUS CHRISTMAS and HANUKA, as well as a HEALTHY and PROSPEROUS NEW YEAR!

The economy has been in recession since December of 2007 and will most likely continue to shed jobs into 2009. While this recession could be the worst since the 1973-75 and 1981-82 recessions, and possibly the worst since the Great Depression, the response by the government, regardless of your politics, has been totally different from the government response that caused the Great Depression. The amount of stimulus injected into the economy this year, and the plans for 2009, will usher in the next phase of the business cycle by the end of 2009 or sooner. Below is a list of recessions, since 1926 and their duration.

1929-1933, 43 months in duration (Great Depression).
1981-1982, 16 months in duration.
1973-1975, 16 months in duration.
1937-1938, 13 months in duration.
1926-1927, 13 months in duration.
2007-2008, 12 months in duration.*
1970, 11 months in duration.
1948-1949, 11 months in duration.
1960-1961, 10 months in duration.
1953-1954, 10 months in duration.

Sensational reporting by the media has fueled an overblown sell off in the stock market, which seems to be abating. It is my opinion we will continue to experience market volatility during the first half of 2009. When the market point swings become boring to the media, and unemployment peaks, the recession will be nearing an end. By then, a new bull cycle will already have emerged. Those of you who have continued to invest during this downturn will reap rewards quickly during the next expansion. Those considering putting cash to work should do so by dollar cost averaging over the next six months.

Lately, it has been The Big 3 automakers getting battered by Congress, which continues to refuse to accept its fair share of responsibility for the automakers plight, as well as that of the housing and financial services industries. The automakers will receive some government aid through TARP, even though the Treasury is reluctant to provide the funds through this mechanism. The perceived social disruption caused by the bankruptcy of the automakers during a time of recession is just too risky to leave to chance. It seems that the taxpayers in this country are psychologically wrestling with the choice between free market capitalism and the safety net of increased socialism. It is impossible to have low taxes and the government guaranteeing everything. At some point, which more than likely is with the bailout of Detroit, the government involvement in guaranteeing that certain companies will not fail must end.

The moral hazard that has been created will probably lead to more foolhearty risks being taken at some point in the future. For now, however, even people who believe in free markets realize the government does have a role to play when panic grips our financial system. This is especially true when government policies, such as CAFE standards and "affordable housing initiatives" have exacerbated problems. The cost down the road will be high, especially as taxpayers weigh the option of further nationalizing the health care system.

Many of my clients have invested in the MetLife and Transamerica Variable annuities over the last few years, and have had the reassurance that their future income for retirement is protected. The insurance companies, except for AIG, have faired well during this period, due to their capital requirements and conservative investment strategies. While the market value of an annuity can fluctuate, the guaranteed income benefit continues to increase. While variable annuities may not be right for everyone, most people can benefit from some insurance on their investments. As the market recovers, so will the market value of all your holdings.

During these difficult economic times, do you feel like you’re playing hide-and-seek with your investment representative? Are you ready to do business with a firm that focuses upon you – your personal investment goals and objectives, and your retirement dreams? If so, then I am here to assist you with any questions or concerns you might have about your investments. If you’re looking for a new advisor, or would like to discuss your investments with me to get a fresh perspective, then call or email today.

John H. Kaighn

Jersey Benefits Advisors

The Kaighn Report