A Pivotal Year - 2009

2009 will be a turning point year.  That seems to be true for the economy, but possibly ever more so regarding the course of our country.  We have enjoyed a historically unprecedented prosperity created by the efforts of the Greatest Generation in and after World War II.  But that seems to be permanently changing now.  Some of that may be bad and in other ways it is good. 

What will be the effects of this on you, your family and your financial security?  Let’s first look at the economy as we enter 2009 and then examine the effects of these seismic events on you.

The Economy in 2009

We have bipartisan political support for stimulus packages, the kind that rejuvenated the economy after the Depression of the early 1930s, the late 1930s, World War II and every recession, large and small since.  There is no reason to expect anything different this time.  The twin solutions of stabilizing financial institutions (Remember FDR and the banks?) along with flooding the economy with money came from the economic guidance of John Maynard Keynes, the British economist whose principles were adopted by Franklin Roosevelt and helped get us through the first, most devastating, portion of the Great Depression.  A recent quip by a Federal Reserve Board governor illustrates the importance of these remedies.  As a play on the atheist-in-the-foxhole observation, he was quoted as saying, “In a foxhole, we’re all Keynesians!”

Democracy is messy.  It plays itself out in the media every, and all, day.  We see the tensions and warring agendas and then, finally, we get action and move toward resolution.  Winston Churchill observed that, “Democracy is the worst form of government, unless you consider all of the rest.”  It took nine monthsto get the Marshal Plan through Congress and that is credited with preventing a return to the Depression caused by the economic contraction following WWII.  That plan created two decades of unparalleled economic expansion.  So, with history as our guide, we can see the likelihood of an economic recovery beginning in 2009.  Watch the events surrounding the recovery plans as these will provide the guide to recovery.  And the investment markets lead the recovery.  They don’t await its conclusion.  1933 was the best stock market year in the last century with the S&P 500 index up 54%.

What will change permanently is our place in the world.  We are no longer the only dominant economic power.  China and India, along with other emerging countries in South America and the Far East, are gaining commercial and trading power.  And this may be as it should be.  Consider that 70% of our economy hinges on consumer purchases.  And those were fueled by extraction of home equity and charge card use.  We need to diversify our economy from this dependence on our willingness to shop and acquire more things.  The discussed emphasis on infrastructure repair, energy independence and education is hopeful and potentially healthy.  And we need to orient our economy to provide goods and services that the world needs, not just U.S. shoppers at clothing and electronics stores.

So the reorientation of our economy toward things that last and improve lives will provide impetus to sustained economic development.  Think medical, pharmaceutical, transportation and new manufacturing processes that do not depend on cheap labor.  We are successful when we sell innovative processes to the developed and developing world. Additionally, energy conservation through retooling and new technology will add billions of dollars to economic productivity.  The positive possibility list goes on.

2009 may be the beginning of that transformation.  Go back and look at each of the years in our history for other transformational periods and view the progress thereafter.  But, realistically, that isn’t within our individual control.  We can take heart and gain confidence from a historic perspective.  In understanding those possibilities, there are many things that we can do to improve our family’s circumstances and positioning in 2009 and beyond.

What You Can and Must Do in 2009

Consider the skill set that you and your family members present to the economy.  If you realistically determine it is deficient, then gain new skills to remain competitive.  Certainly additional college degrees are desirable, but immediately usable knowledge and skills can pay off right way.  Sound like too much work? Consider that falling behind economically is harder.  And right at the top of the list is learning more about money management and financial decision-making.  Consider the role that ignorance played in our current economic malaise.  Our adult financial education courses can help. Attend one of our two- and three-week courses at Slippery Rock University or California University’s location in Downtown Pittsburgh.  Or invite us to bring those courses to your place of employment or non-profit organization.  You weren’t born with this knowledge and it wasn’t taught in high school or college, but you can get it now and put it to work.

Get your finances in order.  They won’t manage themselves but you can gain control over your financial destiny.  The movement of investment markets is a given and you have no jurisdiction therein.  But how you manage your cash flow, use of credit, retirement plans and personal portfolios is directly under your control.  The correct way to do this is through a comprehensive financial analysis and an individualized financial plan.  This covers all of the considerations of your income and expense, taxes, rates of savings and returns, estate planning and preservation, education funding, survivorship needs, and much more.  Talk to us now to position yourself for whatever comes in 2009 and beyond.  You can’t control those events, but you can control how ready you are to navigate through them.

Manage portfolios using time-tested textbook principles.  The reason these principles have found their way into the textbooks is that they have been proven to work.  Diversification, balance and asset allocation are the platforms upon which good portfolios are built and managed and violating those principles unduly risks assets.  All portfolios go down in a volatile market, but the use of those principles helps to contain risks of loss and volatility.  We use these and many other established principles along with many tools for securities analysis in managing our clients’ portfolios.

Set your mind properly.  Emotionalism and panic serve you poorly.  Rationalism results in rational decisions and action.  Use facts and probabilities to arrive at your judgments and do not fall prey to those spewing fear to further their own agendas.  Consider the examples set by previous generations who faced far greater adversity – and prevailed.  Take heart from history that has shown recovery from every adverse economic circumstance.  And take example from those who profited from those times.

We thank our clients who have placed their confidence in us and who have stayed the course through this unsettled period.  You evidence that confidence by continuing to follow our guidance.  We will repay that compliment by working as hard as humanly possible on your behalf.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.

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