Asset Planning, Inc Blog

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Post Election

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On November 4th, Barack Obama was elected as our newest president. He is expected to move quickly to announce his selections for the top economic posts, including a new Treasury secretary. We could see Paul Volcker, the former Federal Reserve chairman, in this position.

There are a number of problems facing our nation. Unemployment is currently 6.1% and will probably rise over 7% in the coming months as more layoffs are being announced each day. There is no doubt we are in a recession. How long will it last? Will it be deep and prolonged like the 1981-82 recession, which lasted 16 months and unemployment was 10.7%? The last recession of 2001 was eight months long but consumers used their home equity as ATM machines to spend their way out of the recession. Interest rates were low so spending continued. I believe this time will be different. Home equity has been wiped out by falling home prices and home equity loans have been tightened or canceled.

The global liquidity crisis that had gripped banks around the world seems to be improving. Cash is beginning to flow and loans are being made. Home sales did pick up last month. Dr Adibi, economist of Chapman University, believes real estate values will fall another 10% as the Alt A mortgages begin to default. The majority of the five year arms (adjustable rate mortgages) will reset in 2009 to 2011. I would look to buy real estate in mid 2009.

Where do we go from here? The volatility of the market is unsettling and it seems to overreact to any bad news. We do not yet know how the new administration will impact our taxes and capital gains rates on investments. We are currently reviewing year end summaries of each managed portfolio for gains, losses and taxes.

For the short term, do not focus on the daily or weekly news and stock fluctuations. Investments are for long term horizons and trying to time a market top or bottom is nearly impossible. We have plans in place for purchases on a global level for several great companies that have been undervalued. Moves in the market happen quickly, including rallies on positive news. Look ahead to 2009.

"Be fearful when others are greedy, and be greedy when others are fearful" Warren Buffett

Sandy

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