economic outlook january 2009. stock markets and the economy markets are one of the best leading...
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Economic OutlookJanuary 2009
Stock Markets and the Economy
Markets are one of the best leading indicators of the economy
Severe market reactions tend to foreshadow periods of severe economic stress
Public sentiment may be effectively reflected in market valuations
Information is based on data from recognized services and sources and is believed to be reliable. Any opinions, projections or recommendations contained herein are subject to change without notice and are not intended as individual investment advice.
“Stock markets offer a very useful forecast of the economy.”
Perspectives on the Stock Markets
The “Rational” Side
Objective situational characteristics: supply and demand
The “Irrational” Side
Emotional reactions: investor hopes and fears
Information is based on data from recognized services and sources and is believed to be reliable. Any opinions, projections or recommendations contained herein are subject to change without notice and are not intended as individual investment advice.
“To understand the economy, we need to understand all the forces driving the markets.”
Stages of Market Cycles
I. Topping Out
II. The Decline
III. A Bottoming Process
IV. A New Rally
Information is based on data from recognized services and sources and is believed to be reliable. Any opinions, projections or recommendations contained herein are subject to change without notice and are not intended as individual investment advice.
“Shorter term: likely on the verge of a rally. Longer term: probably just starting a bottoming process.”
Market Crashes: Lessons from the 1930s and 1970s
Information is based on data from recognized services and sources and is believed to be reliable. Any opinions, projections or recommendations contained herein are subject to change without notice and are not intended as individual investment advice.
Source: Ned Davis Research
“The next few years: painful but profitable!”
KCP66
Monthly Data 12/31/1925 - 12/31/2008 (Log Scale)
456789
1113151821242934404755657791
107126148175206243286337397468551649765901
1062125114741737
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1113151821242934404755657791
107126148175206243286337397468551649765901
1062125114741737
A
B
C
D
E
FG
H
I
J
K
L1
93
0
19
35
19
40
19
45
19
50
19
55
19
60
19
65
19
70
19
75
19
80
19
85
19
90
19
95
20
00
20
05
Standard & Poor's 500 Stock Index -- Trend Channel
Public Pessimism
Public Optimism
Tops
Tops
Tops
“bottoming” process
“bottoming” process
Global Themes
Effects of a global “savings glut” Cheap rates and investment “bubbles” Development of the emerging world Increased competition
– Facing existing businesses
– For energy and natural resources
– For jobs
Information is based on data from recognized services and sources and is believed to be reliable. Any opinions, projections or recommendations contained herein are subject to change without notice and are not intended as individual investment advice.
“The United States is becoming a much smaller piece of the overall global economy.”
Deleveraging
Reversing the excesses
More restrictive lending standards
Higher rates to compensate for borrower risk
Will there be voluntary debt reduction as well?
Information is based on data from recognized services and sources and is believed to be reliable. Any opinions, projections or recommendations contained herein are subject to change without notice and are not intended as individual investment advice.
“Addressing the toxic effects of too much debt.”
The Immediate Economic Situation
Few positives shorter term
Panicked consumers
Extremely cautious domestic businesses
Contracting exports
State and local governments
The Federal government will try to take up the slack
Information is based on data from recognized services and sources and is believed to be reliable. Any opinions, projections or recommendations contained herein are subject to change without notice and are not intended as individual investment advice.
“Most segments of the economy are struggling.”
The Coming Months
Recession through the first half of 2009
Consumers will continue to retrench
Layoffs will likely accelerate
Capital spending will deteriorate
Business bankruptcies will mount
Improvement in the second half of 2009
The financial system should stabilize
Public confidence will begin to improve
Information is based on data from recognized services and sources and is believed to be reliable. Any opinions, projections or recommendations contained herein are subject to change without notice and are not intended as individual investment advice.
“Laying the foundation for improvement.”
The Next Few Years
Longer-term issues:
Consumers: tight budgets and deleveraging
Businesses: coping with margin pressure
Can we avoid both depression and high inflation?
Federal deleveraging?
Social Security and other retirement obligations
Retiree health careInformation is based on data from recognized services and sources and is believed to be reliable. Any opinions, projections or recommendations
contained herein are subject to change without notice and are not intended as individual investment advice.
“As with recovery from a massive heart attack, it will take time for the economy to fully recover.”
Bruce McCain, Ph.D., CFA
Chief Investment Strategist
Key Private Bank
(216) 689-5042
David Reavis
Public Relations Manager
Key Private Bank
(216) 689-7622
Information is based on data from recognized services and sources and is believed to be reliable. Any opinions, projections or recommendations contained herein are subject to change without notice and are not intended as individual investment advice.
Contacts
Disclosure