This is my first letter of the year and deliberately it is too late to drone with forecasts of performance to the second decimal point. I doubt that anyone a year ago got even the sign of the 2008 performance correct so why should any of us be better today?. I will, however, offer the view that most listed companies will report considerably smaller profits than they boasted of last year and in some cases even the year before that. Dividends may survive a little better but only until the reserves are depleted. The probable official response of reducing interest rates will have no discernable effect. The bull will return when the bear is exhausted.
Despite the promises of those seeking office in the forthcoming elections, job and wages can not be created by government. Lamp pole poster placers will be almost the sole growth business in 2009 I’m afraid.
I would have thought that now the distraction of the holidays and festivities are long gone, just the smallest bit of sense might return to the markets. The biggest puzzle for me is the enormous esteem in which the world seems to hold the mighty dollar. President-elect Obama has told his nation and the world that his new government will take over the job of spending now that the tapped out consumers of that country have retired hurt. Even reducing the cost of money to zero has not tempted folk back into the stores and car showrooms. People who are now living with the growing threat if not reality of job losses are grasping the fact that even if there is no interest to pay, any lenders silly enough to loan cash under those conditions will still want to see the capital returned in due course. Paying money back while still servicing existing debts and while possibly out of work is a very unattractive idea.
There are only three places where the young president can get the funds he plans to devote to on huge projects with the aim of getting the country back to work. Income tax in an environment of falling employment is not a good one and anyway he has already won everyone over with a promise to cut taxes. Borrowing is the next possibility but the idea of lending money at these tiny yields is not catching on amongst the folk who do have spare cash. A complicating factor in this route is the annoying fact that much of that cash is in the hands of people who don’t like the US a great deal.
Happily, for the new boy, however, down the street at the Federal Reserve is governor who as a lad was taken on a visitor’s tour around the mint and has never forgotten the excitement and speed with which cash can be printed. Years later Governor Bernanke added a keen insight of logistics to this youthful impression and pointed out that choppers would be the ideal method for rapid distribution of the crisp folding stuff. Barack and Ben, the helicopter men.
The US dollar’s steady decline as the world’s store of value must surely continue. Have you seen the stories about China using their own Yuan for settlement of bills that hitherto were quoted in dollars?
Adding to the investor’s troubles is the worry that despite the annoying requirements for sending the banks and brokers our proof of residence and ID it is still possible to wake up to find that the widely respected Bernie has made off (acknowledgment DGB) with your money. And even if you choose not to, your government is anyway investing your loot in banks, insurers and car makers and their pension funds. What we really need to know is where all those miscreants live.
James Greener
9th January 2009.
