There is no doubt that our country has a long hard slog ahead due to the burden of debt and high unemployment. This year’s concern will be the government's decision on how fast they will start withdrawing the huge financial support they provided to keep the financial system going.
On Thursday, December 24th, the Treasury announced that it would be providing Fannie Mae and Freddie Mac unlimited financial support for the next three years. At least now we have some clarity as to when the Federal Reserve’s massive purchase of the securities of these agencies will end. Yet, the government stimulus of taxpayers’ dollars continues to be a huge concern.
In the U.S., voters will vent their anger and could even deprive Barack Obama of a Democratic majority in the House of Representatives in America’s midterm elections in November. Business will not feel any better in the 2010 year, but they will be able to plan for the future as compared to worrying about short term survival in the economy.
There will still be plenty of obstacles to overcome as we see that stocks are overvalued, over bought, too bullish in optimism and there is only one way to go with interest rates which is upward. This type of scenario can be associated with increased risk of abrupt market losses. This is why we continue to remain defensive. Keep in mind that the October 1987 crash occurred from a dividend yield of 2.65% which was, at the time, the lowest yield in history on stocks. This was matched only by the 1972 peak prior to the 1973-74 bear market which showed no mercy. The week of December 14th, the S&P 500 dividend yield dropped below 2%.
Needless to say, we believe that 2010 could be an eventful year. We will be focused on all the “what if” scenarios that can occur. We will also be prepared to take action when needed. Our emphasis is still defensive and yet proactive. Have a happy New Year and a prosperous 2010!
P.S. Be sure to check out my latest blog “The Next Victims of Our Economy” on our website.
