Market Update - November 7, 2008

CRISIS UPDATE

What a week!

Election

We have a new president, Barack Obama, the first African American president of the U.S. Possibly of more far reaching proportions, is the fact that the Democrats will control somewhere between 54 and 58 seats in the Senate (4 seats are still being contested). The House is overwhelmingly controlled by the Democrats. It was not a good year to be a Republican running for office – it was impossible for almost any Republican to distance him or herself far enough away from the Bush taint.

Markets!

Losses on Wall Street mounted on Thursday (11/6) on top of the downturn on Wednesday. Apparently the market’s first reaction to President-elect Obama was not a good one. We did have a nice Election Day rally of over 300 points but there was enough bad news on Wednesday and Thursday to cast a further pall over the markets.

  • The number of Americans filing for unemployment benefits climbed to the highest level since 1983. The rate is up to 6.5%.
  • Wall Street analysts lowered their estimates on corporate profitability in the current financial quarter.

On a brighter note, the Swiss and British Central banks as well as other European Union banks cut their short term rates substantially this week. This was not welcomed as much as it could be because economists are fretting over signs that the world’s economy is slowing faster than expected.

What an inheritance!

Among other problems, President-elect Obama will be grappling with many serious issues early in his tenure including:

  • Massive government deficits
  • A fragile credit system
  • A domestic recession
  • Rising unemployment
  • The Wall Street downturn
  • The Iraq war
  • Many other issues, including income taxes

The new Treasury Secretary

Some of the early names being bandied about to take over for Secretary Paulson are:

  • Paul Volcker – former Fed chairman
  • Lawrence Summers – former Treasury Secretary under Clinton
  • John Corzine – N.J governor
  • Robert Rubin – former Treasury Secretary under Clinton
  • Jamie Dimon – JP Morgan Chase CEO
  • Timothy Geithner – NY Fed president

Conclusion

Whether you are Republican or Democrat, I think we would all agree that the “run” for President (over two years) was much too long. I personally am glad it is over. I was tired of the negative attack ads.

Many people believe that a Democratic president is bad for the markets. History has proven that NOT to be the case. What the stock market likes is certainty. We now know who the President is. What his policies are will take somewhat longer to learn and understand.

The market recovery will be bumpy. We are likely to see more of these “teases”, with rather large up days followed by large down days. However, an eventual rebound in the economy and investment values will occur. And historical evidence indicates that the market recovery is a precursor to the economic recovery.

We understand that it is difficult to remain committed to long term investing in the face of so much short term doom and gloom – but we have a lot of confidence in the future.

As always, call us at anytime if you have any questions.

Best Regards,

Edward J. Kohlhepp, CFP®, ChFC
Edward J. Kohlhepp, Jr., CFP®, MBA

Market Update - November 26, 2008
Market Update - October 31, 2008

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Kohlhepp Investment Advisors, Ltd.
3655 Route 202, Suite 100
Doylestown, PA 18902
Phone: 215-340-5777
Fax: 215-340-5788
Email: Info@KohlheppAdvisors.com

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