Every cloud has a silver lining.
Difficult times are like dark clouds that park overhead and
block the sun. When we look more closely at the edges of every
cloud, we can see the sun shining there like a silver lining.
In the 1930s the origination of the Securities and Exchange
Commission (SEC) was a silver lining, designed to protect
investors from securities fraud (although this is an ongoing
battle in every market cycle). After World War II there was
a silver lining in the increase in technology that hastened
the development and start of the computer era. We are beginning
to catch glimmers of the silver lining in today’s economic
vista.
In this year’s first quarter consumer spending rose
2.2% and demand for big-ticket durable goods rose 9.4%. As
consumer spending recovers, inventories must be replaced which
will spur further economic growth and increase employment.
With housing prices down more than 20% in many areas, more
people can now afford to purchase a house. Low interest rates
are a further incentive for home buyers. Another positive
action is that many financial institutions are scrambling
to pay back the government the stimulus money they received.
The government will release its “stress test”
report on nineteen banks as we go to press. This ostensibly
will determine how much, if any, funding any of these banks
need to remain viable. Should any banks need a further infusion
of cash, the Fed stands ready. The Fed has been very accommodative
pushing more than $1 trillion into the financial system, and
they stand ready to add another $1.7 trillion. Finally, we
are seeing a silver lining in the stock market. The S&P
500 has rallied over 30% from its March 9 low. Investors are
seeing value in stock prices and are exhibiting confidence
in our markets. Now, we are not proposing that stocks will
march directly to new highs, but they are trending upward.
As we emerge from this latest recession, we will see some
dramatic changes in the way the world works:
1. Economic globalization will continue and leadership from
the US will diminish somewhat. India (the world’s
largest democracy) and China will take an increasing role
in technological innovation.
2. Energy needs will escalate as the economy recovers, and
at this point, it looks like nuclear and natural gas will
be at the forefront to meet our needs. Wind, solar and other
alternatives are not yet viable or reliable.
3. Consumers may carry smaller debt burdens in the future;
this will allow them greater flexibility in riding out future
financial and economic rough patches.
The bottom line is we will all need to adapt to a changing
world – government, corporate and individual. It promises
to be an exciting time, and those best able to adapt and innovate
will be the leaders.
Random thought for May 2009:
John Kennedy once said to a group of scholars in the White
House, “I think this is the most extraordinary collection
of talent, of human knowledge, that has ever been gathered
at the White House – with the possible exception of
when Thomas Jefferson dined alone.” |
