Today at the BISA conference starts the peer sessions and speaker series. The first guest speaker today is Dr. Richard Marston from Wharton School of Business. Dr. Marston is a professor of finance and director of the Weiss Center for International Research.
He discussed the economy and gave a good overview of what’s to come and what in his opinion folks should do to weather the storm. Here is my overview.
8:50 am: Here we are in Florida and what a better place to be talking about where this all began as this is ground zero. Miami real estate market down 41%. California, Phoenix and Nevada are even worse.
8:52 am: Lowering the interest rates doesn’t work this time.
8:57 am: Depression in 29 was caused by allowing banks to fail so Bernanke and his team are doing the right thing by doing what they can to prevent the system from collapsing.
9:00 am: Fed’s balance sheet near 2.5 trillion. Was around 900 billion. Needed to do this to get commercial paper flowing again. It’s working and the balance sheet is starting to go down but must keep this trend otherwise we’ll have inflation.
Geitner and the Treasury
9:03 am: Geitner is basically alone. Needs a team assembled but hard to do when every appointee must take two months to review their income tax reports.
9:05 am: Thinks TARF program is a key ingredient. Not to be mistaken with TARP, TARF suports the securities for credit card debt, student loans and auto loans.
9:08 am: Must build a convincing plan for getting rid of the bad mortgage assets on the bank books.
9:10 am: Believes the recession really began in September. This is different then the NBER’s report that it began in December 2007.
9:13 am: Consumers began to ramp up saving around this time because of the failures and dramatic drops in stocks.
9:14 am: Lehman was not a cause but a symptom.
9:16 am: He likes the economic team in Washington. Thinks they will do a good job eventually.
9:20 am: The stimulus package is a big failure. Congress had an opportunity to pump up the economy by instead they ramped up their pet projects. Thinks we should start over with a new congress. Got a big applause from the crowd.
9:22 am: Exports are way down all over the world.
9:25 am: Businesses are not expanding (would you?).
9:26 am: It will be the American public who pulls us out of this recession. But right now they’re saving, which they should be.
9:27 am: There is some “pump primer” in the stimulus package that will help the American consumer to start spending again. But this is far down the road. Maybe late in the summer.
9: 28 am: Ugly year ahead.
9:30 am: Next winter could be the beginning of the turn around but environment will still appear dark. Jobs will continue to be low even while economy makes a turn around. Typical of a recovery.
9:31 am: The age of pension plans are over. Some still out there in the public sector.
9:32 am: Last recession, real estate helped us escape but not this time.
9:31 am: No place to hide, not even in the bond market.
What should an investor do?
9:32 am: Be reminded of the upswing.
9:33 am: Past recession data – first 12 months of upswing markets soared by 30%.
9:35 am: But nobody can predict when this upswing will occur. The NBER won’t even officially report when it started until 12 months after it began. So you must prep for the eventual upswing.
9:37 am: Retirees must cut spending over a three year period.
- 1st year – 8%
- 2nd year – 16%
- 3rd year – 24%
9:38 am: Bonds won’t last through retirement because of the inflation rates. Especially if you become ill as health care inflation is very high.
9:39 am: Must rebalance portfolios by drawing down bonds, not stocks. Don’t lock in losses.
9:41 am: Investment bankers and gunslingers will be put in their place and will not return. The strong will survive. The financial sector will rebound as the majority of those involved are smart and looking out for their clients, not just their wallets.
9:42 am: Country will survive due to inner strength of America. Is hoping he’ll be invited back in two years to report on our turn around.