Photo courtesy of iStockphoto.
The 2012 Presidential election is just around the corner and prospects are not up for the challenger Governor Mitt Romney. His campaign strategy, to frame the election as a referendum on President Barack Obama’s failed economic policies, is turning out to be less effective than it should have been. The economic record has not been good and a majority of American’s do not think the country is better off than it was four years ago. Yet, Obama is the favorite to win and Romney is running out of time, such that he desperately needs either a remarkable victory in the debates or an October surprise.
Many things have been blamed for Romney’s inability to capitalize on Obama’s weak hand, such as his controversial comments about the protests in Egypt and the attack on the consulate in Libyan. He tape surfaced in which he claimed that 47% of American’s are hopelessly dependent on government. The Obama side has been successful at making Romney look like a rich vulture capitalist elitist who wants to cut taxes for himself and his friends, while slashing benefits for the poor and the middle class. In January I wrote an article called, The GOP Nominee and the Median Voter, in which I predicted that Mitt would be the Republican nominee, but that his need to avoid being seen as a Massachusetts moderate would confound his strategy to shift back to the middle of the political spectrum, a big disadvantage. It seems that Romney was not able to pull off a successful Etch-A-Sketch maneuver after all. Even more telling is that most American’s can picture themselves having a beer with Obama more than they can with Romney, and as it turns out Obama brews beer in the White House while Romney is an absolute teetotaler per his faith. We want the President to identify with us, and perhaps this intangible factor trumps bad economic numbers.
A recent poll by CNBC found that President Obama is now ahead of Romney on who American’s believe is best to get the economy going again, by 43% to 34%. At the same time 55% of American’s say that things have gotten worse over the last four years. Romney has not sold his vision for the future, but Obama is gaining back trust through better articulation of a path forward, with a little help from President Bill Clinton. Challenger Romney’s focus on the question, “are you better off than you were four year ago?”, is a good inquiry to make, but without an alternative and inspiring vision it is not enough. Besides that, I am in the lonely 22% of American’s who thinks that we are better off now than we were four years ago. The Obama camp has been using comparisons of monthly job losses to make an ineffective case, as it is no match for American’s direct personal experience with four years of slow growth, bad news, frustration, and uncertainty. But I want to make a slightly different case.
Four years ago today, on September 29th, 2008, I started my college Fall quarter with an economics course on Money and Banking. For nine weeks I was to track daily market data, stocks, bonds, exchange rates, while learning about the theory and history of money, finance, and banking. The first day of class was the same day that the Dow plunged 777 points, its worst point drop in history. This set the tone for the rest of the Fall quarter, it began in the midst of a financial panic and ended shortly after the election of President Obama. I credit this one class with transforming my outlook entirely. Before the class I was a supporter of candidate Ron Paul and I wanted to end the Federal Reserve. I had even attended the Washington State Republican Convention as an alternate delegate for Ron Paul. By the end the nine week class though, I had become a strong supporter of the Fed and Chairman Ben Bernanke, even arguing for preserving Fed independence in a recent article. So I voted decisively for President Obama over John McCain.
For the class we had to keep a journal over the nine weeks, which required three summaries a week from the Wall Street Journal’s financial section. In addition to the 27 article summaries that are included below, there is some analysis that I wrote at the end of the nine week period. Reading back through this I was surprised to find that I noted and agreed with predictions that unemployment would reach 10%, a much better and more realistic forecast than the infamous 8% peak that Obama promised. There is a lot to read, but even if you just read the headlines, skim the interesting summaries, and read the final analysis, it should be clear that we are better off today than we were then. The American ship was sinking in the fall of 2008, I was sure of it, and even though President Obama has not gotten us back up to full speed ahead, he has done, or tried to do, the right things to repair the damage and avoid crashing back on the rocks. I am going to vote for a second Obama term, because I knew the last four years would be rough sailing and I am respectful of our progress so far considering the historic proportions of the economic problems, problems that are still reverberating around the globalized world. I hope you read my analysis from four years ago and agree with me to reelect our current President.
My Journal of Market News from the Fall of 2008
Monday - 9/29/08: Stocks Plunge as Rescue Plan Fails To Gain House Approval
The Dow Jones Industrial Average (DJIA) fell 7%, or 777.68 points, the largest point drop in history. Also, the S & P 500 fell 8.8% (the largest drop since 1987), the small stock Russell 2000 fell 6.7%, and NASDAQ Composite Index fell 9.1%. The panicked stock sell off was a direct result of the House of Representative’s failure (228-205) to pass a $700 Billion bailout plan designed to rescue the financial markets and prevent credit from freezing up. Wall Street has been waiting for a bailout for over a week, there was bad news today regarding a FDIC brokered sell off of Wachovia’s assets, and the bailout of some large financial institutions in Europe combined to set off the panicked selling. Investors moved money into government bonds, which decreased the yield on the 3-month T-bill to 0.14% from 0.87%, and the 10-year T-bond to 3.576% from 3.827%, since late Friday. The US Dollar Index rose 0.4%, and the dollar also gained against the Euro and British Pound. Oil dropped $10.52 to $96.37 a barrel.
The context of this stock market plunge is the crisis on Wall Street that has seen the failure, take over, or bailout of many large financial institutions. This has been blamed on many factors, and not everyone agrees on what to do to end the crisis. Due to election year political concerns, the bailout plan’s provisions are hotly contested, and many constituents are angrily calling their representatives, causing a failure to pass. The problem is that the financial markets are believed to need this bailout in order to function by the traders on Wall Street. So the behavior of the markets is being driven and dependent on government intervention. Also, the economic interdependence between the US and the rest of the world means that what happens to banks in Europe affects the US economy and vice versa.
Wednesday – 10/1/08: Entrepreneurs Scramble for Financing
In the last few weeks, commercial banks have substantially tightened up on lending, and small businesses are being denied loans for being too risky. The loans that are available have high interest rates, and business owners with variable rate loans are now seeing their rates rise as well. Banks are also looking more closely at personal credit scores and assets before approving loans. This has small businesses and entrepreneurs using alternative financing methods like credit cards, angel investors, and suppliers.
The difficulty of obtaining credit is due to the current climate of defaulting loans and the failure of many high profile financial institutions. Commercial banks are risk adverse as well as investors, growing the risk premium on loans. Also, when the supply of loans becomes scarce that puts upward pressure on interest rates as borrowers bid them up.
Friday – 10/3/08: Historical Bailout Passes As Economy Slips Further
The House of Representatives joined the Senate in passing the $700 Billion Wall Street bailout bill on a vote of 263-171. The passage of the bill represents government intervention in the economy of historical proportions reminiscent of the New Deal in the 1930s and intervention during the Savings & Loan crisis in the 1980s. Congress was able to pass the bill, after it failed on Monday to make it through the House, by adding tax cuts to it. The bill creates a government entity called the Troubled Asset Relief Program (TARP), which will buy mortgages, securities, and assets from troubled financial institutions. TARP is charged with working with home owners to prevent foreclosures, and will take an equity stake and limit executive pay for participating companies.
Even though the DJIA was up about 300 before the bill’s passage it ended up down 157 points to close at 10,325.38, which caused the index to have its biggest weekly loss since 2001. Also, the Labor Department announced that the economy lost 159,000 jobs in September, the fastest pace in five years. The bad economic news, like unemployment figures, is overwhelming the good news of the bailout’s passage. This indicates that the problems in the credit markets have already spread to the wider economy, and government intervention may not be enough to stop the slide.
Monday – 10/6/08: Markets Fall on Doubts Recues Will Succeed
The DJIA fell below the 10,000 mark for the first time in 4 years to land at 9,955.50, despite attempts by The Federal Reserve to shore up credit markets. The Fed announced it would begin paying interest on central bank reserves, and they are looking at other options like lowering interest rates. They are also looking into ways to ease the commercial paper market which shrank by $94.1 billion to $1.61 trillion the previous week. The Fed also plans to make $900 billion in loans available by the end of the year. Bank of America announced it would cut dividends, and CEO Ken Lewis stated it was the most difficult time for financial institutions he has ever experienced. Companies outside the financial sector of the economy are finding it difficult to find to get loans due to a clogged short term credit markets.
European governments and central banks also intervened in the financial markets, with Austria, Sweden, and Denmark joining Germany and Ireland in insuring bank deposits to prevent runs. European governments are finding it difficult to coordinate rescue efforts, because even though their financial markets are heavily integrated, the regulatory jurisdiction falls to the central banks for individual countries. The global nature of the financial markets is allowing problems experienced in the US economy to easily spread to the European and world economies. However, the asymmetric attempts by governments and central banks to address the financial crisis have yet to return confidence to the markets.
Wednesday – 10/8/08: Dow Sinks Despite Rate Cuts; Banks Tumble in Late Trading
The DJIA fell 189 points, and has ended lower for the last six trading days. Even before trading started in the morning, the Fed, as well as six other central banks around the world, announced a coordinated cut in interest rates. This caused the Dow to fluctuate up and down, but late in the day financial institutions led the charge down. The continued slide in the markets is assumed to be the freeze in intra-bank lending markets, as well as extremely weak investor confidence. Some of the decline was also due to Mutual Fund redemptions. Companies quarterly earnings reports are expected soon, and many investors may be worried further about bad news. Even though action to address the global economic crisis is becoming more coordinated between governments and central banks, it has yet to restore calm for investors.
Friday – 10/10/08: Dow’s Worst Week Comes to an End
The DJIA ended the week 18% lower than last week, after dropping 1874.19 to record its largest weekly fall ever. Another record was broken on Friday as well, when the index went from being down 700 to being up 300, for an intraday swing of 1,000 points. The New York Stock Exchange and NASDAQ also broke records for how many trades took take place in one day, with 11.6 billion and 4.18 billion respectively.
High demand for three-month Treasury bills continued despite low yields below 0.2%. The benchmark for US Dollars loans, the three-month Libor, was the highest in 10 months at 4.81875%. Interbank lending problems are seen as a possible reason for the selling in the stock market. The increase in the demand for government securities comes from the fact that they are safe investments. Volatility in the markets has also made the demand for shorter term assets.
Monday – 10/13/08: Dow’s 936-Point Surge Ends Losing Streak
The Dow climbed to 9387.61, up 936.42 or 11.1%, which set a record for the biggest one day point gain. However, the index is still down 29% year to date, and the point gain came after setting another record, the worst ever full-week performance. The European nations joined with Australia to announce various plans to help financial institutions in trouble, which contributed to the rally. Government intervention seems to be the biggest contributing factor to positive moves in the markets. Large spreads between corporate bonds and Treasuries shows that investors are still very afraid of taking risks and must be incentivized with a high premium.
Interbank lending rates showed signs of easing. Three-month US Dollar Libor (London Inter-bank Overnight Rate) fell from 4.81875% on Friday to 4.7525%. However, the spread between high-yield corporate bonds and Treasuries indicate the economic weakness may continue for a couple more years. The dollar was mixed against other major currencies.
Wednesday – 10/15/08: Dow Declines 733; S&P Tumbles 9%
The S&P had its worst percentage drop since Black Monday in 1987, despite the last Monday’s historic gains in the Dow. The DJIA also fell by 733.08, or 7.9%, to 8577.91, which was its worst percentage loss since 1987. The last hour saw the bulk of the sell off, due to weak retail sails data, and bad news out of the Fed’s beige book regarding the job market and business activity.
The credit markets continued to ease for inter-bank lending, but three-month Treasury yields fell from 0.3% to 0.2%, indicating that investors were looking for less risky places to put their money. Risk premiums were also wider on agency debt. The dollar moved higher against the euro and the Japanese yen. Large spreads between risky corporate bonds and Treasuries shows that investors are still very afraid of taking risks and must be incentivized with a high premium.
Saturday – 10/18/08: Bank Lending Overseas Provides Thawing Sign
Some big US Banks started lending to some European banks on Friday, starting with JP Morgan who issued short term unsecured debt totaling between $10 billion and $15 billion. This inspired other banks, like Citigroup, to also begin loaning. These steps were likely taken due to the recent plans by European governments to guarantee their bank’s liabilities, and expected cash infusions directly into US banks by the US government. However, the credits markets are still clogged by historical standards. Three-month Treasury bills sold off on Friday on the news, almost doubling yields to 0.8%. The strain on the credit markets will likely continue until the large buyers of money-market mutual funds begin investing again. In only a five week period, $450 billion was moved out of prime institutional money funds, like commercial paper, into safer short term securities.
Tuesday – 10/21/08: Dow Surges 400 on Hints of Thaw
Indicators began to show signs that the credit markets were starting to operate again. The news sent Dow stocks up 4.7% to end at 9,256.43. A measure of bank to bank lending, the three-month dollar Libor, dropped from 4.41875% to 4.05875%, and is credited for the Dow’s rally. Three month T-bills yields rose from 0.8% to 1.2%, 10-year T-bond yields fell to 3.878%, and 30-year T-bond yields dropped to 4.270%. The dollar strengthened against the Euro and the Japanese Yen. Expectations that lending will increase, signals to the market that consumer spending and thus business activity and GDP are expected to increase. The expectation of higher profits sends stocks higher. Higher expected returns for US investment also raises demand for dollars, and causes the currency to appreciate relative to others.
Wednesday – 10/22/08: Bank Earnings Swamp Stocks
The Dow fell 5.7% to end at 8,519.21, and with the previous day’s loss that is almost a 750 point drop in two days. Interbank lending has continued to ease, with three-month Libor falling to 3.54%, but longer term loans are still hard to come by. Fear over the credit freeze has been replaced by worry about a global recession and poor corporate earnings. The dollar continues to gain relative to other currencies, as there are expectations of more interest rate cuts by central banks. When investors get a hint of lower earnings, they expect poor returns or losses in the market, they sell rather than buy, which drives down the price by increasing supply while demand is dropping off.
Friday – 10/24/08: Short-Term-Lending Sector Eases
The Treasury has flooded the market with $400 billion dollars in new government securities and plans for another auction for next week. Also, short term lending eased up. Yields fell on 10-year T-bonds from 3.618% to 3.536%. The decrease in Treasury yields indicates an increase in price. Since the supply is also increasing, this means that demand has still increased more than supply.
Tuesday – 10/28/08: Federal Reserve Starts Lending Plan
The Fed started a plan to help the short term lending market for commercial paper. The Fed will be loaning directly to high rated companies, but only for terms of three months. The Fed is also expected to start a Money Market Investment Funding Facility soon, in the hopes to create confidence for money market funds in the liquidity of commercial paper. Money market funds have not traded in commercial paper since the failure of Lehman Brothers. This is an example of the Feds movement toward less conventional policy tools, given the inability of the traditional monetary policy tools to stem the problems in the credit markets. One of the Fed’s primary goals is financial market stability.
Thursday – 10/30/08: Fed Steps Up Assault on Slump
The Fed cut their target for the federal funds rate to 1%. Obtaining credit has been an issue for consumers, and the move by the Fed hopes to lower the costs of borrowing. Treasury bonds remained flat though, as corporate bond yields dropped due to the move of investors to riskier securities. The Dow still closed down even after the rate cut, but banks did cut the prime lending rate from 4.5% to 4%. However yields on junk bonds and mortgage rates have continued to increase.
This Fed wants to stimulate economic growth. By lowering the federal funds target rate, they intend to increase the supply of bank reserves, making it more likely banks will lend it out, which in turn will increase consumer spending and economic growth. However, banks are risk adverse and are not lending as much to riskier customers, even with lower interest rates.
Thursday – 10/31/08: Dollar Rises on Yen as Stocks Post Gains
The dollar gained on the yen, as did the euro. The Dow ended the day higher as well, and the Fed’s rate cut, better than expected third quarter GDP numbers, and global stock rallies were credited for the good news. The interest rate cuts by the Fed, and possible future cuts by European central banks, has given investors more incentive to take risks, and that is what has contributed to the gain of the dollar and euro against the yen. The dollar appreciates against foreign currencies when the demand for dollars goes up relative to the other currency, or is associated with an increase in supply of the other currency as well. As more investors demand dollars and not yen, the yen depreciates against the dollar.
Tuesday – 11/04/08: Treasury Aims to Borrow a Record $550 Billion
The federal government plans to borrow record amount of money in the October-December quarter to pay for emergency programs to help with the economy. Treasury bond yields declined as investors pushed up the price and demand for safe investments increased. There are expectations that economic growth will not rebound in 2009. There is good news in the credit markets though as the rates for short term lending continues to come down. Three-month dollar Libor was down to 2.24% on Monday. Treasury securities are considered to have the lowest default risk, and with the economic picture looking generally bad investor are driven to them. This pushes down yields as it pushes up bond prices.
Wednesday – 11/05/08: Stocks Jump as US Heads to Polls
The Dow climbed 3.3% to finish Tuesday at 9,625.28, as Barack Obama became the first African American to be elected President. This was the highest ever stock gain on an election day, though trading has only taken place on election days since 1984. Bank to bank lending continued to get better and bond prices increased. I would like to think that investors were hopeful that the new President would be diligent on addressing the economic problems facing the US, but these events were likely not directly related.
Thursday – 11/06/08: Dollar is Mixed after Stocks Skid
The Dow fell 500 points on Wednesday. The dollar gained against the euro, but lost value against the yen in response to the drop. Dollar assets are considered safe, but not as safe as yen right now. Interbank lending rates continued to decline as well. The demand for dollars relative to yen is lowered due to bad performance of stocks, as this indicates weakness in the US economy and creates risk aversion.
Tuesday – 11/11/08: Fed Delays Its Big Plan to Shore up Money Funds
The Fed announced it will not start its plan to rescue money market funds until next month, and it appears this is a result of their focus on other bailouts. This is problematic for the money market funds, because they have experienced pressure on returns, and even “broke the buck” back in September when net assets fell below $1. The risk aversion in the credit markets is having a strain on lending and short term safe assets are all investors have an appetite for right now.
Friday – 11/14/08: Trade, Jobs Data Paint Gloomy Picture Before Bush’s G-20 Economic Summit
The US trade deficit shrank in September due to slow global economic growth and decline in oil prices. US exports dropped the most since 2001. Jobless claims increased by 32,000 in a week bringing the unemployment benefit filings to their highest since September 2001. Economists are forecasting that growth will continue to lag through the end of the year, but that it could pick up again next year with successful government action. They are hopeful and supportive of fiscal stimulus packages being initiated by governments. Unemployment increases when GDP declines, because when consumer spending is reduced it puts pressure on businesses to reduce prices and also attempt to maximize profit or minimize losses. Labor is one of the largest expenses for business, so cutting jobs is a typical way for business to operate in economic downturns.
Saturday – 11/15/08: Treasury’s End Week With Solid Rally
The yields on 10-year T-bonds fell from 3.818% to 3.750%, and the yield on other longer term Treasuries declined as well. The gain in government securities was due to weaker-than-expected retail sales numbers. Bond prices are increased when their demand goes up and returns go down correspondingly. The demand for government debt is drive up, because of the fear that other parts of the economy will not provide good returns and most likely even losses. Investors move out of risky stocks into safe but lower yielding government debt.
Monday – 11/17/08: Rise in Libor Is Seen as Temporary
Fear that the short term debt markets could get more strained increased when Libor rates began to rise again. News that the government may no longer purchase potentially bad mortgage securities from banks is seen to have contributed to the reverse in the Libor trend. Some investors just saw it as a temporary correction for the recent easing. The Treasury’s plan to buy bad mortgage assets from banks had helped build confidence in financial institutions, but without that guarantee banks may not want to lend to other banks who could have bad assets on the books.
Thursday – 11/20/08: Dow Declines 427.47; Year’s Drop Near 40%
The Dow fell 5.1% to end at 7,997.23, which was the lowest close since 2003. Bad news about housing and price deflation fueled the negativity in the stock market. Plus the US auto companies are indicating they will need government bailouts to survive, which does not help. Treasury prices gained. As news about the economy continues to be gloomy, investor’s expectations regarding future returns are pessimistic. This continues to decrease the demand for equities and increases the demand for safe government debt.
Saturday – 11/22/08: Geithner Pick Lifts Stocks
The Dow gained 6.5% to end the day on Friday at 8,046.42 on news that President Elect Barack Obama has selected New York Federal Reserve Bank President Timothy Geithner to be his incoming Treasury Secretary. Interbank lending rates rose though and three month Treasury yields remained close to 0%. Investors appear to be looking for any signs of hope. Just as Obama’s election day gave a small boost to stocks, his economic cabinet choices are signaling the potential that new policies may change the economic course. However, the real problems with the credit markets and investor confidence are still present as indicated by the demand for short term Treasuries.
Monday – 11/24/08: Financials Lead Strong Rally
The Dow rose 397 points or 4.9% on news of a government bailout for Citigroup. As investors moved into stocks, prices for longer term government securities decreased and the dollar’s value declined relative to other currencies. However, three month treasuries still had very low yields. Once again, news of government intervention is what ends up rallying the stock market.
Wednesday – 11/26/08: Fear Recedes in the Debt Markets
Yields on government and corporate debt dropped to the lowest in weeks, on the announcement of another government bailout plan. The Treasury plans to use the Term Asset-Backed Securities Loan Facility (TALF) to buy consumer debt like credit cards, student loans, and car loans. Also there is a separate plan to back mortgage securities. Returns on other debt besides safe haven government securities are expected to be better with the announcement of government backing for those securities. This reduces the risk for investors, so as demand increases it drives up the price, and drives down yields.
Friday – 11/28/08: Market Extends Winning Streak
Stocks gained on “Black Friday”, the biggest shopping day of the year and the holiday season, not another day for stock market plunges. Treasury prices rose and the dollar gained as well. There was worry though that the retail results from holiday shopping would be weak. Oil prices also declined. With the holidays approaching it seems a good bet that spending will increase in the short run, and even if worse than previous years, it will be better than in previous months.
Nine Week Analysis
Before the start of class for the quarter on Monday, September 29th, 2008, and the subsequent collection of nine weeks of data, the US economy was already faltering due to related mortgage, credit, and banking crises. The failure of large financial institutions, and the expectation that more disruption was certain to occur had taken center stage in the Presidential race, and the Senate had passed the Emergency Economic Stabilization Act at the urging the Treasury Department and the Federal Reserve. Coincidentally, the first day of class was the same Monday that the House of Representatives was to debate and vote on the Act, which included the Troubled Asset Relief Program (TARP).
On Monday, September 29th, 2008, the Dow Jones Industrial Average began the morning at 11,143.13, but when the House failed to pass TARP the Dow plunged 6.98% to land at 10,365.45. The general downward trend of the Dow following Monday’s drop, which represented a 9.3% loss since the economic crisis began in mid-September, continued. For the remainder of the first week of this analysis the Dow did not move back above 11,000, and by the following Monday the index fell below 10,000 and has not recovered that ground to date. On Black Friday (of the post Thanksgiving variety not the stock market crash variety), November, 28th, 2008 the Dow ended at 8,829.04. There was a 14.82% fall in the Dow during this nine week period. If added to the 9.3% drop prior to analysis period, the Dow has lost a quarter of its value in the last three months. The Dow’s behavior over the last nine weeks can also be characterized as volatile. Besides the huge drop on the first day, the index later experienced even larger daily losses of 9.96% and 7.87%, and several days of moderate declines between 3-6%. But the Dow also had some very large rallies during the nine weeks, including one day gains of 11.08% and 10.88%.
The reason for the general downward trend of the Dow appears fairly obvious, because the economic news has been indicative of a recessionary gap. What began as a housing foreclosure crisis has resulted in a dramatic loss of investor and consumer confidence. With the curtailment of spending and investment, unemployment has risen and economic growth has been negative. Large losses in the stock market have been correlated with various pessimistic economic reports regarding macro data and poor business earnings. Announcements about US government actions to fix the economy, such as rate cuts, capital injections, or bailouts appear to have contributed to stock rallies and the upside portion of the volatility.
After reading the last nine weeks of economic press, as well as tracking various data regarding stocks and bonds, it is hard not to be concerned about the direction we are heading. Treasury bond yields are at unprecedented low rates, because investors worldwide are flocking to safe securities and shunning risky ones. This has helped the dollar gain relative to other currencies. The price of oil, and thus the price of gasoline, has declined measurably giving much needed relief to consumers. Americans elected a new President and in January will have a new economic team to address the problems. Even though it is out of the nine week analysis period, I should point out that it was recently news that the US has officially been in a recession since December of 2007.
The data trends in the Dow (equities) and the bond markets indicate continuing downward movement for the global economy. If one were to just look at the data over past nine-weeks, there really is not much good news to be found. Rallies and gains in the stock market have been short lived and centered on direct government action. The overwhelming loss of confidence by consumers and investors has not been stemmed by the Fed and other central bank action. Even the election of a new President and various cabinet announcements has brought only small rallies.
I anticipate that things will only continue to get worse. The housing crisis is still prevalent and has spread to the whole economy with mounting job losses. Unemployment is predicted to rise to about 10% and I think that is a fair assessment. Many of the problems in the economy are feed-backing into themselves. As unemployment rises that will continue to put pressure on consumer spending and will likely result in more home foreclosures creating a vicious cycle where each problem that emerges exacerbates the underlying problems that caused it to begin with. How this cycle ends, or “predicting a bottom” (a term I often hear on CNBC), is beyond me and probably this class. But as a forecaster I must risk the possibility of being wrong and predict this bottom anyway. I think we will continue to see downward trends in the economy until the third quarter of 2009. My prediction is that this turn around in jobs data and GDP will come from some sort of fiscal stimulus in the beginning of the year after President Elect Obama takes office.
When I read back through the entries for these nine weeks in the Fall of 2008 I find a clear truth that we are better off than we were back then. The trajectory we were on was a downward viscous cycle, and now we are heading up.
Jared Roy Endicott
