Hi All,
Well, 2008 is winding down. This means its time to consider how your finances might be adjusted to profit in the coming year.
The weakening economy means that naysayers have been given more credence. For example, trend forecaster Gerald Cliente is predicting tax rebellions and demonstrations for jobs by 2012 (1). This sort of pessimistic doomsday thinking is appealing for its shock value, but people serious about building wealth should ignore it.
Instead, here is a hopefully more sober analysis that might help you focus on your personal finance or investments.
1) The overall economy will remain soft in 2009. This is generally recognized. The only question is for how long. Since you probably have little choice over the timing of macro economic conditions, you might consider the following:
A) Cash equivalents: Consider high interest savings accounts like ING, or Immigrant direct. These high interest accounts pay a rate that will keep your savings on par with inflation.
B) Government backed bonds: Bond prices have increased lately, but you can buy treasuries or savings bonds easily online without worrying about price fluctuations. Right now, federal inflation bonds or I bonds will give you .7% plus the rate of inflation or about 5.5% currently.
B) Blue Chip Stocks: Companies with global reach and an enduring competitive brand like Coca-Cola or Exxon Mobil have held their share value. If you must be in the market, for the next few months please consider these ultra-blue blue chip stocks.
2) The recession will effect different sectors differently.
Predictions are inherently risky, but here are some thoughts on how certain sectors of the US economy will perform in 2009.
Sectors to avoid are:
A) Manufacturing: Despite federal support of $15 billion to Detroit, there really hasn’t been any fundamental change in the competitive position of American manufacturing. Due to a combination of high labor costs, increased regulation and technological improvements, the U.S. manufacturing sector is likely to remain in decline. In fact, the Bureau of Labor Statistics projects that America will lose another 1.5 million manufacturing jobs by 2016 (1).
B) Agriculture: The number of Americans involved in farming has consistently declined for the last hundred years. The reasons for this are high wage pressures which drive down the profitability of domestic agricultural production and strong foreign competition in countries like Thailand and China. Given the Federal government’s foolish penchant for fence building in the southwest, it seems fair to assume wage pressures will continue in this sector. End projection: loss of 1.6 million agriculture jobs by 2016 (1).
Sectors that might do well:
A) Alternative energy: While oil and gasoline prices have declined, the Obama administration and congressional Democrats seem interested in energy independence. This will mean continued political interest in tax credits for solar power, research dollars for alternative energy and a push for technologies like wind power. In this case, the economic reasons for investing are less compelling, but the current political and social zeitgeist favors this sector.
B) Technology: In contrast to the manufacturing industry, technology companies are profitable and innovative. Consider the impact of Google on websearch or Microsoft for internet browsing. Also, consumer communications technology like Research in Motion’s Blackberry@ continue to show strong sales.
So, if you want to know where to put your cash in 2009 your dollars are probably better off in high interest savings accounts, bonds or blue chip alternative energy and technology stocks, rather than industries where the fundamentals are unfavorable like manufacturing or agriculture.
Best,
James