January 8, 2008
Oh yes there’s
Trouble, right here in River City… That starts with “T” and that
rhymes with “C” and that stands for CRAZY!!
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Yes, my friends, there’s Trouble right here in River City.
The
January 5th,
Financial Times’ headline was “Jobless rise fuels
recession fears.” That referred to January 4th’s
jobless figures that were so poor that President Bush called a
special meeting to consider a “possible fiscal stimulus package
based on tax cuts to boost the economy.” In December only 18,000
jobs were added, the lowest number since August 2003 with
Government hiring accounting for more than the entire increase.
The Unemployment Rate rose to 5%, the highest since November
2005, from 4.7% and Goldman Sachs suggested the US was “on the
edge of a recession.”
The
only positive conclusion was that these figures made a
quarter-percentage cut in interest rates by the Federal Reserve
a virtual certainty and greatly increased the likelihood that
the cut would be a half-percent despite a higher risk of
inflation from a weak dollar and higher oil prices. We, however,
do not believe that even a half-percentage cut will turn the
battleship.
The
S&P 500 index closed down 2.46% on Friday, January 4th,
while the Dow was down almost 2% (1.96%). For the first short
week in 2008 the Nasdaq was down 6.3%, the Dow Jones Industrials
fell 4.3% and the S&P 500 index 4.5%. The yield on
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the two-year
treasury was the lowest since November 2004.
We will
try to summarize some of the problems we are now facing and those
that could arise.
The
employment figures, actually the first private sector decline since
July 2003 as the above-mentioned Government hiring accounted for
more than the 18,000 increase, reinforced suspicions that we will
face or are actually now in a recession. While these figures can and
probably will be revised, the direction of unemployment is clearly
upward.
Many
Americans are already heavily in debt and are facing falling house
prices, higher interest and credit requirements in addition to
higher food, gasoline, fuel oil and other energy prices. They can no
longer use their home as an ATM machine. Add to these facts the
potential effects of higher unemployment along with 1,800,000 U.S.
mortgages being reset with higher interest rates beginning right
now.
Banks,
as a result of the turmoil in the credit markets that has been
triggered by the subprime mortgage credit crisis, are being much
more careful regarding credit standards and are reducing credit
(loans) for individuals and businesses.
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Employers
facing a slowing economy are going to be much more reluctant to
take on new workers in this scenario.
Adding these factors together one can begin to imagine the
potential ripple effect of a turndown in the economy. Housing,
the locomotive of consumer spending for the last five or so
years, will not be there to help.
And
we almost forgot Pakistan, the U. S.’ only real ally in the
Middle East aside from Israel. The politicians running for
president have forgotten Pakistan; the “mainstream” press has
forgotten Pakistan. We say that because it is no longer
mentioned in their debates or in the press.
Aside from the fact that if the country were to be taken over by
radical Muslims, they would control the country’s atomic bomb
facilities, we don’t have much to worry about.
Ever since the murder/assassination of former Prime Minister
Benazir Bhutto in Rawalpindi on December 27th there
has been no functioning government in this huge and extremely
important country. The elections that were to be held on January
8th have been postponed for six weeks. We wager they
will not be held then either. Benazir Bhutto’s 19 year old son
and Oxford student has stated on January 8th: “I fear
for my country. I fear if free and fair elections are not held,
it may disintegrate.”
Aside from the effects on the fight against terrorism, India,
China, Iraq, Iran, Russia, Afghanistan, the U.S., and many other
geopolitical aspects of total chaos in Pakistan, we still cannot
stop thinking about the Atomic Bomb in the hands of Radical
Muslims.
And
not even the world-wide Credit Crisis has gone away. Actually,
it really is not even very far into its beginning. Please see
our August 16, 2007 Commentary - “THE CHICKENS ARE COMING! THE
CHICKENS ARE COMING! “ – Home to
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roost, that is - where we described very
accurately what is happening in the markets at this time and how those
events could impact not only our but the rest of the world’s economy.
This Commentary can be seen on our Web site www.HamiltonAdvisors.com, or
we will gladly send you a copy on request.
Yes, my friends, there’s Trouble right here in River City, and Mr.
Market doesn’t like it.
A positive is that we are only in the first week of 2008 as of this
writing and a great deal can and will happen between now and the end of
the year. Let’s hope for the best….we always do.
Debbie, Brock and I extend our very best wishes to you for the New Year!
John W. Hamilton
January 8, 2008
John W. Hamilton
jwh@hamiltonadvisors.com
Deborah J. Hamilton
djh@hamiltonadvisors.com
J. Brock Hamilton
jbh@hamiltonadvisors.com
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PRIVATE WEALTH MANAGEMENT SINCE 1980 |
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No part of this publication may be
reproduced in any form, or referred to in any other publication, without
express written permission. This article contains the current opinions
of Hamilton Advisors and does not represent a recommendation of any
particular security, strategy or investment product. Such opinions are
subject to change without notice. Information contained herein has been
obtained from sources believed to be reliable, but is not guaranteed.
This article is distributed for educational purposes and should not be
considered as investment advice or an offer of any security for sale. ©
2007 Hamilton Advisors, Inc. All rights reserved. Tel: 203 629 1112.
Fax: 203 629 1469
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