The holiday season can be stressful, or it can be rewarding and joyful. Remember to celebrate the simplicity of friends, family and home.
Over the past 18 to 24 months everyone has learned more than they cared to about mortgages, subprime, regulation and globalization. This has also provided an opportunity to reassess our priorities.
People generally ignore risk when they are making money in the short term, for instance six months to a year. Information is available so quickly that people make shorter-term decisions and may be chasing the latest yield which can lead to irrational behavior. Ask yourself when allocating your money if you are investing or trading, the investment equivalent of “twittering.”
Extend and pretend
We don’t know how the restructuring of loans — without having to increase collateral in cases where collateral value has decreased — will help us through the real estate bubble. Residential and consumer delinquencies are starting to slow, which is good news.
On the other hand, there has been an increase in the number of delinquencies and defaults for commercial mortgages. The work out phase will take time.
Dead cat bounce?
So why did the market come back 50-60 percent after hitting the lows last March? We went from meltdown mentality to “hey, we’re out of the woods!” in virtually no time.
The speed of information played a role in this recovery just as it impacted the decline. Markets react very, very quickly. But we are just getting back to pre-Lehman days.
Dash for trash
Here’s something to ponder; in many cases, the more money a bank lost the better its stock did and the higher-quality banks that were profitable and paying dividends underperformed.
Well, I’m pleased to see that the rules of finance didn’t actually change and we’re beginning to see higher-quality names start to perform.
At a recent industrial management company conference one company reported that every one of its employees had taken an involuntary week off during each quarter of 2009; that’s four weeks!
Companies have been cutting costs and will only add to their labor force when demand comes back. Jobs influence consumer spending. Nearly eight million jobs have been lost in this country since the downturn began. We are seeing a “less bad” trend and manufacturing activity has started to recover which leads to additional hiring. We may bounce along the bottom for awhile.
Now there’s a new concept! In speaking with local small business owners it’s apparent that the odds of success are greatly increased by thoughtful management of both human and tangible resources.
Yes, there are many challenges and much uncertainty like the possibility of higher taxes, and perhaps some healthcare mandates, but the opportunity for success remains.
Consumers have been hit hard over the last few years but many corporations are in as good of financial shape as they’ve ever been. There’s a lot of cash on the sidelines and idle cash doesn’t produce revenue. One use for that extra cash on the corporate balance sheets is to look at merger and acquisition activity; businesses are consolidating.
Survival of the fittest …
In 2005-2007 there were about 40 dividend decreases per year and about the same number of companies didn’t pay their dividends.
In the last 12 months, 586 companies have lowered their dividends and 370 have omitted them. We’re seeing positive moves by some companies who are sitting on piles of cash who may be willing to raise their dividend rates when they can refinance their own debt. An example of this is the repayment of federal Troubled Asset Relief Program (TARP) money by some big banks.
Ingenuity and compassion
Here’s a bit of trivia to share at this year’s New Year’s Eve party; when Charles Dickens “The Christmas Carol” was published on Dec. 19, 1843, it was his own financial situation that provided the inspiration for the story. Dickens wrote the book in only six weeks with hopes of generating income to offset his own economic crisis. Although his wife was once again pregnant he refused a lump sum payment from his publisher and instead self-published the book at his own expense.
“The Christmas Carol” was priced at 5 shillings and sold 6,000 copies on that first Christmas Eve.
Scrooge, Bob Cratchit and Tiny Tim remind us to take stock of our own financial and spiritual lives. Riches are measured in many ways. Spending time and spending love, while reserving your money for investment instead of consumption, is the best way to help your personal economy — and America’s. Have a safe, happy and prosperous New Year!
This article provided by Darcie Guerin, Financial Advisor & Branch Manager of Raymond James & Associates, Inc. 606 Bald Eagle Dr. Suite 401, Marco Island 34145. Gulfshore Life Magazine named Darcie as one of the Best Personal Wealth Managers in The Southwest Florida Area for 2009. She may be reached at (239)389-1041, email Darcie.Guerin@RaymondJames.com or visit Web siteRaymondJames.com/Darcie.