So……What Now?

It seems that everything is currently in a holding pattern as far as the market and the economy are going. The air breaks have been slammed and the free-fall is screeching to a halt. The question is, “When and will it reverse course? Let’s take a look at some of the big issues going on currently.

The answer is yes, no, soon and not for years, depending on what you are talking about. Let’s take the hottest topic that is currently being thrust into the news: Unemployment. Yes, it will reverse course and it will soon. However, the rate has a little further to go before we see it come back down. Bam Bam stated that if Congress put his stimulus plan through back in January that the unemployment rate would not increase beyond the then 8% rate. Oops! We are currently at 9.5% despite the approval of the stimulus plan. Most experts are calling for the rate to reach 10% or the popularly vague estimate of “double digits”. I’m calling for 11.5% is where it shall peak by the end of 2009. Despite new jobless claims that have been recently reported, many folks are taking temporary, part-time and contract jobs. To me, these jobs are short-lived and mask the true seriousness of the unemployment situation. When the market comes back, it will take time for companies to shore up their finances, before they start expanding again and adding jobs.

Next up is the housing market. Yes, housing prices overall will come back up, but they are likely to hang at these low levels for a long time (3-5 years), before you see any significant increase in home prices. This is good for folks that are starting their working careers and are looking to purchase a home. The lagging prices will present excellent buying opportunities, but on the flip side, more money down is required and credit isn’t as plentiful as it was back in 2006. It’s tough for folks who are retiring now, because the baby-boomers on average have about 60% of their net worth tied up as equity in their home. The dreams of retiring, selling their home and moving to a tropical location may not happen or will have to be put on hold. These folks got it from multiple sides, with their 401(k) getting spanked as well as the equity in their home shrinking at an alarming rate. Hopefully, they were diligent over the years to build up a healthy savings to access while their investments recover, rather than having to liquidate or move their investments around thereby taking either a realized loss or a paper loss.

Last up is the stock market. Yes, it will reverse course, but not as soon as you would like. The market will remain pretty flat for the rest of 2009. We should see a small recovery, but the market will be deflated for next few years before a significant and sustained rally occurs. Americans have changed the way they handle money. More folks are saving, which means less money is being put in the market, which should keep prices low. This offers a wonderful opportunity for anyone willing to continue to invest. The market should recover a little ahead of the housing market, but for now, we’ll have to wallow in this for a bit. But, remember to take advantage and keep buying, but also do your home work.