The SIPA

2009 Brought Change and more of the same

Part I of a 2 part series focusing on the New Year

Happy New year from all of us at the Securities Industry Professional Association and thank you to the nearly 43, 000 subscribers to our newsletter and our membership that has now surpassed the 1000 mark! Your comments, feedback and criticisms are appreciated and will be heeded in the coming year as best as possible. However for all of you English scholars out there, I have no intention of changing our down to earth writing style and I could care less about ‘dangling participles” or using subjective this or that! Get over it already and let’s focus on the real issues at hand shall we?

The Economy:

The new Obama administration promised change and change was delivered all right. Trillions of dollars were borrowed from China in an effort to get the economy and more important the jobs created. One year later and the administration is learning the hard way what all of us in the Brokerage world already know: The Government does not create lasting jobs, the private sector does. Layoffs continue to bog down the economy and there is little end in sight for the real estate collapse. While Obama did inherit a mess, his actions have only served to point our country toward the abyss. Already heavy in debt, quadrupling it with little or no job creation could be the perfect storm and despite the numbers being spewed by the administration there is little evidence of job creation or home sales taking off. Just yesterday a 16% drop in November home sales was reported. 2010 could prove to be the tipping point between a real recovery or slipping into a depression…that’s right folks, I used the “D” word and its about time we realize that there are some real fundamental problems. I will put this in the simplest of forms for even President Obama to understand.

If you have no job and a credit card with a $15,000 line of credit it is feasible to use the card for 2 or 3 months while waiting to become employed again with the theory being that you will pay off the debt with the earnings from your new job. However, if after 4 months your credit card has a balance maxed out at $15k and you still do not have a job, you have gone from BAD to WORSE. You will not only be left with a huge amount of debt….but you still have no job to pay off the debt. 2009 saw HUGE government spending but also all time highs in layoffs which means the government will have no tax revenues to dip into to pay off these credit card type loans they took from China. This brings us to our other main story of 2009 which is…

Wall Street Bull Returns?:

2009 seemed like a banner year for stocks and analysts and bobble heads on TV claimed the recession was over. Really? Once again in its simplest form I will ask what the price of Google or Goldman Sachs year over year has to do with Americans being laid off.? While an argument for a correlation can be made, I would remind readers that when GDP grows by 4% over a year you do not hear analysts proclaim “we are in a recession because the Dow lost 15% this year”.

In reality, 2009 was the year of lowered expectations that became better then expected. I remember once in high school bringing home a report card and giving it to my parents who were overjoyed because I passed every single subject with at least a ‘D” but nothing was higher then a ‘B”….they were convinced I was going to fail at least one subject and they would be forced to drive me to summer school and that was a major inconvenience for them..While my mom and dad were happy that they didn’t have to car pool, the bottom line is that a C average is not exactly something to jump for joy about. That’s exactly what the market did this year in my opinion.

Analysts in late 2008 downgraded every financial stock and just about every sector and lowered earnings and revenue forecasts. Certainly many companies had rebounds but the euphoria surrounding companies that were forecast to lose 3 billion but only lost ‘one billion’ was not unlike the internet bubble. A loss is a loss no matter how you slice it. Each week the administration released numbers, revised them, threw them into a blender and revised them again and Wall Street reacted favorably and continued to proclaim the recession was over. In hind sight it was a good strategy of misinformation from both Wall Street and Obama’s Administration because the higher the market went up, the larger the Capital taxes the IRS can claim in order to offset the loss of 15 million Americans out of work. Sadly though as we see in the latest home sale numbers its nothing more then a house of cards and 2010 could see a tumble much like 2008 and 2009. This brings us to our last big ticket item of 2009 that bares watching in 2010.

President Obama:

This was the feel good story of 2009…at least if you voted for him or were intrigued by the first ‘African Hawaiian Kenyan by way of Chicago politics President’. Birther debate not withstanding, the President promised many changes and he sure has delivered on the change front. Health care will be a 2010 issue that will do two things: create the largest bureaucracy the USA has ever seen and will cost more then the last three stimulus packages combined. Will it work? Of course not and I’m not saying that because I don’t want it to work. I would love nothing more then to have my family’s health care needs met for a mere $250 per month. However, based on our Governments past history it’s almost impossible to find a Government program that isn’t upside down or a complete bureaucratic clog.

Social Security is one year away from being upside down, yet we are now going to take on Health care? Last summer a mere 8 billion program to turn in ‘clunkers” turned into a gigantic mess that is still locked down in paperwork and dealers still have not received their government matching funds that they put out. If the Government can’t handle giving ‘Don Reed Ford” $4000 for a 1988 explorer, do you really think the government will be able to fork over $80k in chemotherapy treatment money in timely fashion? Of course not and anyone who suggests otherwise should talk to any Doctor out there who has to deal with the existing Medicare system. Health care is Waterloo as some in the Senate proclaimed it last summer but the more important thing to remember is that while France and England, the two largest powers on earth at the time were fighting each other and having their ‘Waterloo moment”….a small upstart county called the United States of America quietly replaced them both as the worlds premier economic and military power. I’m not sure what is going to happen in our current Health Care ‘Waterloo” showdown but just in case…I’m going to start learning how to speak Mandarin.

Part II will focus completely on the changing regulations and their effect on our industry

Best Regards

John Busacca

Founder

The Securities Industry Professional Association