Show #460 Airing Sunday, 12/28/08
It’s almost time to say “should auld acquaintance be forgot…” –and there is a lot we’d like to forget about the financial year of 2008! But before we say goodbye to oh-eight, Financial Advisor Jim Lineweaver is here to share the highs, lows and woes of the past twelve months.
Question: Jim, can you start with any good news about 2008?
Answer: On a good note, Congress has increased the Federal Deposit Insurance Corporation limits on bank deposits from $100,000 to $250,000. This temporary limit is in place until 12/31/2009.
While it is good this limit increased, what is bad is what brought it about; a concern in the marketplace of bank failures.
By early fall people were scrambling to make sure their savings were FDIC insured.
Question: Let's turn to the stock market. We know things are rocky, but put it in perspective for us.
Answer: On October 9, 2007 the stock market stood at its highest level ever.
By the end of 2007, the market, as measured by the most commonly quoted index, the Dow, had dropped by 6%, and we thought that was bad news!
One year and one day after its 2007 peak, the Dow had dropped a total of 5587 points or 39%, putting the market clearly in bear market territory.
Question: And money markets aren't doing well either, are they?
Answer: We saw money market funds “break the buck” meaning their net asset values dropped below one dollar, something that by design isn’t supposed to happen.
Money market funds are supposed to be as safe as savings accounts.
To restore confidence, the Treasury offered temporary guarantees on money market funds.
For savers, the yields on money market funds dropped for the year, starting off in the 4% range and sitting now around 1% according to Bankrate.com.
Question: Where do we stand wiht interest rates?
Answer: For 2008 the Fed has cut interest rates 6 times to their current level of 1.0%.
As the Fed cut interest rates to keep the economy from stalling, CD rates dropped, with 12 month CDs dropping from around 5% to current rates in the 3.5% range.
Savers did not fare well in 2007, because while rates dropped, the rate of inflation increased.
The change in the Consumer Price Index for 2007 was 4.1%, and by the end of September the CPI had increased to 4.9%.
Question: You mentioned increaser inflation. That actually hurts people living on fixed Social Security benefits, right?
Answer: Yes, but the good news with the increase in inflation is that the Cost of Living Adjustment (COLA) for Social Security benefits had its largest increase since 1982, an increase of 5.8%
Question: And SOcial Security leads us to retirement planning.
Answer: According to AARP over the past year, 20% of American workers have stopped funding their retirement accounts. There were concerns that Americans weren’t saving enough for retirement, and that was before this news.
Question: And while gas prices have gone down recently, this was the year of the $4.00 per gallon gas price.
Answer: Oil started the year at $90/barrel, went as high as $140/barrel, and settled back down to around $85/barrel. Along with that up and down movement went the price of gas. National averages for the price of gasoline went from $3.10/gallon to $4.10/gallon then back to $2.50/gallon. Isn’t it surprising that when we see gas at $2.50/gallon we think it is cheap!
Question: Let's wrap up with a quick look at the headlines we'll remember from 2008.
Answer: Significant news for 2008…
- Fannie Mae and Freddie Mac receive $200 billion in Treasury funding to prop them up
- Bear Sterns, gone; Lehman Brothers, gone
- Merrill Lynch takes hat in hand and ask for marriage to rival Bank Of America
- AIG gets $85 billion in assistance from the Treasury
- Wachovia Turns to Citigroup, but is taken over by Wells Fargo
- Treasury buys $250 billion in stock in the nation’s largest banks
The steps the Treasury has taken push the Federal deficit even higher; cost to taxpayers in the future, unknown. This is a year they will be reading about in the history books for years to come.
Question: Dare I ask what you see for 2009?
Answer: For 2009, we should see greater impact on the credit markets from the $700 billion bank bailout. We can look forward to another round of economic stimulus proposals and packages from the outgoing administration as well as the new administration.
Wow! What a year! We sure didn’t predict this in November of 2007! If your new year’s resolution is to be better prepared for the unpredictable financial market in 2009, give the Lineweaver Financial Group a call. The number is next. My thanks to Jim Lineweaver.
