 |
 |
|
Trust Department Quarterly Newsletter 1st Quarter 2009
What Stimulus is Next? Since the change in the oval office took place in January we have continued to see our government put forth additional stimulus aid to financial institutions, the auto industry, the construction industry, and a reduction in personal taxes through payroll checks. They were even able to allocate one to two million dollars to study how to reduce the bovine smell coming out of Ames, Iowa. Although our federal government is the only entity that has the financial ability to shore up the financial institutions’ capital needs, or the only one willing to lend funds to auto manufacturers in their desperate state, the last thing we want is a nationalized banking system or government ownership and control of the private/public ownership of American businesses. Capitalism is what has made our country, as well as many European countries, what they are today. The sooner the stimulus investments can be paid back to our government the better we, as taxpayers and investors in corporations will be. Governments do not understand how to run businesses. Think about this – we are not sure whether this is true or not, but it certainly provides food for thought. An economics professor at Texas Tech said that he had never failed a single student, but had once failed an entire class. The class (students) insisted that socialism works since no one would be poor and no one would be rich, a great equalizer. The professor then said, “Okay, we will have an experiment in this class on socialism. All grades will be averaged and everyone will receive the same grade so no one will fail and no one will receive an A.” After the first test the grades were averaged and everyone got a B. The students who had studied hard were upset while the students who had studied very little were happy. As the second test rolled around the students who had studied little studied even less and the ones who had studied hard decided that since they couldn’t make an A they also studied less. The second test average was a D. No one was happy when the third test rolled around and the average grade was an F. The scores never increased as bickering, blame, and name calling all resulted in hard feelings and no one would study for anyone else. To their great surprise all failed. The professor told them that socialism would ultimately fail. The harder people try to succeed, the greater their reward (capitalism) but when a government takes all the reward away (socialism) no one will try or work to succeed. We will all fail. The Stock Market Although the Dow Jones and S & P were down 13.3% and 11.7% respectively during the first quarter of 2009, each showed substantial recovery during the month of March. The Dow Jones Industrial Average recovered 7.7% during the month of March and the S & P recovered 8.5%. This is one of the best monthly returns for the stock market since the S & P gained 11.4% in December 1991. Consumption trends are steady to up slightly over the last two months. Sales of previously owned homes were up nationally 5.1% in the month of February. Much of this is due to first time buyers who receive a tax credit from the federal government as well as the fact that the price of houses has declined substantially. Labor markets remain a problem as the unemployment rate is now at 8.5% with 5.1 million jobs lost since this recession began. We do feel that substantial amounts that have been sitting in mutual funds and out of the stock market will drift back into the market as the year 2009 continues and that the market, after some continued bumps in the road, can recover to levels somewhat higher than it began the year. The Bond Market The Federal Reserve has continued to keep interest rates low in order to stimulate the economy. From an investment standpoint the interest rates have increased as the 10-year treasury is basically .6% higher now than it was at the beginning of the year. This is in spite of the fact that the government announced that it was going to buy some longer term securities, which reduced the interest rates during the month of March. Our outlook on the interest rate market is that, although mortgage rates and borrowing rates may remain low for the balance of this year, investment rates will increase. As the government continues to issue securities to cover its stimulus packages and as money goes out of the bond market and into the stock market the demand will outweigh the supply and interest rates will have to go up. Tax Alert The following item came across our desks and you may want to check it out with the IRS and/or your senator: Income taxes are normally due on April 15th unless the date falls on a Saturday or Sunday in which case they are due on Monday the 16th or 17th. However, it has been brought to our attention that this rule recently may have been changed. For this calendar year and for the next four years as well, tax payments will not be due until you are nominated to a cabinet position. Please check this with your tax advisor to confirm. |
||||||||||||||||||||||||
