Why the Second Half of 2009 Isn’t Looking Any Better

by Michael Lombardi, CFP, MBA

As we enter the July 4 weekend, here are some tidbits of financial news (and their implications) that I believe my readers will find very interesting:

— How spenders turn into savers, fast:

American consumers are so fickle; you just have to love them!

When real estate was booming in 2005, when the stock market was booming into 2007, the savings rate of American consumers was at its lowest level in decades. In fact, in 2007, the American consumer savings rate was zero. Now, in 2009, the savings rate has jumped to 6.9% — a 15-year high.

Concern about real estate, concern about the unemployment rate and the general worry about the economy has consumers socking money away. The big spend days for consumers are gone; socking it away is the new vogue. So much for the stocks of high-end and medium-market retailers.

— Even less-risky consumers are having trouble:

According to the Office of the Comptroller of Currency (first time I heard that one!), the delinquency rates on the least risky mortgages in the U.S. more than doubled in the first quarter of 2009, compared to the same period in 2008. This means that even people with mortgages considered the least risky are having problems.

President Obama’s program to help Americans keep their homes was to aid four million homeowners by modifying their loans. So far, the benefits of the program are not showing up in the numbers. With the most popular 30-year fixed mortgage close to a six-month high, housing stocks are still not the place to be.

— Home-foreclosure filings on a roll:

May was the third straight month in a row that home-foreclosure filings in the U.S. surpassed 300,000, according to RealtyTrac Inc. With six million job losses in the U.S. since 2007, how can people keep their homes? They can’t.

Let’s hope that the second half of 2009 is better than the first half. But as to analysts telling us that the recession will be over later this year, take their prediction with a grain of salt. I know I don’t believe them. For consumers, the earliest the “light will shine” will be 2010 — and by then the new problem for consumers will be higher interest rates.

Michael’s Personal Notes:

Would you buy stock in Bank of America? I wouldn’t. But that’s not what we are hearing from Rochdale Research. The research company issued a glowing report on Bank of America last week, predicting that the bank’s stock would go to $19.00 (currently at $13.15). I am not so positive on Bank of America’s acquisition of Merrill Lynch or Countrywide Financial. In fact, it could take years to integrate the acquisitions. Bank of America…not my favorite bank stock.

Happy Canada Day to all my Canadian friends today.

Where the Market Stands:

Not much has changed as June comes to a close. The Dow Jones Industrial Average keeps tinkering with turning positive for 2009, while the other major markets are in the black for the year. I remember clearly January 2000, when it took 33 ounces of gold bullion to “buy” the Dow Jones Industrial Average. Today, it takes only nine ounces of gold to do the same thing. I’ve been called crazy for predicting this; but, at some point ahead, I would not be surprised to see the prices of one ounce of gold and the Dow Jones Industrial Index at the same level.

What He Said:

“I’ve been pushing gold bullion and gold shares for over a year now. Bank in January 2002, I personally started buying gold shares.” Michael Lombardi in PROFIT CONFIDENTIAL, December 13, 2002. Gold bullion was trading under $300.00 an ounce when Michael first started recommending gold-related investments.