Weekly Update

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					20/20 Financial Advisers of Sacramento, L.L.C.
Leonard R. Simpson, RFC®, AIF® Presents
Monthly Economic Update for December, 2008

These views are those of Peter Montoya Inc., and not the     topping the 0.1% gain economists has forecast; real
presenting Representative or the Representative’s
Broker/Dealer, and should not be construed as investment
                                                             income grew by 1%.7 In the third full week of
advice.                                                      November, jobless claims decreased by 14,000 from
                                                             the second week.7
Quote of the month. “We are continually faced
with a series of great opportunities brilliantly disguised   In Washington, the Federal Reserve unveiled a new
as insoluble problems.”– John W. Gardner                     strategy to stimulate lending: the Term Asset-Backed
                                                             Securities Loan Facility (TALF). Not TARP – TALF.
The month in brief. The month was less                       TARP had been created to buy bad debts, but it spent
momentous than October, but still offered plenty of          the first $290 billion of its assigned $700 billion to
news. We elected a new President; some investors             buy bank stocks and help AIG.8 Following up on
welcomed the change, while others were deeply                Treasury Secretary Henry Paulson’s thoughts that the
troubled by it. The Federal Reserve augmented the            second stage of TARP should focus on consumer
Troubled Asset Relief Program (TARP) with the Term           credit, the Fed created TALF to try to do much of what
Asset-Backed Securities Loan Facility (TALF).                the Treasury first sought to do. TALF will buy up to
Domestic automakers came to Washington, D.C. to              $600 billion in mortgage-linked securities and debts
ask for federal aid. The stock and commodities               from Fannie Mae, Freddie Mac and Ginnie Mae, and
markets had another rough month … but stocks pulled          use up to $200 billion to buy asset-backed securities
off an amazing rally across the last five trading            to help get credit to consumers.9 Market watchers
sessions of November. At the national level, there           wondered if the Fed would cut interest rates to all-
were no signs of a real estate recovery. At the malls,       time lows, maybe even 0% – but the Fed left rates
consumers spent more than economists anticipated on          alone in November. The National Retail Federation
Black Friday.                                                said that Black Friday 2008 saw U.S. consumers
                                                             spending $41 billion, an 18% increase over 2007; the
                                                             average shopper spent more than 7.2% than he or she
Domestic economic health. Nearly all signs
                                                             did a year ago.10 The Detroit Three, on the other hand,
pointed to recession, as nearly all October indicators
                                                             came to the nation’s capital seeking $25 billion or
were subpar. Unemployment had hit 6.5% in October,
                                                             more in bridge loans – sales of domestic autos fell
the highest level since 1994 and up from 6.1% in
                                                             31.9% in October.11
September.1 The Institute for Supply Management’s
October service-sector index read 44.4, and its
October manufacturing index came in at 39.0; both            President-elect Barack Obama announced New York
numbers meant contraction. In fact, the                      Fed president Timothy Geithner as the next Treasury
manufacturing sector had contracted at the fastest           Secretary.12 Larry Summers, Treasury Secretary from
pace since 1982 in October.1,2 Jobless claims pushed a       1999-2001, was appointed as director of the National
25-year high the week of Nov. 15.3 Retail sales fell a       Economic Council – and some think he could become
troubling 2.8% in October, a record month-over-              the next Fed chairman when Ben Bernanke’s term
month dip.4 Consumer spending fell 1.0% in October           ends in early 2010.13
and durable goods orders dropped 6.2%.5
                                                             Global economic health. Why did the United
But all was not gloomy. The Conference Board’s               Nations call for “massive economic stimulus packages”
November survey of consumer confidence went up to            worldwide on December 1? Economies around the
44.9, recovering from a post-1974 trough of 38.8.6           world were slowing. The UN’s Report on World
(Maybe falling gas prices had something to do with           Economic Situation and Prospects 2009 predicted the
that.) Personal incomes went up 0.3% in October,             U.S. economy shrinking by 1% in 2009, and the
economies of the Eurozone and Japan respectively            cocoa gained 12.29% and pork bellies 7.39%. The U.S.
contracting by 0.7% and 0.3% next year. Growth for          Dollar Index was up roughly 1.0% for the month as the
India, Brazil and Mexico was respectively projected at      last trading day of November drew to a close.20
7%, 2.9%, and 0.7% for 2009.14
                                                            Housing & interest rates. After an August
The European Commission rolled out a stimulus               gain, the National Association of Realtors’ pending
package in late November: €200 billion that Eurozone        home sales index sank 4.6% for September.21 October
member nations could use as they desired, plus a            housing starts fell 4.5%, and building permits fell
number of suggestions for tax cuts.15 The Eurozone          during the month by 12%.22 As for new and existing
unemployment rate hit 7.7% in October – the highest         home sales, the National Association of Realtors had
in almost two years. The Eurozone annual inflation          residential resales down 3.1% for October with the
rate – a prime concern only months ago – dropped            median resale price 11.3% underneath one year ago.23
1.1% last month to 2.1%.16                                  New home sales were down 5.3% in October, but the
                                                            Commerce Department also said that the inventory of
Signs of a manufacturing slowdown were evident:             unsold new homes shrank by 8.0%.24
Great Britain’s PMI fell to a record low in November,
as did PMI for the Eurozone. In China, November             The announcement of the Fed’s TALF plan helped to
brought the sharpest contraction in manufacturing           bring mortgage rates down a bit lower at month’s end.
activity on record.17                                       Freddie Mac’s November 26 survey had rates on 30-
                                                            year FRMs averaging 5.97%, averages on 15-year
Japan’s industrial output fell by 3.1% in October, as       FRMs at 5.74%, averages on 5-year ARMs at 5.86%,
consumer spending diminished by 3.8%. Its Trade             and average rates on 1-year ARMs at 5.18%.25 As
Ministry forecast an appalling 12% contraction in           December began, rates on 30-year and 15-year FRMs
business output between September and December.             were about .2% lower than the late-November
South Korea’s industrial output contracted by 2.3% in       numbers above.26
October, and India revealed economic growth of 7.6%
in the third quarter compared to 7.9% in 2Q 2008.           Major indexes. Things looked pretty bleak there
China’s State Information Centre reduced its growth         for a while: on November 19, the S&P 500 touched an
forecast for 4Q 2008 to 8% from 9%.16                       11-year low, and the Dow Jones Industrial Average
                                                            flirted with a 5-year low.27 But then reports that New
World financial markets. November shaped                    York Fed president Timothy Geithner would be named
up to be a poor month for stocks worldwide, as              Treasury Secretary started a rally, and momentum
indexes flirted with lows not seen since the last bear      built – the last five trading sessions of November were
market. But overseas indexes rallied at month’s end         all winning days for the Dow, and in fact, they
along with their U.S. counterparts to make the              represented the best five days for the Dow and S&P
month’s losses a bit better. Some numbers: the MSCI         500 since 1933; the Dow rose more than 17% in that
World Index fell 7.3% in November, and the Dow              stretch, and the S&P shot up by more than 19%.20
Jones Stoxx 600 lost 7.1%.18 In Europe, the FTSE 100,
DAX and CAC 40 respectively lost 2.4%, 6.4% and                      % Change           1-Month            Y-T-D
6.8% for the month. The Shanghai Composite Index
gained 8.2% last month, as investors were wowed by                     DJIA                -5.20           -33.36
the stimulus package offered by the government. 19                  NASDAQ                -10.77           -42.10
                                                                     S&P 500               -7.48           -38.96
Commodities markets. Most commodities
lost ground last month. Even gold did: gold futures fell                      Source: CNBC.com, 11/28/08 20
2.60% in November. Silver lost 31.74% and platinum          Indices are unmanaged, do not incur fees or expenses, and cannot
lost 42.16%. Oil futures sank 20.52% for the month;          be invested into directly. These returns do not include dividends.
with oil prices so low, retail gas prices went below $2 a
gallon in many parts of the country for regular             December outlook. December is normally a
unleaded. Natural gas futures were down 7.95% for           good month for stocks. We may see a Fed rate cut this
November. Corn lost 23.27%, wheat 38.70% and                month as well. The month hasn’t started well – the
soybeans 27.28%. Sugar, however, gained 10.35%,             National Bureau of Economic Research confirmed
that a recession started in America in December 2007,                            November new and existing home sales (12/23),
and the stock market also responded negatively to a                              November durable goods orders and consumer
26-year low for the Institute for Supply Management’s                            spending (12/24), and the Conference Board’s
manufacturing index.28 The news that we have                                     December survey of consumer confidence (12/30).
“officially” been in a recession for a year might
backhandedly offer a glimmer of hope (after all, only                            Riddle of the month. Here’s a food riddle.
two post-WWII recessions have lasted longer than 12                              Someone strips away the outside of this food, leaving
months), and it could prompt more than one kind of                               you free to boil, cook or grill the inside. (So what was
economic stimulus measure (in addition to the                                    the “inside” is now an uncovered outside.) You eat the
package President-elect Obama wants to sign into law                             new outside, and throw away the inside of that. What
as soon as he takes office). The Fed and the Treasury                            kind of food are you eating?
are considering even further rescue programs –
Secretary Paulson stated that TARP funds could                                   (Contact my office or see next month’s Update for the
optionally be used for foreclosure relief, and Chairman                          answer.)
Bernanke indicated on December 1 that the Fed might
buy Treasuries and use quantitative easing to improve                            Last month’s riddle. While most English words can be
liquidity if interest rates fall to zero. (Analysts widely                       pluralized by adding the letter S on the end, there is one
expect the Fed to halve the benchmark interest rate to                           word that can be pluralized just by the addition of the letter
0.5% at its December policy meeting.)29, 30                                      C. What is it? Here are three hints: 1) the singular word is
                                                                                 short; 2) the “C” is not the last letter of the word when it is
Now a rundown of the important economic releases                                 pluralized; 3) sometimes, the plural version of the word is
across the rest of December: November auto sales                                 mistakenly used to refer to one of these objects, when it
(12/2), the November ISM services index (12/3),                                  should refer to more than one.
October factory orders (12/4), November
unemployment and wages (12/5), October pending                                   Answer: The word is “dice.” The singular form is “die”,
home sales (12/9), November retail sales, PPI and core                           i.e., to cast a die or to throw a single die. Sometimes people
PPI and preliminary December consumer sentiment                                  talk about “tossing a dice” rather than “tossing dice.”
(12/12), November industrial production (12/15), the
December FOMC policy statement, October housing
starts, and November CPI and core CPI (12/16),

Leonard R. Simpson, RFC, AIF is Managing Partner with 20/20 Financial Advisers of Sacramento,
L.L.C. and may be reached at 916-989-3295, lsimpson@2020fa.com or www.2020fa.com

Securities and investment advisory services offered through Ameritas Investment Corp. (“AIC”). Member FINRA/SIPC.AIC and 20/20 Financial Advisers of
Sacramento, L.L.C. are not affiliated.

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