LIMERICK PA – The leader of a local investment advisory firm is sure the nation’s ailing economy can and will be fixed, maybe by the fourth quarter of this year. Until then, though, James King warned Thursday (Jan. 8, 2009), expect an adventurous financial ride.
“We’re at a place we’ve never been before. This is a whole new world,” said King, president and chief investment officer of National Penn Investors Trust Company. He addressed members of the TriCounty Area Chamber of Commerce, dining at Lakeside Inn, during their annual Economic Forecast Breakfast.
It was the fifth consecutive year King offered an outlook to chamber members, and he conceded that – with a mortgage meltdown, liquidity crisis, bank failures and a recession – it hadn’t been a pretty period. “But as devastating as 2008 was,” he said, “I still have a great deal of confidence in the underlying health of the financial system. I’m confident we will resolve this crisis.”
As King looked into the next 12 months, he predicted:
- Higher unemployment ahead. The price of oil has fallen below 2004 levels, “an event few of us would have expected a year ago,” he said, and its cause is attributable primarily to a lack of demand. Without an upward shift in energy consumption for transportation and manufacturing, King reasons, job growth is difficult. “There’s no sense of rebound” yet, he admitted. “It doesn’t bode well.” As if to reinforce King’s words, a Labor Department report released today (Friday, Jan. 9, 2009) indicated the nation’s unemployment rate in December 2008 rose to its highest level in 16 years.
- More ups and downs. Despite what he eventually sees as a better long-term fiscal outcome, King cautioned the short-term may be as bumpy as before. “The markets are going to continue to be very volatile” for a while, he said. “I won’t be surprised” if Wall Street has more 500-, 600- or “even 700-point down days.” His advice? “Be very cautious about the stocks of companies you buy;” investors should stick with blue chips in their portfolios, King noted.
- Continued low interest rates. The cost of car loans, mortgages, and other financing should remain at near historic lows for many months, King believes, because the ability to borrow money cheaply will stimulate investment. “There’s light at the end of the tunnel, but we’re still in the tunnel,” he said, which motivates the Federal Reserve to keep rates down.
A brighter 4Q2009. Economic growth should resume by the fourth quarter of 2009, King thinks, and he suggested the stock and bond markets think so too. As evidence, he cited slow improvement in equity prices during the past six weeks. “Remember, the markets move first in anticipation of a recovery,” he noted.