A discussion of the financial concerns caused by the economic downturn

1. Financial Concerns
i il
in challenging times
Mark J. Deschaine
President & Chief Investment Officer
Deschaine Company, L.L.C.
D h &C
A Registered Investment Advisor
Belleville, Illinois
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2. Is not to scare you
It’s
It’ not to confuse you
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And it’s certainly not to sell
you anything
It’s to Inform you
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Our Objective today
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3. Today, all investors
are faced with three
important questions:
How d I get the Right Information
do h ih f i
On the Right Topics
g p
In time to make the Right decisions
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4. Failure of major financial institutions
Government “Bailouts”
Economic “Stimulus” Plans
Stock market losses
Rapidly declining home values
Historically LOW interest rates
Ever present threat of Terrorism
h f
Social Security Funding
Economic Concerns
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5. All threaten our
Economic Security
Economic Security
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6. In the Great Depression
real GDP declined 4 years in a row
y
for a total of 27%
1930 1931 1932 1933 1934
-8.6% -6.4% -13.0% -1.3% +10.8%
Another Great Depression?
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7. In the current downturn real GDP is
expected to fall for 4 q
p quarters
For a total of 3-5%
2008 Q3 2008 Q4 2009 Q1 2009 Q2 2009 Q3
-0.5% -3.8% -4.9% -1.5% +0.8%
Another Great Depression?
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8. Longest Since the Great Depression
Post-War Recessions Months
Average: 10 Previous Post-War Recessions 10 mos.
Longest (1973-75 & 1981-82 16 mos.
Current Recession (Since December 2007) 14 mos.
Current Forecast (12/07-12-09) 24 mos.
The Great Depression (1929-1933 42 mos.
Another Great Depression?
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9. Consumer confidence sinks
Conference Board’s measure sinks
amid di
id dismal j b market
l job kt
and credit crunch.
NEW YORK, (CNNMoney.com) A k measure of
YORK (CNNM ) key f
consumer confidence fell to an all-time low in
December 2008, amid a dismal job market and
uncertain outlook for the new year.
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The Conference Board, a New York based business
research group, said that its Consumer
Confidence Index fell to 38 in December form
the a revised 44.7 in November 2008
h id iN b
Some Reason for Concern
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10. Auto Sales worst in 26 years
NEW YORK, (CNNMoney.com) Auto
,( y )
sales tumbled 38% in January,
plunging even more than expected
to their worst levels since 1982
during the depths of the last major
recession.
Sales declined for all major
automakers for the first time ever.
Some Reason for Concern
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11. Worst January ever for Dow S&P 500
Dow,
NEW YORK, (CNNMoney.com)
The Dow Jones Industrial
average and the Standard &
Poor s
Poor’s 500 finished their worst
January ever, as investors eyed
abysmal reports on economic
growth and quarterly corporate
earnings outlook.
Some Reason for Concern
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12. Are banks safe?
The FDIC is watching 171
banks
b k out of about 8,500
t f b t 8 500
in the U.S.
Bottom line: the vast majority of
banks are in good financial shape,
and when banks do fail, customers
fail
rarely lose money because of
deposit insurance.
Some Reason for Concern
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13. Worst year of jobs since 1945
NEW YORK, (CNNMoney.com)
The hemorrhaging of American
jobs accelerated at a record pace
at the end of 2008
2008.
Total job losses for the year was
2.6 million, the highest in more
than 6 decades.
Some Reason for Concern
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14. Home prices continue to plunge
NEW YORK, (CNNMoney.com) Home prices continued to
tumble in the fi l
t bl i th final months of 2008, d
th f 2008 dropping at a record
i t d
rate of 16.9% in December.
The silver lining? Home
prices are at their lowest
levels since 2004. Will that
be enough to stop prices
from falling further.
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Some Reason for Concern
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15. Six obstacles to rescuing the economy:
OBSTACLE #1:
America’s accumulated debt
now totals $294 trillion.
That s
That’s 300 times larger than the
combined government rescues to date.
Economic Obstacles
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16. OBSTACLE # TWO:
Massive wealth destruction
is already underway
An estimated $10 trillion in U.S. household
wealth has been lost in the last two years.
Economic Obstacles
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17. Obstacle # Three:
Plunging incomes
Unemployment, declining investment income,
home values etc, are all lowering the average
, g g
household’s ability to weather the storm.
Spending will drop considerably over the next
few years, leading to a slow recovery
Economic Obstacles
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18. Obstacle # Four:
Wealth destruction is fast;
;
government rescues are slow
The rescue plan is the wrong prescription,
which rescues the wrong people,
for the wrong reasons
reasons.
Economic Obstacles
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19. Obstacle # Five:
Sinking Confidence
Yes, the government can buy bad debts,
preferred stocks and even a little time.
But it can’t buy confidence
That’s why the trends are still down
y
as selling continues (at any price)
to cover debts—slowing any recovery.
Economic Obstacles
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20. Obstacle # Six:
Financing the Rescues
Yes, the government can borrow
(at least for now) all it needs to finance its folly.
But it can’t do it without eventually driving
inflation and interests higher, undermining
higher
the very recovery its trying to ignite.
Economic Obstacles
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21. The question is, How do we protect our
assets from:
Declining prices
Declining real estate values
D li i l tt l
A long economic recession
Rising tax environment
Rising prices long-term
Specific Concerns
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22. How do we protect our income from:
Record low interest rates
Dividend cuts
An increase in taxes
Inflation
The unknown
Specific Concerns
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23. What h ld
Wh t should we d ?
do?
And when should we do it?
The two big questions are:
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24. We’re in a Long-Term Bear Market
◦ Long term bear markets do not end until price/earnings
Long-term
ratios reach single digits
◦ Th current p/e ratio on the S&P 500 i about 13.5x
The t/ ti th is b t 13 5
Still 50% “Overvalued” by historical standards
◦ Protecting principal as P/E ratios erode to single digits is
critical to equity portfolio results
The Stock Market Outlook
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25. The Stock Market Outlook
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26. In B ll M k
I Bull Markets
Returns come from Capital Appreciation
Like 1982 to 2000
The Stock Market Outlook
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27. In B
I Bear Markets
Mk
Returns come from Dividend Income
Like 1966 to 1982
The Stock Market Outlook
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28. The Current Bear Market
Returns come from Dividend Income
Like 2000 to 2008
The Stock Market Outlook
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29. Record Low Interest Rates
Pose a challenge to
earning income
Interest Rates Outlook
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30. The great debt unwinding continues
The
Th recession deepens
i d
More corporate bankruptcies
Growing unemployment
Declining real estate prices
Declining stock p
g prices
Declining bond prices
Economic Recovery Outlook
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31. The economic stimulus package will
not “stimulate” the economy
The recession is likely to last longer than
is generally expected
Additional major corporate bankruptcies
Unemployment will reach d bl di it
U l t ill h double digits
before year end
Economic Recovery Outlook
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32. A glut of Residential Real Estate and
tight credit means:
There is more downside pressure
on real estate prices
Home prices are not likely to reach
recent high prices for years
Economic Recovery Outlook
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33. If you are waiting to sell Residential
Real Estate or downsize:
Keep in mind:
Home prices are not likely to reach
recent high prices for years
Economic Recovery Outlook
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34. Record low interest rates puts all
long-term bonds at risk:
g
Raising interest rates means lower prices
Rating down grades, possible
bankruptcies and defaults add additional
downside risk t all bonds
d id i k to ll b d
Bond “Funds” are at particular risk
Economic Recovery Outlook
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35. Some suggestions to help
p
protect y
your assets
Build the biggest nest egg of cash you can
Sell all long term bonds and bond “Funds”
Consider an inverse interest rate ETF
Consider a Gold ETF
Protecting Your Assets
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36. Some additional suggestions
to help p
p protect y
your assets
Don’t chase “high yields”
Be particularly weary of scams and “get
rich quick” schemes
Hold cash in the event of a bank “holiday”
Protecting Your Assets
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37. Gathering information takes time
Interpreting information takes experience
p g p
Do you have the time and the
o a et et ea dt e
resources to do all this?
Getting Information You Need
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38. We gather financial and economic
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information constantly
We filter and sort it into usable formats
We would be happy to pass on data that’s
relevant to you
We’ll t t
W ’ll try to answer your questions . . .
ti
When You Need it
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39. Complete th economic concern checklist and the
C l t the i h kli t d th
contact information card.
When we encounter news or information of value to
you, we’ll sent it to you by email.
You can email us with questions anytime and we will
q y
do everything we can to provide useful answers.
If something develops quickly, if you like, we’ll happy
be to give you a call and will leave you a voice
message with the information.
What to do next
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40. Your information will never be provided to
any outside third party—ever.
You are under no obligation to retain our
services—ever.
i
Confidentiality
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41. We feel an obligation to help
as many people as we can
can,
survive the most difficult
economic and investment
i di t t
environment of our lifetime.
Why Help?
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42. Mark J. Deschaine
President
Deschaine & Company, L L C
L.L.C.
128 South Fairway Drive
Belleville, IL 62223
618-397-1002
618 397 1002
mdeschaine@charter.net
Your questions?
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