January 5, 2009…….Comments by Tom Robinson, President

I, for one, am glad that the 2008 stock market is over, that it went out with a bang, and that the new year began on a positive note. In 2008, the Dow’s decline matched the fall in 1930, the S&P 1937, and the Nasdaq’s was the worst on record. Thus, the good news last week that all three indexes were up over 6% was a big positive indeed. Even Europe, after an absolutely horrible 2008, advanced almost 6%. The Asian markets were up but only about half that of Europe. The ten-year Treasury sold off sharply on the week. Oil prices rose.


There are two very important economic perspectives right now. One is that the US and the rest of the global economy are in recession, one that is deep even if its duration is unknown. I am not going to dwell on the data to support this. The facts are well known. The second is that governments virtually everywhere are fighting with almost every weapon in their arsenals to stop the recession and the potential deflation that is such a widespread fear. No one can know the outcome of this struggle at this point, but it increasingly seems that the most likely outcome will be a moderation of the economic slide at a minimum and possibly even some return to growth. Perhaps that is what has given the stock markets new life? Perhaps that is why the long Treasury is seeing a back up in yield?


Forecasting for the new year is a fool’s game. However, let’s assume that the world hasn’t completely changed and that all the government stimulus already announced and that will be announced soon around the world jump-starts the global economy. Where are the potential opportunities?


•The Asian markets in general did very poorly over 2008 as concerns over recession deepened nowhere more so than in China. The Asian region is highly focused on export markets and hence would likely benefit most from even a modest recovery, helping more markets.


•An economic recovery of even modest dimensions would almost certainly begin to reduce the “safe-haven trade” into US Treasuries. A rise in yields could be expected in that market in 2009, after what has to have been, by anyone’s standards, a spectacular performance year in 2008.


•The US equity market in a moderate economic recovery with lots of stimulus would almost certainly begin to focus on a recovery in earnings prospects and help sustain a rally. The US market did relatively well in 2008 compared with many global markets. It may lag some in an upswing. However, the US cannot be matched by anyone in its ability to provide stimulus. The US is and has been the world’s lender of last resort and has a government debt to GDP ratios that allows it the flexibility to borrow what it needs –relative to many other nations.

If there is a recovery this should be accompanied by some easing in the pressures in the corporate bond markets, both investment grade and high yield. Even with a sell-off in Treasuries, there could be an approach to more normal spreads incorporates as the year unfolds.

 •In general it could be expected that if the global economy gradually begins to recover the worry about a return of inflationary pressures could surface, given all the monetary stimulus in the system and concern about how quickly monetary policymakers can begin to reverse course. That could enhance the attractiveness of gold and TIPS.


•The recovery will restore pressure on world food supplies. This will occur as well when humanitarian organizations will have their greatest demand for food for the poor across the globe as the recovery for this segment of the world community will lag in feeling the overall economic recovery. Food prices will rise in this environment.


These are just a few thoughts on where we might see changes in 2009. There are many who believe that the recovery will be slow and moderate when it come and as a result will disappoint investors many times over the year. Volatility and uncertainty have become the hallmarks of the recent past. Again, no one should have any confidence in forecasting this year, but maybe the gradual restoration of confidence can begin and with it some of the volatility will begin to dissipate. Sometimes it makes sense to look carefully for opportunities in what has been shunned with such forcefulness in the previous horrible period. Best of luck.


The information and statistical data contained herein have been obtained from sources that Oppenheimer Asset Management Inc. believes to be reliable. The opinions expressed are subject to change without notice. Any securities discussed should not be construed as a recommendation to buy or sell and there is no guarantee that these securities will be held for a client’s account nor should it be assumed that they were or will be profitable. Past performance does not guarantee future comparable results. Oppenheimer Asset Management Inc. and Oppenheimer & Co. Inc. are both indirect wholly owned subsidiaries of Oppenheimer Holdings Inc. Securities are offered through Oppenheimer & Co. Inc., a registered broker dealer and investment adviser.


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