5 reasons the economy might bounce back in 2009

Hey, this is a very good article by US News & World Report. there are a number of reasons to think that the economy might -- just might -- shift back into gear faster than most of us think or hope: 1. Plunging oil prices It was only five months ago that oil prices hit a record $147 a barrel. Now they\'re below $45, thanks to slowing global demand. At the same time, gas prices have plunged from more than $4 a gallon to around $1.66 nationally. (And some analysts think they\'re heading to a buck a gallon.) And just as high energy prices were a drag on the economy last summer, they\'re giving it a boost heading into 2009. JPMorgan Chase (JPM, news, msgs) economist James Glassman estimates that the drop in oil prices represents \"a boost equivalent to a $350 billion stimulus.\" To bring that down to the average consumer, Glassman explains, think of it this way: The typical household drives 15,000 miles annually. So a drop in gas prices to, say, $1.50 a gallon would represent a significant savings in their annual gas bills. This could boost GDP growth by as much as 2 percentage points. 2. Falling mortgage rates If there\'s anything falling as fast as energy prices it\'s mortgage rates. Rates for a 30-year, fixed-rate mortgage fell to a low, low 5.19% last week thanks to the Federal Reserve\'s pledged efforts to purchase mortgage securities. That should help housing affordability and the ability of current homeowners to refinance their mortgages. And even more good news could be on the way if you don\'t mind Uncle Sam borrowing billions more for yet another bailout: The Treasury Department is reportedly considering a plan to push mortgage rates as low as 4.5% for new homebuyers and, perhaps, even for current homeowners who want to refinance. Investment strategist Edward Yardeni says that if rates were pushed down to 4%, either via the Fed or Treasury\'s efforts, the economic impact would be amazing. He figures that the average rate on the $10 trillion in outstanding mortgages is about 6%. A 2-percentage-point drop would amount to a $200 billion annual tax cut for the 45 million American households with mortgages. 3. Actions by the Federal Reserve The nation\'s central bankers have basically said that they\'ll do whatever it takes to strengthen the economy. They\'ve already pushed short-term interest rates to near 0% and have made it clear that the Fed will buy various debt securities to unfreeze the credit markets. Brian Bethune of IHS Global Insight called the Fed\'s recent moves \"exactly the kind of forceful medicine the economy needs as it plumbs the depths of the current recession. The Fed\'s actions will translate into much lower effective borrowing costs in the next few weeks.\" Certainly this is not your grandfather\'s Fed. The central bank is pouring money into the financial system. That\'s a big difference between now and the Great Depression. In the Depression,\" notes economist Brian Wesbury of First Trust Advisors, \"the real problem was that the Fed let the money supply collapse. . . . This is not happening now. The Federal Reserve . . . is adding liquidity to the system as rapidly as it can.\" 4. Obama\'s stimulus plan, 2.0 It now looks like Uncle Sam, under the direction of Obama and the new Democrat-controlled Congress, will spend somewhere between $750 billion and $1 trillion over the next two years to boost the economy. The money would be spent, according to analysts, mostly on infrastructure (everything from transportation to broadband to green technology investment) but also on aid to state and local governments and middle-class tax relief. This plan will probably create somewhat more jobs in the short term than if nothing were done. Obama optimistically hopes for as many as 3 million jobs. The real question is whether his spending plan is the best use of that amount of taxpayer money. Economists Susan Woodward of UCLA and Robert Hall of MIT are dubious. In their co-written blog, the duo opine that \"complicated projects take time to ramp up to high spending and employment levels.\" But, most promising is a payroll tax holiday Obama is rumored to be considering. That would put money into the economy much faster than an infrastructure spending plan. Even better, many studies say, would be sweeping tax cuts on incomes, business and capital. 5. America\'s deep fundamentals Did you know that the World Economic Forum -- the Davos, Switzerland, people -- for the second straight year judged the United States as possessing the most competitive economy in the world? (Then came Switzerland, Denmark, Sweden and Singapore.) Among America\'s strengths: innovation, flexible labor markets and higher education. Not surprisingly, though, our institutions ranked a dismal 29th. (Thanks, Wall Street.) Overall, the core U.S. economy is in far better shape than it was in the 1970s, with a higher productivity and a better tax and regulatory system. Even though the American economy finally succumbed to the oil shock and the credit crisis in 2008, it held up longer than many predicted, thanks to its deep strengths. Who knows, maybe it will surprise the bears again in 2009. This article was reported and written by James Pethokoukis for U.S. News & World Report.

Outlook for banks is better, Bove says The outlook for U.S. banks is better than most think, and these stocks are now undervalued, said the New York-based Ladenburg Thalmann analyst Richard Bove in a note today. Bove thinks that the government programs to rescue U.S. banks are going to work, but most investors aren\'t convinced of this yet. The result is that bank stocks are trading at levels that haven\'t been seen since the 1980s. Bove points out that the mortgage refinancing market is already taking off again thanks to support from the Federal Reserve. As credit conditions improve, banks will become just as profitable again as they were before the credit crunch. But banks will be better regulated and thus safer investments. Banking stocks could see some investor attention on this news.

By Eric Burroughs Reuters Published: December 29, 2008 HONG KONG: From healing credit markets to a coming wave of big government stimulus spending, evidence is mounting that the historic 2008 sell-off in Asia may fade into the history books. While few market players are bold enough to say the worst is over for Asian stocks, which have lost about half their value this year, telltale signs that several markets may have bottomed out are becoming clearer. Credit markets, which tend to lead equities both up and down, have kept recovering, even as stocks have pulled back at the end of the year. Narrowing spreads on U.S. interest rate swaps are another encouraging sign. The severe dollar funding shortage for domestic banks in South Korea, one of the major pressure points in Asia, has started to relent just as the won has bounced back, and Seoul stocks have led the rally in regional shares. Central banks have cut rates as never before, and governments are lining up big spending packages that are expected to start reviving growth sometime next year. Global investors, who fled Asia in a worldwide retreat from risk set off by the meltdown of the U.S. housing credit market, are coming back. Data from the fund tracker EPFR Global showed Asian shares outside Japan attracting cash in five straight weeks through last Wednesday, lifting currencies like the won, which hit a two-month high, and the Philippine peso. \"Once recognition of a bottom in global equities spreads and the markets regain their composure, the momentum of the rally in Japan and other Asian equities is likely to build,\" said Yutaka Yoshino, an equity analyst at Nikko Citigroup in Tokyo. In another encouraging sign, market volatility has come off its historic peaks, though economists warn that rapidly changing economic conditions mean more stomach-churning market swings for investors. \"Market volatility will decline periodically, but economic uncertainty is higher than ever. Just as volatility remained high for a number of years during the early 1930s, it may take some time to durably decline this time around,\" said economists at Société Générale. The market rout this year doused hopes that Asian markets and economies could \"decouple\" from recession-hit U.S. and European markets. But investors seem willing to bet that Asia, with low debt, high household and public savings and limited exposure to the toxic U.S. mortgage debt at the heart of the current crisis, will ride out the slump better than the rest of the world. Most Asian governments, especially China, have deeper pockets than their U.S. and European peers and can do more to encourage households to spend more and save less, providing some cushion for the collapse in exports. Reflecting this optimism, Asia-Pacific shares outside Japan have gained 23 percent since markets hit low points in late November, outpacing the 18 percent rise in the MSCI World index and the U.S. S&P 500. The gains come against the backdrop of some of the bleakest economic data in decades, and the question is whether markets have already fully accounted for the hit to company earnings from the economic downturn, and the damage to currencies from low interest rates. Many analysts seem to believe this, and point to investors\' composure in the face of the latest grim statistics. In Japan, the Nikkei average rose nearly 2 percent last week, despite data showing both exports and industrial output plunging in November at the fastest pace on record. The yen, which tends to track stocks closely and move in the opposite direction, posted its biggest weekly loss in seven weeks. To be sure, some analysts are worried that stocks in particular have not fully accounted for the damage to earnings from the dramatic downturn, especially in the final quarter of the year. \"The shock to the system is truly quite frightening,\" said Tim Rocks, Asia equity strategist at Macquarie Securities in Hong Kong.

Market commentators are always over-eager to guess the bottom, and no doubt some of them will get it right, if not purely by chance than by anything else. These people will instantly be glorified and exalted as the predictors of important events and be held in high regard for future predictions, never mind if they actually get it right or not. Some may even start newsletters or a fund to capitalize on their \"success\". Such is the nature of capitalism and hype which continues to disgust me to this day.

to add to the many forecasts out there, i think the bottom is probably in sight - maybe around July-Sept 09.

i tink in spore oni certain trade n their r not able to sustain long due to our export/import rate......................................however we can always bank in at china related stocks tat listed in SGX but doin their business in PRC...........china claim they can hav a 8% growth n i tink at least 5% due to their gov.4+trillion spentin on............n usa wil dwn 10+% n spore dwn 6% n europe dwn 5+% in GDP for this yr 2009......................jus my 6cent worth.