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Providence Financial












MONTHLY NEWSLETTER:  JANUARY 2009 ISSUE

IS THERE A RAY OF HOPE FOR THE NEW YEAR?
BY BRENT VAN ALFEN, CPA
PROVIDENCE FINANCIAL CO., LLC



Throughout our 43 years of marriage, whenever I have had a horrible day, my wife Janet has picked me up, brushed me off, and sent me back out the door for another try. I owe any success I have had to her support. Metaphorically at least, that is what the government is trying to do with the U.S. markets and basic industries. However many of us may disagree in principle with bailouts, etc., we must at least recognize the government’s efforts to pick up the financial markets and the economy and send them “out the door” and get our country’s businesses functioning again. Why must liquidity (money) be re-injected into the economy?

The stock markets in our country have taken a major hit in 2008. One financial network reported that in 2008 the equity markets lost more money, as measured in dollar terms, than in any previous year in history. In percentage terms, one must go back to the 1929–1930 era to find losses that match the magnitude of what we have witnessed this past year. Losses such as we have seen in 2008 in the stock market take a tremendous toll on the liquidity of the markets and the economy. Billions of dollars in wealth and capital are gone.

We have all heard about the dramatic losses that have been incurred in the real estate markets. Depending on the geographic area and type of real estate, owners have lost from 20 to 50 percent of previous values. I have personally witnessed here in our small community a development that lost 80 percent of value when foreclosure action was taken. Again, as in the stock market, billions of dollars in wealth and capital have been lost.

In the credit markets where charter school facility bonds have been sold in the past, the same traumatic losses have occurred. Many investors in bond funds have been forced to liquidate some or all of their bond fund investments when their stock portfolios have dropped and they received margin calls from their brokers. I am aware of an investor who had such a situation happen, so he reluctantly redeemed a seven million dollar bond fund holding--thus incurring a huge loss in both his stock and bond portfolios. Real estate developers have liquidated bonds and stocks to try to keep their businesses afloat….more losses in the bond and stock market. In addition to individuals, businesses, insurance companies, mutual funds, banks, and many others have lost billions of dollars in the declining stock and bond markets.

In percentage terms, one must go back to the 1929-1930 era to find losses that match the magnitude of what we have witnessed this past year.


A result of this hemorrhaging of wealth and capital is a loss of liquidity in the financial markets. Nobody, individual or business, is left standing with enough money or courage to invest even at the bargain basement prices in today’s markets. If there is no money to invest, no money will get invested. This is what the Treasury has been trying to remedy with the bailout money authorized by Congress and the President. They have tried to inject money into the financial markets and critical industries to get them circulating again. Further, the Federal Open Market Committee has been increasing the money supply at a record rate. The intent is to get banks lending, investors investing, buyers buying, and so on. The key is to put this bailout money into the right “hands” to get the maximum effect economically.

The “experts” who got the country into this mess are now opining on when the economy and markets will start functioning again. There are small rays of hope starting to shine. The December 26, 2008 Thomson MMD Daily Closing Comment reports “Given still attractive relative value comparisons even after such outperformance, and considering the typical January new issue supply fall-off/ retail reinvestment bulge, we'd expect muni outperformance to extend further toward "normal" historical percentages in coming weeks.”

Somewhere in the arcane way these people in the markets express themselves, I think they are saying there is hope. My talks with underwriters and investors also lead me to believe that things are improving in the markets.

We can only look toward the light at the end of the tunnel and hope it is not a train coming our way!

For information contact Brent Van Alfen, Providence Financial Co., LLC
Phone: 801-299-8555 Email: brent@providencefinancialco.com