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Cagle, economic expert address Johns Creek Chamber
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Forsyth County News

It’s a scary time for investors and it’s not likely to end until 2010.

That’s not the message Johns Creek Chamber of Commerce members wanted to hear Thursday. But it’s the reality of the current bear market, said Paul Dietrich.

Dietrich, chairman and chief executive officer of Foxhall Capital Management, said people ask him if the country is in a recession.
“The answer is we are in a recession, probably right now and we’ll know it formally at the end of November ... after the election,” he said, noting a recession is defined by two quarters of negative economic growth.

“You have to know how to protect yourself.”

Lt. Gov. Casey Cagle, who recently announced he was forming a gubernatorial exploratory committee, also spoke to chamber members during the meeting.

Though he didn’t discuss his interest in the governor’s office, or talk much about the state of the national economy, he did note his accomplishments in education initiatives and the state’s current and future prosperity.

He also looked forward, talking about his ideas for the future of the state’s water and transportation, adding jobs are how “people experience the American dream.”

“Government doesn’t’ create those jobs, but government creates the right circumstances and the right environment by which those jobs can be created,” said Cagle, a Republican from neighboring Hall County.

“I’m convinced with the right kind of leadership we’re going to make a change in transportation and cast a vision for the future that we can all be very, very proud of.”

As an economist, Dietrich said the country has had a bear market recession every five to eight years since 1945, each one lasting an average of two years.

The average drop in the stock market during that two-year period has been about 34.1 percent, said Dietrich, who is also an investment adviser and mutual fund manager for Shepherd Large Cap Growth Fund.

“We’re now down about 16 percent, so if history is any guide, we’ve got another 15 to 20 percent left to drop in this market,” he said. “You haven’t seen anything yet in terms of housing, marketing and foreclosures.

“The Federal Reserve says the peak in foreclosures would be in the last quarter of 2009 and the first quarter of 2010. All the foreclosures you’re hearing about now, those are the good ones. Those were the good loans.”

Because of foreclosures and tough times to come, Dietrich said he doesn’t think the bear market will turn around until 2010.
In the mean time, he suggested, consumers need to protect themselves by using a defensive investment strategy — bonds.

“They’re fully backed by the U.S. government. They’re not like these money markets that are not paying out, or these CDs that are guaranteed by the bank but not the U.S. government,” he said.

“Go defensive. Sit this one out, because we’ve got a long way to go.”

Dietrich told chamber members to hunker down in the bond market.

“Be satisfied with 4 to 5 percent growth, while the market is going down. Don’t be greedy and we’ll come out of this,” he said.
Even in a recession, said Dietrich, 96 percent of willing workers will have a job in America, 15 million Americans will buy cars and trucks and most companies will make a profit, albeit not as great as last year’s.

“Millions of us will still buy new homes, there will be millions of us who are retiring who need insurance and financial services products and even in a recession, there are still lots of people with lots of money.”

As for the U.S. Treasury’s seizure of mortgage finance companies Fannie Mae and Freddie Mac, and the Federal Reserve’s loan to American International Group, one of world’s largest insurance companies, Dietrich said the government has done a “fairly good job.”

He said the government is now in a position that if the companies can make a comeback, “I don’t think the taxpayer will, in the end, be hurt.”

There is good news, he said, in what otherwise might appear to be a dreary situation.

“This is going to be longer than you think. It’s probably going to be deeper than you think,” he said. “But I believe the next bull market we’re going to have is probably going to be the greatest bull market this country has ever seen.

“We’re looking at some good times ahead.”