by James Copenhaver, Director of Investment Management, Wealth Enhancement Group

In November, a new president was elected and the possibility of change was preeminent. The newly elected president and congress would be presented with an exceptional set of problems both domestic and foreign when they began in January.

The New Year brought guarded enthusiasm for the new President and his promise of change. President Obama selected Treasury Secretary Timothy Geithner as the replacement for exiting Treasury Secretary Henry Paulson.

Geithner’s first order of business was to help the struggling banking system. He was given the authority to decide what to do with the second $350 billion from the $700 billion banking bailout bill passed by Congress in October 2008.

Events of January, February and March of 2009 Jan. 20 – Barack Obama is sworn in as the 44th U.S. President. Feb. 9 – Newly appointed Treasury Secretary Timothy Geithner first appears before congress to report on TARP and banking programs. Feb. 10 - Mar. 9 – S&P 500 drops 193 Points (22%) over 1 month period. Feb. 17 – American Recovery and Reinvestment Act, a $787 billion stimulus package is signed into law. Mar. 9 – Treasury Secretary Geithner reappears before congress to present update on bank stimulus. Mar. 10 – World Equity markets react favorably to the FED’s plan to help the financial sector. The S&P 500 has seven straight months of positive returns.

Geithner went to Congress on February 10th and 11th to explain his plans. He proposed to create one or more "bad banks" to buy and hold toxic assets, using a mix of taxpayer and private money. He also proposed to expand a lending program that would spend as m

uch as $1 trillion to cover the decline in the issuance of securities backed by consumer loans. The world’s equity markets did not respond favorably to the vague details of the bank bailout. Geithner’s first appearance was associated with what followed was a world wide sell off of stocks not seen since the Great Depression and the 1970’s oil shock.

By the first week in March the S&P 500 Stock index had fallen 22% (nearly 56% since the crisis began in September of 2008).

On March 9th, Treasury Secretary, Timothy Geithner took further steps to manage the financial crisis including introducing the Public-Private Investment Program, which contains provisions for buying up to $2 trillion in depreciated real estate assets that were deemed to be weighing down stock valuations, freezing the credit market and delaying economic recovery.

On March 23rd, The New York Times noted that "investors reacted ecstatically, with all of the major stock indexes soaring as soon as the markets opened."

Since the crisis became evident in the later parts of September of 2008 the U.S. equity markets dropped nearly 47%* at the low of March 9th and had rebounded 38%* by the end of November.

The U.S. and Global economies are showing signs of recovery as we enter the holiday seasons. We are cautiously optimistic that the recovery will continue into 2010, but we are mindful of the difficult work ahead.

*S&P 500 Index returns December 31, 2008 to March 9, 2009 and November 30, 2009.