Behind the Numbers: 2009 Market Review


More than any period of the last thirty years, I think it is imperative to view the global economy and market prospects with a longer time horizon. Those in Washington and on Wall Street have never displayed the discipline nor the inclination to truly take this approach. I strongly encourage those reading Sense on Cents to view your personal situation and that of our global economy and market with a longer time horizon. Why?

I personally believe our global economy remains in the relatively early stages of a significant fundamental shift. Recall that the shadow banking system provided 40-45% of the credit to our domestic economy. That shadow banking system remains a mere shadow of itself. Pardon the pun.

Try as he might, Uncle Sam can not fill that credit void forever. Credit demand and credit supply remain overwhelmed by the mountain of debts at the federal, municipal, and personal levels. The bad debt embedded in toxic assets on Wall Street also remains. While selected segments of our private market can and will grow, the economy as a whole remains constrained by the aforementioned debts. The price to service these debts (that is, the prevailing level of interest rates) will likely move higher.

Can we experience a confluence of higher interest rates along with a general decline in wages and prices, that is the core of deflation? That double whammy scares the hell out of Fed Chair Ben Bernanke. These questions and prospects will not be answered anytime real soon. They will take time.

What is an individual to do? Continue to pay down debt and be disciplined in maintaining a diversified investment portfolio. On that note, let’s look back at 2009 so we can most effectively look forward to 2010 and navigate the economic landscape.

The figures I provide are year-end 2009 relative to year-end 2008, and the returns for the year.


$/Yen: 93.00 versus 90.70, +2.5%
Euro/Dollar: 1.4323 versus 1.40, +2.3%
U.S. Dollar Index: 77.86 versus 81.3, -4.2%

Commentary: The overall U.S. Dollar Index rallied strongly in December (+4.1%) to close out the year down only 4.2%. While much has been made of the plight of the greenback over the course of the year, the economies in many parts of the Euro-zone and Japan have enormous debt-laden issues, as well. Many countries would prefer a weaker currency to benefit their international trade. Can the world negotiate a global currency devaluation? Make no mistake, the global quantitative easing programs and fiscal stimuli are trying to do just that.

The relative weakness of the Chinese yuan manipulated by the Chinese government remains a major concern for global trading partners, especially the United States. This issue is far from resolved.

Have asset bubbles developed from the shell game promoted by these global currency policies? The mere fact that central bankers and financial leaders the world over are raising the topic of asset bubbles tells us all we need to know.


Oil: $79.62/barrel versus $42.67, +86.6%
Gold: $1097.8/oz. versus $882.0, +24.5%
DJ-UBS Commodity Index: 139.187 versus 119.967, +16.0%

Commentary: Commodities in general and gold and oil in particular had fabulous years based largely on the following reasons:

1. Concerns over the future path of the U.S. dollar. Will the dollar lose its position as the international reserve currency? Although this topic is not about to be resolved in the near future, it received much attention in 2009 and is not going away anytime soon.

2. Chinese stimulus. Can China lead the world’s economy back to health? Has China itself created a large speculative bubble in its own economy? Where do we draw the line between real, fundamental economic growth and government promoted smoke and mirrors?


DJIA: 10,428 versus 8773, +18.9%
Nasdaq: 2269 versus 1576, +44.0%
S&P 500: 1115 versus 903, +23.5%
MSCI Emerging Mkt Index: 989 versus 568, +74.1%
DJ Global ex U.S.: 201.1 versus 150, +34.1%

Commentary: What a year! From the depths of hell, our equity markets are firmly entrenched in the pangs of purgatory. Why do I make that assessment? What we have achieved this year is effectively a 50% retracement of the move from the market highs of October 2007 to the market lows of March 2009. I would maintain that many investors are “long from above” and “short from below” the 2009 market close. As such, investors may feel saved but they certainly are not happy.

Do the market prices reflect the true economic fundamentals? Can the trillions of dollars borrowed by the government and provided by the Fed continue the shell game in hopes that the labor and housing markets recover? The returns of 2009 have not answered those basic and fundamental economic questions.


2yr Treasury: 1.14% vs .70%, +44 basis points or .44% (rates up, prices down)
10yr Treasury: 3.84% versus 2.22%, +162 basis points or 1.62% (rates up, prices down)

COY (High Yield ETF): 6.89 vs 4.08, +68.9%
FMY (Mortgage ETF): 18.24 vs 16.41, +11.1%
ITE (Government ETF): 57.07 vs 58.99, -3.3%
NXR (Municipal ETF): 14.64 versus 13.75, +6.5%

Commentary: The U.S. government bond market had an exceptionally sharp selloff in December with rates rising 50 to 60 basis points. Is this move a precursor of things to come in 2010? The free money provided by the Fed, given its Fed Funds rate of 0-.25% along with the trillions in quantitative easing to purchase government debt and mortgages, are not pillars upon which an economy can sustain itself.

Credit demand and credit supply must be generated by the private sector. Although I do not deny that the government has an obligation to facilitate and support our economy, I am tremendously concerned that our long-term economic health will be far less than what it could be given the crowding out effect of our uncontrollable fiscal deficits. Does Washington have the discipline to truly address this problem? Does this administration truly view economic policy in terms of generating growth or redistributing wealth and income? The very future of our country lies embedded in these questions. The bill for future generations is growing ever larger. As that bill grows, the interest rate charged will grow along with it.

When and how will the Fed withdraw stimulus and support for the markets? How will private capital fill that void? Will the investment portfolios of Freddie and Fannie be used and abused in 2010? Will the American taxpayer continue to redistribute wealth and income to Wall Street and those who do not pay taxes? These stories will dominate 2010.


Will the collective American spirit display the leadership and demand accountability from those in Washington and on Wall Street? I truly believe the outrage swelling in the American public has the potential to make a major impact in 2010.

Will incumbents from both sides of the aisle be summarily thrown out of Washington in 2010? Will abusive Wall Street practices facilitated by an ineffective, if not complicit, regulatory structure (SEC and FINRA) fuel America’s rage? Are we at a crossroads in our nation’s history?

I believe we are.

About Larry Doyle 522 Articles

Larry Doyle embarked on his Wall Street career in 1983 as a mortgage-backed securities trader for The First Boston Corporation. He was involved in the growth and development of the secondary mortgage market from its near infancy.

After close to 7 years at First Boston, Larry joined Bear Stearns in early 1990 as a mortgage trader. In 1993, Larry was named a Senior Managing Director at the firm. He left Bear to join Union Bank of Switzerland in late 1996 as Head of Mortgage Trading.

In 1998, after 15 years of trading and precipitated by Swiss Bank’s takeover of UBS, Larry moved from trading to sales as a senior salesperson at Bank of America. His move into sales led him to the role as National Sales Manager for Securitized Products at JP Morgan Chase in 2000. He was integrally involved in developing the department, hiring 40 salespeople, and generating $300 million in sales revenue. He left JP Morgan in 2006.

Throughout his career, Larry eagerly engaged clients and colleagues. He has mentored dozens of junior colleagues, recruited at a number of colleges and universities, and interviewed hundreds. He has also had extensive public speaking experience. Additionally, Larry served as Chair of the Mortgage Trading Committee for the Public Securities Association (PSA) in the mid-90s.

Larry graduated Cum Laude, Phi Beta Kappa in 1983 from the College of the Holy Cross.

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1 Comment on Behind the Numbers: 2009 Market Review

  1. If the weight of the whole world was too heavy for the US to carry alone, let others share the responsibility. Anyone who think China is all smoke and mirror must go to China to see that China is real. If China is making bubbles, the bubbles are make of steel and concrete. And China make more of the stuff than US, Japan and Germany combined.
    For the mext 10 years, we will see growth not only in China, India, and Brazil but we will see growth in most developing countries in all of Asia, Latin America and even Africa. The developed world can get involve and move forward. If not, it will be left behind to mourn its lost of past glory. The developing world does NOT have to be growing at the expense of the developed world, the developing world can grow along with the developed world. That is a choice the developed world can choose. Do not just look at the cake, eat it and make more cake. Then, you can have the cake and eat it too.

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