Advisers Recommend Investors Look Beyond the Fannie-Freddie Takeover
MADISON, Wis. -- Financial advisers are telling investors not to make long-term decisions based on what's happening in the markets today.
The Fannie-Freddie rescue plan appeared to calm the "simmering fears of bankruptcy if bad debts were to continue to mount at both institutions," the CUNA Mutual Group registered investment advisory subsidiary said.
"Financial and consumer stocks led the way as investors hope that lower mortgage rates will improve the consumers' fragile financial position and provide a boost to the overall economy," said Scott Opsal, managing director, portfolio manager for MEMBERS Capital.
Equity markets dislike uncertainty more than anything else, Opsal explained, and "resolving the future of [Fannie and Freddie], while costly to common stock and preferred investors, removed a significant amount of uncertainty from the mortgage market and the financial sector."
"The longer term housing market, financial institution and broad economic implications of the bailout are much more difficult to predict. The bailout is certainly not a silver bullet," said Mark Prusha, another managing director, portfolio manager for MEMBERS Capital. "Bottom line, the bailout is positive for the economy, but recovery is still a ways off."
Because the markets do not like uncertainty, the result is often consumers throwing their hands up in confusion and frustration when bad news continues to come in waves, Opsal said. The economy is driven by the availability of credit and with the cost of gas, groceries and other expenses going up, members are probably hearing more on the side of hunkering down further, he added.
Prusha said on top of consumers scaling back, financial institutions are less apt to lend. The past week has revealed some issues that the market will continue to work through over the next few years.
"In order for us to come to some equilibrium, we will need to see prices come down about 10% to 15%, and listening to the pundits, we're about two-thirds of the way there," Prusha said. "Housing is the foundation for consumers, and consumers make up two-thirds of the economy."
With that said, members may want to resist the temptation to start moving money around in reaction to Fannie, Freddie and others, Prusha advised, adding, any withdrawals made now may be harder to replace when the market recovers.
Opsal said marginal loans should be a last resort and emphasized a shored-up rainy day fund as added protection. Historically, the stock market tends to turn up six months before the nation's economy does, he explained. Earning the highest rate of return during a recession to ride it out and finding an allocation that fits and sticking with it are a two ways members can keep their eye on their long-term financial goals.
"The beauty is the economy tends to correct itself. I wouldn't make long-term decisions based on what's happening today," Opsal said.