EBN Design



New Year's Drops: Thinking Outside the Ball

The famous Waterford crystal ball lowered at midnight in Times Square is a traditional and timeless way to bring in the New Year. Cities around the nation have followed in New York's footsteps to drop something in celebration-often opting for more eccentric and regionally significant objects pertaining to the town's way of life.

Although there are plenty creative drops, here are some of the more creative objects dropped around the nation:

1. Mechanicsburg, PA: A Wrench

Mechanicsburg was settled in the early 1800s by a community of mechanics laying ties and busting wheels for a well-traveled wagon trail and a Cumberland Valley Railroad hub. What started out as a simple Eagle Scout project turned into a town craze. For the past five years, the town has dropped a ten foot sheet metal wrench in honor of its heritage.

2. Port Clinton, Ohio: A Walleye

Also referred to as the "Walleye Capital of the World", Port Clinton honors their fishy nickname by dropping a 20-foot, 600 pound walleye on New Year's Eve. Mike Snider, Walleye Madness at Midnight Committee Chairman stated "We're on our second fish (named Wylie Walleye); the first fish was paper Mache and went to the 'great last in the sky' after the second drop."

3. Mobile, AL: A Moon Pie

For the first time this year, Mobile is baking a 4-foot, 60-pound moon pie to be dropped on New Year's Eve. The graham cracker and marshmallow treat has been a popular snack at Mobile Mardi Gras parades for decades. The world's largest moon pie will accompany the event and will be dished out for all spectators to enjoy as well.

4. Tempe, AZ: A Tortilla Chip

In celebration of not only New Year's Eve but also the Tostitos sponsored Fiesta Bowl held on New Year's Day, Tempe drops the world's biggest, 250-pound tortilla chip into the world's biggest jar of salsa.

Weekly Market Commentary by Emmett Wright

January 26, 2009

While it was a historic week for the country with the inauguration of Barak Obama as the 44th President of the United States, it was another bewildering week for the stock market still reeling from uncertainty about the financial sector and the timing of an economic recovery. The re-testing of the lows witnessed last November is in full swing.

All told, the events of the week fed the bearish bias that has persisted since the close of trading January 2. The end result is that the domestic equity market declined again, bringing the broad S&P 500 Index's year-to-date results to -7.9%. One of the sobering reminders the market provided participants this week is that seeming cheap stocks can indeed get cheaper. Microsoft was the main case in point, followed by GE and any number of financial issues, like Bank of America, Wells Fargo and State Street. The financial sector, the core driver of the market's frenetic behavior, dropped another 7.1% last week. A refocused effort by the Obama administration to get toxic assets off banks' balance sheets at market prices, many investors believe, would be a step in the right direction toward rekindling faith in the banking system. From overseas, too, the news is bad across the board from developed and emerging economies.

The broader view

Since market activity tends to be a leading indicator of economic health, it will probably take roughly six months after financial markets start to improve before the economy actually starts to improve. As we have noted in past issues to the Weekly Market Commentary, one glimmer of hope that such improvement can occur continues to be the rapid growth of the money supply. M2, a broad indicator of liquidity, was up $8 billion this week and up $542 billion over the past 17 weeks. This translates into a six-month annual growth rate of 15.4%. Essentially on the sidelines now, these vast reserves of wealth should eventually find their way back into the system - the sooner the better, as far as we are concerned.

Concerning the financial stimulus recommendations contained in the America Recovery and Reinvestment Plan, we think they are looking rather slight. The Congressional Budget Office released a cost estimate that showed that only $26 billion in stimulus would be spent this fiscal year, through September 2009. This puts a real damper on how quickly the U.S. government can influence the economy for the better.

We believe the country needs to move from proposed spending to stimulus right now. The reality is that investors expect Washington - not Wall Street - to fix what's wrong with the capital markets.

How likely is it that the economic stimulus package will be enough? For the present, we believe the answer is "not very". We came to that conclusion after looking at the math in three of the key areas of the American Recovery Plan and Reinvestment Plan:

1. Tax cuts Approximately one-third of the proposed $825 billion plan in geared toward tax cuts. Incentives to individuals include a $500 per worker and $1,000 per family tax credit, and business provisions include incentive compensation depreciation, a five-year carryback of net operating losses, and increased small business expenses.

2. Social programs The bulk of the $550 billion spending plan would be allocated to temporary social programs, particularly for the unemployed and low-income families. According to estimates prepared be the ISI Group, a broker-dealer specializing in various research areas such as economics, technical analysis, account and tax policy, etc., increased grants and spending are being drafted to supplement unemployment insurance and job training services ($43 billion), food stamps ($20 billion), health care programs ($39 billion for COBRA), Medicaid ($87 billion), educational budgets ($120 billion), and law enforcement ($4 billion), in addition to other services. This adds up to about $315 billion, of more than 60% of the proposed spending portion of the recovery plan.

3. Infrastructure improvement The close to $200 billion in funds allocated for infrastructure improvement will only cover 5% to 10% or so on the current spending gap needed for these projects. For instance, $30 billion is being earmarked for highway construction, but the Department of Transportation as far back as 2006 estimated that nearly $70 billion was needed for maintenance and improvement of existing highways.

In summary, we are skeptical that the proposed plan will be enough to stimulate the economy. Money made available though tax cuts and aid to families could be deployed toward savings of pay down debt instead of spent. The infrastructure spending may not be large or concentrated enough to make a big impact. We expect that more action than that proposed will eventually be taken.

Investors need to understand that fiscal spending plans generally are not "shovel-ready." In most cases, their impact takes months or years to be realized. On a positive note, the Herculean efforts of policymakers that focus on stabilizing the banking and housing sectors might have a more immediate impact. Nevertheless, Wall Street should not expect immediate gratification in price returns. Patience tempered by appreciation for the self-adjusting qualities of the capital markets should ultimately reward long-term investors for taking risks. Thankfully, the capital markets will use their discounting mechanisms to look beyond today's challenges at hand and focus on the future benefits that may accrue from the above policy measures.

A look ahead

The financial sector is sure to be a focal point this week, which will be a busy one as 137 members of the S&P 500 Index report their earnings results. The fourth quarter Gross Domestic Product report will also be released, along with reports on existing home sales, consumer confidence, home prices, durable orders, initial jobless claims, new home sales, and manufacturing conditions in the Midwest region. Through it all, evidence will likely grow that economic pain is being felt across an ever-broadening range of industries.

Emmett Wright, CFA

Chief Investment Officer

Northwestern Mutual Wealth Management Company

Emmett Wright is the Chief Investment Officer of The Northwestern Mutual Wealth Management Company. The opinions expressed are those of Emmett Wright as of the date stated on this report and are subject to change. There is no guarantee that the forecasts made will come to pass. This material does not constitute investment advice and is not intended as an endorsement of any specific investment or security. Investment involves risk. Investing in foreign markets involves currency and political risks. Information and opinions are derived from proprietary and non-proprietary sources.

Please remember that all investments carry some level of risk, including the potential loss of principal invested. Indexes and/or benchmarks are unmanaged and cannot be invested in directly. Returns represent past performance, are not a guarantee of future performance, and are not indicative of any specific investment. Diversification and strategic asset allocation do not assure profit against loss. Although stocks have historically outperformed bonds, they also have historically been more volatile. Investors should carefully consider their ability to invest during volatile periods in the market. The securities of small capitalization companies are subject to higher volatility than larger, more established companies and may be less liquid. Bond investors should carefully consider risks such as interest rate risk, credit risk, securities lending, repurchase and reverse repurchase transaction risk. Greater risk is inherent in investing primarily in high yield bonds. They are subject to additional risks, such as limited liquidity and increased volatility. There is an inverse relationship between interest rates and bond prices. Investing in foreign securities is subject to certain risks not associated with domestic investing such as currency fluctuations and changes in political and economic conditions.

All index references and performance calculations are based on information provided through Bloomberg. Bloomberg is a provider of real-time and archived financial and market data, pricing, trading, analytics, and news.

The Dow Jones Industrial Average Index® is a price-weighted average of 30 blue-chip stocks that are generally the leaders in their industry. It has been a widely followed indicator of the stock market since October 1, 1928.

Standard and Poor's 500 Index® (S&P 500®) is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

Standard and Poor's offers sector indices on the S&P 500 based upon the Global Industry Classification Standard (GICS®). This standard is jointly maintained by Standard and Poor's and MCSI. Each stock is classified into one of 10 sectors, 24 industry groups, 67 industries and 147 sub-industries according to their largest source of revenue. Standard and Poor's and MSCI jointly determine all classifications. The 10 sectors are Consumer Discretionary, Consumer Staples, Energy, Financials, Health Care, Industrials, Information Technology, Materials, Telecommunication Services, and Utilities.

The NASDAQ Composite Index®. Stocks traded on the NASDAQ stock market are usually the smaller, more volatile corporations and include many start up companies.

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Bear market calculations and interpretations are derived from data supplied by Ned Davis Research, Inc.

Northwestern Mutual Financial Network (NMFN) is the marketing name for the sales and distribution arm of The Northwestern Mutual Life Insurance Company, Milwaukee, WI (NM), and its subsidiaries and affiliates, including Northwestern Mutual Wealth Management Company, Milwaukee, WI. Northwestern Mutual Wealth Management Company, Milwaukee, WI, a wholly-owned company of The Northwestern Mutual Life Insurance Company (NM), is a limited purpose federal savings bank. Securities are offered though Northwestern Mutual Investment Services, LLC (NMIS), member FINRA and SIPC, a wholly-owned company of NM and a dually registered broker/dealer and registered investment advisor.