wfn.org | [PCUSANEWS] Expectations

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This story and photo available online:

www.pcusa.org/pcnews/2009/09108<http://www.pcusa.org/pcnews/2009/09108

>Expectations

BOP head reflects on financial crisis, economic stimulus

>Analysis by Robert W. Maggs Jr.
>President and Chief
>Executive PC(USA) Board of Pensions

PHILADELPHIA ― Given the political reactions to the
proposed stimulus package and market uncertainty about
"TARP II," the immediate future for the economy is not a
rosy one.

We might start to feel some benefits from the stimulus in
2010, but the root problems are both too widespread and too
complex to handle in legislation that has a "little
something for everyone." Admittedly, some legislation is
better than none, but it is far from clear how much
immediate benefit there will be.

Since we don't really know any specifics about TARP II,
it's too soon to tell to what degree and over what period
it will help stimulate credit. It appears, however, that
some credit doors have opened already.

Nevertheless, there is a tension: lending to people who
couldn't afford to repay debt was the root cause of the
housing crisis, and with unemployment rising each month
there are more people who fall into the subprime category.

The bottom line is to create more jobs ― and job creation
depends on capital investment. Grousing about planes and
perks won't get the job done.

Once we get over the hump of the economic downturn, all
this new government debt will likely result in serious
inflation down the road. So we're in for some tough
sledding on several fronts for some time to come.

What does this mean for the Board of Pensions? In a
nutshell, it means that we have to do some contingency
planning. We should consider what we might do in the next
twelve to thirty six months if we are facing a stalled
economy, a steady economic downtrend (at varying rates) or
a precipitous decline.

Beyond that, what are our alternatives if inflation comes
back at unacceptable rates on the heels of a recovery?

As investors, we would be foolish to make a "big bet" based
on any one analysis, so we should be prepared to move in
facile and observant increments. We'll be gathering some
ideas and meeting on this subject in the next few weeks.

One thing is certain: riding out the storm, while one
alternative, should not be our only option.

For the Board of Pensions 2008 Investment Review ― by
senior vice-president, treasurer and chief investment
officer Judith D. Freyer ― click here
[http://tinyurl.com/dcm3su].

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