Banker: Turnaround in cards

The economic recession that is closing business doors and drying up tax revenue in Douglas County will be over by the end of 2008, according to City National Bank Chief Investment Officer Richard Weiss.

"The good news is that we are at the end, not the start," Weiss told about 30 people gathered at Carson Valley Inn on Thursday morning.

Weiss delineated the chain of events that has brought the economy to its current state. In 2007, a crisis in the housing market caused a drop in consumer confidence and spending. A subsequent decline in retail sales decreased corporate profits, forcing companies to cut costs and make layoffs.

"A rise in unemployment is the last shoe to fall," said Weiss. "But that's good. We want to be toward the end of the cycle."

Weiss said after World War II, the average life span of an economic recession in America has been 10 months.

"It would take Great Depression-era levels to argue that this recession will last longer than the calendar year," he said. "It's no coincidence that recessions have gotten shorter over the last 100 years."

Weiss attributed this to improved government mitigation. The Federal Reserve knows how to raise interest rates to put brakes on a fast growing economy, preventing inflation, and knows how to lower interest rates to stimulate a struggling economy, he said.

"When the Federal Reserve stops lowering interest rates, you'll know the economy is turning around," he said.

Weiss said timing the turnaround is important, and posited two investment strategies, one for riding down the rest of the recession and one for harnessing the beginning of an economic recovery.

Weiss called the recession strategy a "controlled-risk position."

"Extend into fixed-income maturities, like U.S. Treasury bonds," he said. "Avoid lower-grade credits."

Weiss said a diverse portfolio is also necessary to avoid too much dependence on one sector.

As the economy recovers, Weiss recommended a more aggressive strategy, with less dependence on bonds and more investment in risky or previously-struggling sectors.

"This is when there is a potentially big opportunity to start trying to capture returns," he said. "The same sectors that were beaten up last year will be where investment lies."

Weiss said if he is wrong, and the economy takes longer to recover, investors should just stick with a controlled-risk strategy.

"2008 will be all about timing," he said.