10. Rebound of GM and Chrysler After Bankruptcy.
The saga of GM and Chrysler mattered in several ways. The bailouts and bankruptcies saved tens of thousands of jobs, not to mention U.S. pride and morale—which count for a lot in the real economy, confidence being a precursor to economic life. The Obama administration also surprised skeptics by forcing both Chrysler and GM into bankruptcy. Though there was serious doubt they would survive it appears both GM and Chrysler have weathered the storm and eventually return to profitability. The fact that both are still around and starting to sell cars once again vindicates the idea of a greater public role in the markets. The government’s intervention proved to be a wise move so expect more public expeditions into the private markets. Now that GM has ousted CEO Fritz Henderson, expect brisk changes under chairman Ed Whitacre.

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9. Greenhouse Emissions.

A disappointment to many in terms of the limitations of new policy but it was a “new beginning” for establishing new habits relating to energy and the environment. These new energy policy reforms will set a new course over the next few years. Concern about the environment and a shift away from oil has already started to reshape the corporate landscape. When giants like Exxon Mobile spend $31 billion to buy natural-gas giants like XTO you know the tide has changed. Businesses will soon start paying a price to emit greenhouse gases, making natural gas more attractive. There are already signs of more dramatic change on the ground. For example, Coulomb Technologies is installing 4,000 recharging stations for electric cars in the Southwest. There’s real evidence that an alternative-energy grid will emerge on a mass scale during the next few years.

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8. Bank Busts

Consumers and businesses are having a tough time getting access to capital. The reason is that there were 133 bank failures in the U.S. in 2009, more than any year since 2002. Larger banks avoided bankruptcy thanks to government bailouts and mergers with sounder institutions. If anything, the larger banks are even less inclined to lend money to individuals and small and medium-size businesses. As long as that scenario continues to exist the economy will grow at a snails pace and the unemployment rate will still be stuck in double digits. The federal government must figure out a way to get the banks that they bailed out to start lending more money to small businesses and individuals.

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7. Health Care Reform.

What a difference a vote makes! Up until the Senate election in Massachusetts on January 19th, 2010 the Health Care Reform Bill was virtually guaranteed. We were very close to approving our nations first nationwide health care system. The single-payer public option, health care reform appeared more evolutionary than revolutionary. The big evolutionary step was the attempt to insure millions of additional people. The House and the Senate were trying to reconcile their bills and planned on sending a final version to President Obama, who would have been able to claim a huge political success. Now, with the election of Scott Brown to the Senate it appears the Health Care Reform Bill is now considered DOA. It will be interesting to see how this all plays out in the next few months.

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6. Did Anyone Say Jobs.

The unemployment rate is still above 10 percent and is likely to stay there until sometime in the second half of 2010. This will lead to significant political pressure on elected officials. As elections near and politicians become aware of the uncertainty of their political future, new policies will be adopted and job creation will become a priority. As long as the jobless rate remains above 10 percent, the politicians’ will have to deal with this problem or they won’t have a prayer of being re elected. Voters in Massachusetts sent a message to President Obama and ruling Democrats on January 19th, 2010 by choosing to send Republican Scott Brown to the Senate. They gave legitimacy to populist conservative discontent and quite likely changed the course of health care and Wall Street reforms.

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5. End of Year Brings Flood of VC Deals

A flood of new deals in the last quarter of 2009 is giving an indication to venture capitalists that there is life after death after all. A large number of substantial deals resulted in a giant leap in the merger market for venture-backed companies in the fourth quarter—the beginnings of a ray of hope for the battered VC market, and the US economy, is heading in the right direction.

In the fourth quarter of 2009 corporations either merged or bought 86 venture-backed companies in deals worth $7.3 billion in total. That leap followed three appalling quarters for M&A and IPO’s. Initial public offerings remained few and far between, with only three completed in the quarter for a total of $220 million. But according to a report from Dow Jones Venture Source there are signs that things may pick up in that market as we move into 2010.

While the IPO marketplace nearly collapsed in 2009 the reverse merger marketplace benefited greatly from Wall Streets melt down in 2008. Cash strapped companies seeking capital wanted the fastest and most efficient way to go public in 2009. Without any underwriters available (remember they all converted into banks to survive in 2008) to underwrite their companies they choose the reverse merger into an OTCBB shell accompanied by a PIPE to fulfill their needs. Once considered the red headed stepchild of the public markets the reverse merger has now become the defacto choice for many companies seeking access to the capital markets.

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4. Wall Street – Friends or Foes? Corruption has always attracted the most talented of the unscrupulous to Wall Street. But no one could have foreseen the breadth and depth of the house of cards created by Bernie Madoff who was arrested in December 2008 and pled guilty in March 2009. Bernie perpetrated the world’s largest Ponzi scheme ($50 billion) in US history. The former NASDAQ chief showed greed could attract even the savviest investors, including some of the smartest and wealthiest individuals, hedge funds and institutions in the US. The implosion of the Galleon Group hedge fund added more fuel to the fire. Outrage over these cases and others provoked a public sense of violation, which was fed by the huge bonuses that Wall Street bankers reaped even as their companies received enormous bailouts. However, it is important to note that the bonuses received in 2008 and 2009 by the bankers were earned after the Wall Street meltdown. You cannot penalize outstanding performance because of the sins of yesterday!

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3. The Rise of China. As the U.S. federal balance sheet weakened China experienced exponential growth. Our weakness has become China’s strength on competitiveness. China’s continued growth is starting to put the U.S. at a great disadvantage. China already is close to surpassing Japan as the second-largest economy in the world, and it won’t stop there. It is expected the economic-growth estimate for 2009 to be 8 percent and the country is trying to improve those numbers for 2010. China is also creating a rail system to service its 1.3 billion people that virtually guarantee’s the scale of the project will be gargantuan. Almost 16,000 miles of new track will have been laid at a cost of $300 billion by the time the build-out is completed in 2020. But this project symbolizes even more than that. This monumental infrastructure build-out has become the centerpiece of China’s effort to navigate the global financial crisis and the ensuing recession. As the project progresses it is going to open up the vast interior of China to global investment and development. Over the next twenty years a huge middle-class consumer society is likely to emerge in China. And when it does, China will start drawing corporations and executives from all over the world, forcing the U.S. and Europe to compete for capital and investment as never before.

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2. Government Financial Intervention. Economists are finally crediting Obama’s stimulus package with preventing (what could have been) a recession worst than the one our country witnessed during the great depression in 1929. The stimulus package contributed to positive growth in the third and fourth quarters of 2009. The bailout was the most expensive deployment of funds our government has ever issued but considering the consequences, a total systemic financial failure, the move was more than justified. The TARP bank bailout that was also instituted in 2008 served its purpose by keeping the big banks afloat, which helped unfreeze the debt and equity capital markets for institutions in early 2009. Now that the banks are returning to profitability many of them have opted to return their TAP funds to eliminate the government’s stranglehold on dictating salaries and compensation. Congrats to Fed Chairman Ben Bernanke and Treasury Secretary Tim Geithner for taking strong and decisive action at a time when our U.S. economy was heading for a melt down.

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1. U.S. Deficit.

The era of federal budget surpluses is now a thing of the past. According to the Congressional Budget Office our deficit for the current fiscal year rose from $459 billion at the end of 2008 to $1.4 trillion for the end of 2009. The cost of the Wall Street and bank bailouts along with our constant financial support of wars raging in third world countries has pushed the U.S. deeply into the red. The result of these actions is that global investors are starting to demand higher interest rates to offset the perceived risk/reward associated with the U.S. credit markets. This will eventually raise borrowing costs for both US based consumers and businesses.

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