Waiting on Obama

"Change is coming," the new president promises.

For investors and savers, that offers reasons to be both hopeful and fearful. More than likely, your personal finances already have been through enough wrenching change this year to last a lifetime.

We've witnessed a credit crisis of astounding magnitude, the demise of companies that were pillars of the U.S. financial system, massive government aid to shore up the system's survivors, the collapse of stock and commodity markets worldwide, and the slashing of short-term interest rates to near zero.

What began as a real estate crash two years ago now is an economy-wide nightmare -- maybe the worst slump since the 1930s. As for the value of your home, it's probably still falling.

For those Americans with stock mutual funds in their 401(k) savings accounts, the average decline year to date is about 40%. Just to get back to even, a fund that's down 40% would have to rise 67%.

President-elect Barack Obama was elected to fix what went wrong. But he obviously won't be able to accomplish that overnight. And the risk is that the government's fixes for the financial system and economy could make things worse -- or be too late.

Nonetheless, it would be absurd to think that Uncle Sam could just stay on the sidelines given the severity of the financial system's woes and the resulting economic fallout.

So government intervention -- the Obama administration's policies and those of the Federal Reserve -- will be crucial in shaping expectations for the economy and markets in 2009, far more than usual.

If we boil it down, there are three key questions that will confront investors and savers in the new year, as Obama comes to power:

Will the economy recover in 2009?

Most analysts believe that the worst of this recession already is upon us. Goldman Sachs & Co. economists, for example, are forecasting that real U.S. gross domestic product (the inflation-adjusted total of goods and services produced) will slump at a 5% annualized rate this quarter, followed by a 3% drop in the first quarter of 2009, a 1% decline in the second quarter and then 1% growth in both the third and fourth quarters.

Optimism about a turnaround by midyear rests in large part on expectations for a huge government stimulus program to help fill the gap left by depressed consumer and corporate spending.

The latest numbers from the Obama camp suggest a spending program of nearly $800 billion over two years to fund infrastructure projects, tax cuts and aid to states.