Nomura Remain Bearish On SG Property Market.

Residential property

SINGAPORE

Our view
We retain our Bearish stance on Singapore’s residential sector, with the market moving swiftly from a state of denial to acknowledging the realities on the ground. We see asset prices being driven down further by the marginal speculative sellers, amid low transaction volumes and rising unsold pre-sale inventories.

Anchor themes
Residential rents are likely to remain firm in the short term, given the low vacancy, though rising new supply is likely to cap rental gains from 2H08F — we forecast vacancy will rise from 5.7% at end-2007F to 8.2% at end-2010F.

Luxury residential prices have risen too fast relative to rental expectations. We see the marginal speculative seller in the pre-sale market as the catalyst for asset price declines in the luxury sector of 16.9% in 2008F and 10.3% in 2009F, with the mass market not immune from asset price declines amid rising new supply.

Eye on the storm
�� Luxury asset prices to fall by 32% over 2008-10F
Sentiment in the market has deteriorated rapidly — asset prices look to
have fallen by about 5% over the first two months of the year, with falls
of up to 15% in some non-prime locations. We see asset prices being
driven lower by the marginal speculative sellers, amid low transaction
volumes and higher unsold pre-sale inventories. Overall fundamentals
aren’t supportive, on higher expected new supply and re-assessed
rental expectations. Luxury should bear the brunt of falls in asset prices,
though mass residential looks unlikely to escape completely.

�� Unnerving sound of supply: 12,231 units pa over 2008-11F
We assume supply will remain modest in 2008F (8,364 units), but
completions should rise markedly thereafter, to 12,867 units in 2009F
and 15,043 units in 2010F, with the average at 12,231 units pa over
2008-11F. We note that over the course of 2007, the volume of new
supply forecast for 2008-11F rose by 10,829 units.

�� Demand remains firm: 9,064 units pa over 2008-11F
Our demand forecasts are broadly intact, with 2008-11F private sector
demand averaging 9,064 units pa, though with this demand slightly
skewed to 2010-11F, when the integrated resorts open. We expect
vacancy to fall to a low of 5.1% this year, but rise to 6.4% in 2009F,
before stabilising at around 8-9% over 2010-11F. We expect rents to
peak this year, and ease by 10.3% y-y in 2009F and 15.7% y-y in 2010F.

�� Withdrawal of pre-sale speculators?
With asset values likely to correct further over 2008-10F, we see
speculators becoming net sellers, weighing on pre-sale launch prices.
Smaller players are likely to initially trade price for volumes in 2008F,
with the larger players possibly having to follow suit — and as construction costs rise ever higher, this may well create a potential
downside surprise for margins and NAVs.


Capital values
Eye on the storm
Singapore’s residential market is moving quickly from a state of denial to now acknowledging the realities of falling asset prices. The exchange of SMS messages shown below highlights the rapid recent deterioration in the residential market.

In early March, an agent noted below to a prospective vendor for a unit in District 9: “The market for sale has gone quiet for now. Please advise if you still want to ask at $2400psf. Buyer sentiments are at the $1900-2000 range. In the next few weeks, price is expected to dip another 20% as some urgent sales by weak speculators of projects are being caveated and will become apparent to the market”

Two weeks later the same agent advised:
“They (buyers) are now looking below $2000psf. Market expectation lowered as more owners lower price. At the moment sentiments are weak, especially after the pull out of a fund from the purchase of a high end project. So now most buyers on a wait and see mentality. Unless its a genuine fire or urgent sale the interest level is not so high”

In what we see as something of an under-statement, an agent recently candidly summarised the current market:

“To be honest the market is very slow”
We see asset prices being driven lower by the marginal speculative sellers, amid low transaction volumes and higher unsold pre-sale inventories. Fundamentals aren’t supportive, on higher new supply and re-assessed rental expectations.

The 10 March decision by the Kuwait Finance House (referred to above by the agent) to withdraw from its decision made in mid-December to acquire Phase One of Goodwood Residence (comprising 97 out of 210 units) for S$818.4mn (about S$3,000/psf) in Bukit Timah is indicative of a market where asset prices are falling.

Analysis of sub-sale activity (units re-sold prior to completion) and caveats lodged in key residential developments suggest that asset prices have already fallen by about 5% over the first two months of the year, with falls of up to 15% in non-prime locations such as Sentosa Cove. This analysis highlights the broadening of the correction in asset prices, and is a natural extension of recent analysis by estate agencies that the decline in asset prices has been selective.

Sentiment in the market has deteriorated rapidly. While rampant expectations for capital growth in 2007 are now being checked by global economic concerns, the longer-term reality is that the domestic residential market will remain weighed down by increased new supply and unrealistically low yields. As launches are deferred amid weak demand, we see the prospects for a build-up of unsold inventory adding further
downward pressure to pre-sale asking prices.

Asset price outlook

We see the luxury residential market bearing the brunt of the changed realities in the market, and we envisage average asset prices in this segment falling 32.3% from the 2007 peak over 2008-10F — by 16.9% in 2008F, 10.3% in 2009F and 9.3% in 2010F, as rental growth slows and yields are re-appraised. This amounts to a major correction in luxury asset prices, though not a crash, with a 2010F average of S$1,847/psf,
marginally higher than the S$1,811/psf in the 1996 peak and 22.4% above the 2001 peak of S$1,508/psf.

Note: the forecasts above are averages. We expect greater falls for pre-sale units in selected developments and markets, with Sentosa Island and fringe CBD/fringe prime locations likely to bear the brunt of lower asset prices.

Mass residential prices appear on a firmer footing, supported by rental growth and prevailing yields. However, the advent of new supply and the resultant increase in rental availability in prime locations is likely to see demand that was once displaced to “non-core mass market” locations returning to prime districts, hurting non-core rents and ultimately mass market prices. As a result, we anticipate mass residential prices
remaining flat in 2008F (+0.5%), but as the new supply is completed in the prime districts, we expect prices to fall 10.3% in 2009F and 10.1% in 2010F — with prices to fall 19.4% from the 2008 peak.

However, as asset prices are known to overshoot rationale expectations, the risk is that in the current economic climate, asset price falls may overshoot on the downside, especially if developers defer launches, potentially increasing the overhang of unsold inventory, and/or cut prices to clear stock.

Rental / yield outlook

The key to our capital value outlook, and the sustainability or otherwise of current asset prices, is our outlook for rentals, and hence yields. We maintain our forecast for demand of about 9,000 units pa over 2008-10F, and expect average rentals to peak in 2008F, rising 5.0% y-y to S$3.64/psf pm, following rises of 14.1% y-y in 2006 and 41.2% y-y in 2007. We had previously pencilled in growth of 26.5% for 2007 and
18.2% for 2008F, and anticipated rentals would peak in 2009F (at S$4.00/psf pm).

Luxury yields are currently at a historical low of 2.77%, whereas mass market yields have risen on strong rental growth as demand has been displaced from core locales. While we expect real interest rates in Singapore to fall (mainly as a result of higher inflation rather than lower interest rates), we do not envisage these monetary conditions sustaining the historically low yields in the luxury market. As a result, we expect yields to rise from 2.77% currently to 3.00-3.50% over 2008-11F.
With supply on the rise, we expect rents to ease by 10.3% y-y in 2009F and 15.7% y-y in 2010F. Despite the declines, mass residential rents will still be 25.2% higher than 2003 trough levels.

Unnerving sound of supply

6,513 units in 2007

We estimate 6,513 units were completed in 2007 (source: URA, Nomura), versus average annual completion over the past 10 years of 9,062. However, due to demolitions as a consequence of en bloc transactions, we estimate the net increase in the private residential housing stock was only 1,448 units.

12,231 units pa over 2008-11F
The URA estimates that 56,516 units are scheduled for completion over 2008-11F. While we expect some slippage in project completions, we still expect total supply of 48,924 units. We assume supply will remain modest in 2008F (8,364 units), but should rise markedly thereafter, to 12,867 units in 2009F (below the URA’s estimate of 13,493 units) and 15,043 units in 2010F (URA: 18,509 units), well above our demand assumption of about 9,000 units pa.


Changing supply forecasts: 10,834 more units for 2008-11F
While an increase in new completions is increasingly being factored into the market, the key is the significant change in the volume of expected supply, compared with forecasts that were being made six to 12 months ago. Over the course of 2007, the volume of new supply expected to be completed over 2008-11F has increased from 45,687 to 56,516 units, an increase of 10,829 units, broadly equivalent to an additional year of new supply (see the exhibit below for details).


Tight construction market contributing to slippage

The increased volume of construction activity in Singapore, both for residential and non-residential projects, as well as the increase in commodity prices, has contributed to a marked pick-up in construction costs. According to the tender price index, construction costs in Singapore were up 23.2% y-y in 4Q07 (the residential tender price index was up 28.9% y-y). We estimate total construction costs plus interest comprise about 15-20% of the total cost for luxury developments and 25-40% of total costs for mass residential projects, with the key remaining cost being for land.

While rising construction costs are unlikely to have an immediate impact on developer margins, given the high level of pre-sales and fixed price contracts, margin pressure beyond our current forecast period is likely, with the lower achieved prices and higher input costs hurting NAVs. Given the interplay between costs and margins, it is perhaps more plausible to conclude that if the tight construction market starts to impact completions, such delays are more likely to impact the mass market rather than the
luxury sector, supporting our view of greater supply risks in the luxury sector

We already assume natural project slippage in new completions. We have analysed past URA data for two-year forward forecasts (for units under construction) over the six years covering 1999-2004. The URA’s forecast of 48,182 units was above the actual level of 46,178 units, a slippage rate of 4.3%.

New supply mainly in prime locales

The volume of new supply is focused very much on the prime districts of 9, 10 and 11 (broadly defined by the URA as the Central region) — these areas have been the focus of most of the en bloc activity in the past 24 months.

Invest Like the Best in 2008

By Jim Sinegal

Although our all-star fund managers found themselves against the ropes with the rest of the investment community at the close of 2007, you wouldn't know it from reading their shareholder letters.

Warren Buffett's advice to "be greedy when others are fearful" has become an investment cliché, but the 16 fund managers on our list have taken it to heart. Mason Hawkins and Staley Cates at Longleaf Partners (NASDAQ:LLPFX - News) see "tremendous opportunity" in the markets, while Christopher and William Browne at Tweedy, Browne Value Fund (NASDAQ:TWEBX - News) believe that "more attractive valuations" are forthcoming. Mario Gabelli of Gabelli Asset (NASDAQ:GABAX - News) believes "the most profitable investment opportunities come with blood in the streets." With Bear Stearns (NYSE:BSC - News) losing more than 90% of its market value in only a few days, there is certainly blood in the streets, but we think our expanding roster of 5-star stocks is evidence that this storm is set to help more than a few investment flowers bloom. The following table lists the fund managers whose holdings we surveyed at the end of 2007.

To see related chart, click here:

http://news.morningstar.com/articlenet/article.aspx?id=232128

Housing, Finance, and the Consumer
For almost an entire year, financial stocks have been making front-page news as the subprime housing fiasco spread to engulf global financial markets. Credit has become nearly impossible to come by, with the greed of the last several years being quickly replaced by fear. Despite--or perhaps as a result of--widespread hysteria, our all-star managers were buying financial stocks in the fourth quarter, with American International Group (NYSE:AIG - News), Ambac Financial Group (NYSE:ABK - News), MBIA (NYSE:MBI - News), Merrill Lynch (NYSE:MER - News), and Washington Mutual (NYSE:WM - News) on the list of stocks purchased by two or more managers, with AIG held by seven of the funds on our radar screen. Bill Miller of Legg Mason Value (NASDAQ:LMNVX - News) believes the markets are in for a period of "enantiodromia, the tendency of things to swing to the other side," and believes that stocks in the housing, financial, and consumer sectors are the cheapest he's seen since 1991, "an exceptionally propitious time to have bought them." Judging from the stocks other managers are buying, he does not seem to be alone in this opinion.

A Fourth-Quarter Shopping List
Marty Whitman at Third Avenue Value Fund (NASDAQ:TAVFX - News) continued to buy beleaguered insurers Ambac, MBIA, MGIC (NYSE:MTG - News), and Radian (NYSE:RDN - News) in the fourth quarter. While the sentiment toward these companies from the financial media, ratings agencies, and political establishment appears to be overwhelmingly negative, Whitman believes these companies have ample resources to pay out any likely claims. Selected American (NASDAQ:SLASX - News) managers Christopher Davis and Kenneth Feinberg also bought shares in MBIA at the end of the quarter. On the other hand, Davis and Feinberg placed Ambac in the "mistake" category in their year-end letter, admitting to misjudgments "in our assessment of the risk embedded in its portfolios, the possibility of the rating agencies removing its triple-A rating, and the likelihood of significant stock dilution." Whitman shared these fears, and a "sense of discomfort due to the dangers of Rating Agency subjective considerations and capricious regulators." Primarily due to their dependence on these factors, my colleague Jim Ryan currently maintains a "Not Rated" opinion on MBIA and Ambac.

Other stocks in the consumer and housing sectors made up the next largest portion of managers' fourth-quarter shopping list. Building materials company USG Corporation (NYSE:USG - News) suffered from the housing downturn, while Carmax's (NYSE:KMX - News) exposure to a slowing economy hurt the stock. Wally Weitz of Weitz Partners Value (NASDAQ:WPVLX - News) owns USG, explaining that "demographics suggest a positive long-term outlook" and that the time to buy cyclical companies is "when their businesses are weak and investors are fearful." Rounding out the managers' consumer stock buy list are the world's largest alcoholic beverage company, Diageo (NYSE:DEO - News), and drugstore chain Walgreen (NYSE:WAG - News). We believe both of these wide-moat companies deserve a close look when available at a fair price. The table below lists stocks bought by two or more managers in the last quarter of 2007.

To see related chart, click here:

http://news.morningstar.com/articlenet/article.aspx?id=232128

Finding Buys Among the Sells
Surprisingly, we think events during the last two months have created opportunities in some of the stocks sold by our all-star fund managers. Although high-quality stocks such as Berkshire Hathaway (brk.b.B), Yum Brands (NYSE:YUM - News), and Markel (NYSE:MKL - News) spent much of the fourth quarter in 3-star territory, recent market action has brought these stocks back onto our "Consider Buying" list. The Fairholme Fund's (NASDAQ:FAIRX - News) Bruce Berkowitz appears to expect further opportunities to arrive in 2008, holding shares in Berkshire, Leucadia (NYSE:LUK - News), and Sears Holdings (NasdaqGS:SHLD - News) as well as a sizable cash position. Finally, though Ariel (NASDAQ:ARGFX - News) and Oakmark Select (NASDAQ:OAKLX - News) reduced holdings in wide-moat tax preparer H&R Block (NYSE:HRB - News), my colleague Todd Young believes the stock is a potential buy at current prices. Also, because redemptions forced manager Bill Nygren to sell portions of several holdings in 2007, we're not reading too much into Oakmark's share reductions of H&R Block and other top positions. The table below lists the stocks sold by two or more funds in the final quarter of 2007.

To see related chart, click here:

http://news.morningstar.com/articlenet/article.aspx?id=232128

Although we're not sure when Mr. Market's mood will change, we share the belief that times like these create opportunities for the patient investor. With so many wide-moat, 5-star stocks available at discounts to our fair value estimates, we think the market is serving up numerous chances for individual investors to buy like the pros.

UBS report: Ready for a rally

�� Finding the silver lining

Despite higher volatility, largely reflecting financial market stability concerns and
expectations for a US recession, there is reason for optimism in global equity
markets. Monetary and fiscal policy response has been aggressive and more is
likely on the way. Thus, a major source of ‘tail’ risk appears to have been removed.
Coupled with attractive valuations, low interest rates, and reasonable earnings
growth, we believe prospects for a more sustainable rally in equities appear good.

�� Broad market support

Sectors that underperform in a sell-off also tend to recover the most. Thus, we add
to positions Financials and Consumer Discretionary. Even so, we believe a decline
in risk premiums is likely to provide a boost to market valuations making a broadbased
recovery. To reflect this more outlook we trim our defensive exposure
(Healthcare and Consumer Staples), which we upgraded in January.

�� Regions and stocks

We retain our regional allocations, where we are overweight in the US, neutral in
GEM and Japan, and underweight Europe and UK. We are making several changes
to our Global Top 40 stock list: Adding: Prudential Financial, News Corp,
Barclays, and BNP Paribas. We are removing State Street, Sumitomo Mitsui
Financial, BAT, and Novartis.

�� Lingering challenges

We recognize that a move to become less defensive could still be early given that
uncertainty could persist. Details of policy response are still unknown and global
growth is still under pressure, which may keep earnings expectations muted.

Volatility in financial markets has continued to ratchet higher in recent weeks.
With expectations for a US recession still on the rise and concerns about the
stability of the financial system acute, markets have reeled amid the uncertainty.
The collapse and buy-out of Bear Stearns over the last several days was the most
recent source of uncertainty and anxiety for markets to grapple with.

Yet, despite all of the angst, perhaps there is a silver lining. While fundamental
pressures on the US economy stemming from the decline in house prices persist,
the policy reaction to financial market turmoil has become increasingly
aggressive, particularly from the Federal Reserve. To be sure, response has been
necessary. Credit markets are under strain, banks have been under associated
stress, and pressures have seemed unlikely to abate on their own. But, the
nearing of a potential ‘bailout’ suggests that more of the current crisis is behind
us than ahead. This does not imply that the days of worry and volatility are
things of the past. It does, however, suggest that the uncertainty that has
depressed overall equity market valuations is likely to dissipate, leading to a
more sustainable rally than has appeared probable in recent months. Thus, we
are getting ready for a shift in markets to a more positive assessment of nearterm
prospects based on the policy response we’ve seen so far and what may yet
be coming.

In this report we outline our expectations for global equity markets in coming
weeks and months and look at historical sector and regional performance in a
recovery. We present a summary of work done by our Global Banks team that
looks back at a history of bailouts of the banking system to provide some
context about where we stand in today’s environment. We also look at prospects
for the sustainability of a rally given the underlying macro environment. Finally,
we address our current regional and sector allocations. Our conclusions follow:

�� Expectations for the arrival of concerted policy response should help to
alleviate pressures on the financial system and result in a broad equity
market rally. Indeed, a reduction of risk premiums is likely and will help
boost overall valuations which have room to rise materially.

�� Past examples of banking system bailouts should offer hope to investors.
Performance of domestic bank stocks following inception of a banking sector
bailout is usually robust, with an average gain of nearly 30% in three months.

�� The historical pattern of a market rebound suggests that the sectors that have
been under the most pressure also rebound the most. Therefore, we have
lifted our allocation to Financials and Consumer Discretionary. A long-term
sustainable rally in these sectors will require signs of more sustainable
growth potential. In that vein, challenges will persist. For consumers, balance
sheet repair is still needed. Meanwhile, financials face continued questions
about growth potential in coming years given shrinking balance sheets.

�� The rally in stocks we envisage is more about falling risk premiums (rising
multiples) than about a change in fundamental expectations. Therefore, we
are trimming our exposure to defensive sectors which we upgraded in January.
In particular, we are trimming Consumer Staples and Healthcare to
Neutral. We retain overweight positions in Technology and Telecoms.

�� Regionally, we are keeping our current recommendations unchanged. We
remain overweight in the US, neutral in Global Emerging Markets and Japan,
and underweight in Europe and the UK.

�� We are making several changes to our Global Top 40 stock list. We add
Prudential Financial, News Corp, BNP Paribas, and Barclays. We remove
State Street, Sumitomo Mitsui Financial Group, BAT UK, and Novartis.

�� We recognize that a move to get less defensive still could be somewhat early.
Uncertainty may linger for the financial sector and for the equity market as a
whole as details about further policy action are debated. Moreover, overall
economic conditions remain challenging and recession in the US appears
probable. To that end, sustainability of overall earnings growth may remain a
concern. This suggests that a prolonged rally requires signs that a slowing in
US growth will be relatively short-lived and mild. For financials, long-term
growth prospects for the sector will continue to be questioned.

Policy response, fundamentals and valuations

Actions already taken by the Federal Reserve over the last nine months in
response to the housing and financial market crisis have been significant. Those
actions include cuts of 300 bps in the Fed Funds rate and 375 bps in the
Discount Rate since August, creation of the Term Auction Facility (TAF), Term
Securities Lending Facility (TSLF), Primary Dealer Credit Facility (PDCF), and
involvement in term-funding of Bear Stearns. In addition to monetary policy
measures, there has also been fiscal action, with a tax rebate approved by
Congress.

Further, we believe that there’s a probability of additional measures that will be
taken by Congress and, perhaps, the Fed to provide more stimulus and liquidity
to the economy and to markets. The combination of these measures should act as
a stabilizer against the instabilities caused by the weakness in the housing
market. Our Global Banks strategy team has compiled a history of banking
system bailouts that compare similarly to the current environment. They also
show how markets have performed in periods following bailouts. In short, when
policy is implemented, markets tend to respond positively. We provide a brief
summary of their findings on page 6.While not reason, alone, to become positive
on the outlook for equities, we believe policy action will be successful.

Therefore, coupled with other positive factors, equities appear oversold.
As we have highlighted often in recent months, absolute valuations on global
equities are attractive. Current market levels are consistent with ‘trough’
valuations coupled with near-trough earnings. To that end, value exists in
markets, and there’s considerable scope for multiple expansion without
threatening aggressive valuation levels. Moreover, multiples can expand against
a backdrop of slowing earnings growth.

Low levels of nominal and real interest rates also favour equity markets. Real
interest rates (the real Fed funds rate is now negative) are supportive of overall
equity market valuations. Moreover, the low level of interest rates has resulted
in continued rise in the equity risk premium (Chart 3 and Chart 4). Of course,
interest rates have been low for some time and have favoured equities. But, a
shift in sentiment and decline in uncertainty will allow for risk premiums to fall
and, hence, equity multiples for the market to rise.

Markets are likely to require reasonable earnings growth to sustain a rally
beyond short-term short covering that is driven by expectations for policy relief.
While we continue to believe that earnings growth is slowing globally and that
bottom-up estimates for this year remain somewhat optimistic (particularly in
emerging markets), though there have been downgrades to earnings estimates in
recent months. At the same time there are other sources of support. As we have
highlighted regularly, the health of corporate balance sheets globally is positive
for valuations and fundamentals. Moreover our US strategy team still expects
earnings growth to hold up this year, which would almost certainly help to
support valuations, and current earnings remain solid. For example, in the US,
we expect nearly all sectors to post positive growth in Q1.

How to position for a market rebound

Looking back over previous market sell-offs (-10% from 12-month peak) that
are followed by a sharp rebound (greater than 10% in three months) we find that
the sectors that led markets lower also tend to lead in the recovery (Chart 5).
This is an intuitive result insofar as a rebound in markets is probably driven by a
change in fundamental expectations that allows the most impaired sectors to
recover, while short-covering in bombed out sectors also reverses course.

As stated above, we believe that markets are poised for a broad recovery in
valuations driven by a decline in risk premiums. These moves are likely to
benefit the whole market. However, the historical pattern of a market rebound
suggests that the sectors that have been under the most pressure over the last
year (financials -22% and consumer discretionary -16%, compared to the market
which has been roughly flat) have potential to rebound sharply in the near-term.
Therefore, we have lifted our allocation to both of these sectors (financials to a
small overweight, consumer discretionary to a smaller underweight). Some of
the move in share prices will likely be a function of short-covering, while
additional gains will require signs of more sustainable growth potential.

In that vein, both sectors face hurdles that are unlikely to be cleared quickly. For
consumers, the US appears still at the early stages of recession, the
unemployment rate is likely to rise, and the downturn in housing will continue to
force household balance sheet repair. Meanwhile, financials will face continued
questions about growth potential in coming years given shrinking balance sheets.
These concerns are apt to cap valuations until growth and profitability
expectations become clearer. Thus, over a strategic horizon, both sectors may
struggle to outperform beyond an early-stage rally.

We are also making other changes to our recommended sector allocations. In
particular, we are cutting our position in defensive sectors – Healthcare and
consumer staples move from overweight to neutral – which we upgraded in
January. This reflects our more positive assessment of broader market
conditions and still-high relative valuations of these segments of the market. We
retain a preference for sectors that are exposed to business spending (e.g.,
Technology) relative to those with consumer exposure.

Our regional allocations remain unchanged. The US is our only overweight
region. We are neutral in Global Emerging Markets and in Japan. We are
underweight in Europe and the UK.

Banking bailouts: A history lesson

Our Global Banks Analyst Philip Finch published a report on March 17th called
“UBS Global I/O™: Banking Crisis – A banking bailout?” which takes a close
look at past banking crises and the parallels we can draw from them to help
understand the current turbulence. The team looked at four other crises with
similar features to today which were preceded by a long period of over-lending
and were all derived in one way or another from a real estate bubble. These bank
crises are 1) The Great Depression of 1929, 2) the Savings and Loans crisis in
1986, 3) the Swedish banking crisis in 1992 and 4) the Japanese banking crisis
of 1990. Stacked up against these prior episodes, the current subprime crisis
ranks second in terms of its cost as a percentage of GDP.

In these past instances, a fiscal policy response which was aimed right at the
underlying cause of these crises in hindsight marked a turning point in the
performance of the financials sector. Table 2 shows how on average the
financial sector returned 148% in the twelve months after the inception of the
government bailout. The team believe a swift response from the US government
this time could lead to a similar rally.

Risks

We recognize that a move to get less defensive still could be somewhat early
given the potential for concerns about the financial system and the economy to
linger. It will also be important to see how policy response evolves in coming
weeks to determine how much relief markets can anticipate. Overall economic
conditions may remain challenging as recession in the US appears probable. To
that end, sustainability of overall earnings growth may remain a concern as will
fears of a spreading global slowdown. These growth concerns could be most
acute in Europe and Emerging markets, where growth expectations have been
more stable. Moreover, materials and energy stocks could be vulnerable if
demand concerns finally trump expectations for limited supply, driving prices
lower.

Investment Themes

�� A broad recovery. Monetary and fiscal policy response
to financial and housing market troubles has been
aggressive and more action is likely, though details of
further steps are still lacking. Combined with good
valuations and low interest rates, we believe conditions
are in place to see a decline in risk premiums that drives
valuations higher and results in a more sustainable rally.

Sectors

�� Downgrade the defensive sectors. We cut positions in
Consumer Staples and Healthcare, as a broad market
rally makes holdings of defensive sectors, where
valuations are not cheap, less attractive.

�� Upgrade financials and consumer discretionary. We
upgrade these sectors based on historical experience
that the sectors which led sharp market sell-offs also
tend to perform best in the recovery. Longer term these
sectors still have structural problems to work through
before they are likely to sustain longer-term out
performance.

�� Overweight positive fundamentals. We take our
biggest overweight positions where we think
fundamentals are most positive longer term. Non
financial corporates have restrained capex this cycle
and have clean balance sheets. In general, therefore, we
prefer exposure to sectors with exposure to business
spending rather than consumer spending.

Regions

�� A preference for the US over Europe. European
equities have more headwinds to overcome including
slowing GDP growth, larger earnings downgrades,
strong Euro, and reluctance of the ECB to cut rates.

�� Neutral Japan. On many metrics Japan looks to offer
value. Investor sentiment remains cautious however
waiting for a catalyst for improved performance.

�� GEM outperformance less likely. As performance has
lagged in the developed world GEM now trades at a
premium to the world and could suffer a pullback if
economic concerns begin to shift East. Moreover, there
has been little downgrade of earnings in GEM.
Styles

�� Large Cap, Growth. We maintain a preference for
both large over small caps and growth over value.

�� Low Debt. Move up in credit quality and prefer strong
balance sheets given the pressures highly indebted
companies face in tough credit markets.

Risks to the view

�� Challenges remain Much of the stemming of systemic
risk in the financial markets was predicated on a fiscal
policy response from the US government. If this fails
to materialise or the Fed disappoints with future
monetary measures, substantial uncertainty could return
to the capital markets.

`Big Rally' for Stocks to Continue, Jim Rogers Says

March 19 (Bloomberg) -- U.S. stocks, which surged the most in five years yesterday, will likely continue their rally this year because the ``out of control'' Federal Reserve is cutting interest rates to save investment banks from collapse, investor Jim Rogers said.

The Fed's support is ``why we're having a big rally, but that's not going to solve the problem,'' Rogers, chairman of Rogers Holdings and co-founder of the Quantum Hedge Fund with George Soros, said during an interview with Bloomberg Television from Singapore. ``The system is terribly corroded.''

The central bank is helping securities firms while delaying and deepening a bear market and recession, said Rogers, who is betting against financial shares. The Fed cut its benchmark for overnight lending between banks yesterday, continuing the most aggressive series of reductions since the rate became an explicit policy target in the late 1980s.

The Standard & Poor's 500 Index jumped 4.2 percent yesterday, the most since October 2002. The index this week dropped as much as 19.7 percent from its October record, nearing the 20 percent threshold of a bear market, following $195 billion in bank losses from the collapse of the subprime-mortgage market.

No `Bullets Left'

``What are they going to do when it's down 30 percent or 40 percent or 50 percent?'' Rogers said. ``They're not going to have any bullets left. They're not going to be able to solve the problems at that point.''

Rogers, who predicted the start of the commodities rally in 1999, traveled the world by motorcycle and car in the 1990s researching investment ideas for his books, which include ``Adventure Capitalist'' and ``Hot Commodities.''

Rogers said he continues to short Citigroup Inc., Fannie Mae and investment banks via an exchange-traded fund tracking financial firms and increased his bearish bet last week. Short selling is the sale of borrowed stock in the hope of profiting by repurchasing the securities later at a lower price.

The Standard & Poor's 500 Financials Index, which surged 8.5 percent yesterday for the steepest advance since March 2000, closed at a five-year low on March 17.

Taiwan stocks are attractive, Rogers said. The nation's Taiex stock index has slumped 3.8 percent this year, trailing only Brazil and Argentina as the best-performing stock market among the world's 20 largest, according to Bloomberg data.

Halfway Through

Rogers, whose commodities index has climbed more than fivefold since its inception in 1998, said raw materials are about halfway through their rally.

He also said the dollar, which has declined 15 percent against the euro in the past year, is likely to weaken further. The Fed should stop cutting rates, which would end that decline, Rogers said.

The Fed's mandate is ``to keep a sound currency, not to prop up Wall Street,'' said Rogers. He recommended selling the dollar in a Nov. 15 interview. The currency has fallen about 6.6 percent against the euro since then.

Barton Biggs says Dow could rally 1,000 points

By Brian Sullivan and Michael Patterson

March 14 (Bloomberg) -- The decline in U.S. stocks is ``way overdone'' and the Dow Jones Industrial Average may rally 1,000 points, investor Barton Biggs said.

``We're in a financial panic,'' Biggs said during a telephone interview with Bloomberg Television from New York. ``We're setting up for a really big rally. I don't mean three or four hundred points on the Dow, I mean 1,000 points on the Dow. I don't know if we're going to get it next week or the week after. But this thing has gotten crazy and is overdone.''

Biggs, a former Morgan Stanley strategist who now runs the $1.5 billion hedge fund Traxis Partners LLC, said stock markets from Germany to Hong Kong may bottom out soon after tumbling this year. Biggs's prediction in March 2007 that U.S. stocks were near a low preceded a 16 percent rally in the Dow average during the next four months. His forecast that the Dow would climb as much as 19 percent in 2007 overshot its actual gain by almost 13 percentage points.

``We're at a really crucial point,'' Biggs said. ``This is a time to be buying stocks around the world and not to be selling them.''

The Dow average has tumbled 16 percent to 11,951.09 since reaching a record in October after the subprime-mortgage market's collapse caused $195 billion in asset writedowns and credit losses at global financial firms including Citigroup Inc. and Bank of America Corp. A 1,000-point gain in the Dow from today's close would amount to an 8.4 percent rise.

U.S. stocks plunged today for the third time this week, sending the Dow average down 1.6 percent, after Bear Stearns Cos. required a bailout from the Federal Reserve and JPMorgan Chase & Co. to avoid collapse.

``Yeah, it's scary. It's always scary at bottoms. But I don't believe the economy is collapsing,'' Biggs said. ``This is not the end of the world.''

Urging for peaceful dialogues to resolve Tibet issue

Hi all

A friend sent me an email below, which I think will put things in perspective.

===========================

Dear all,

A friend had sent me an email asking what's my take on the violence and how it came about. As it was on the tv news that China president Wen Jia Bao stated that the violence is organised and planned by the "Dalai group".

Initially I didn't want to send out mass emails as I am not really interested in politics. However, after some consideration, I decided that I should play a part in raising some awareness of what little I know of the Tibetan community and especially the Dalai Lama and his govt-in-exile (having stayed in India and lived among the Tibetan community for a while). Just as I think the media (esp Chinese media) is quite biased in their reporting, I too, am unable to provide a complete picture. However, I believe it is only fair to provide different perspectives so that people are better informed, and are able to reach your own conclusion about this matter.

No matter what our stances are regarding the historical dispute of Tibetan land ownership, I think most of us are joined in our common wish for the Tibet issue to be resolved peacefully, with minimum harm inflicted upon both Chinese and Tibetans alike.

My main message is that, the Dalai Lama is NOT requesting for Tibetan Independence. He is NOT asking for Free Tibet. He is FOR an autonomous Tibet under Chinese rule and has always been requesting for peaceful dialogues with the China authorities, but had not received any positive response. http://www.dalailama.com/news.42.htm

This recent outbreak of violence in Tibet is NOT instigated by the Dalai Lama. Given his status in the Tibetan community, he had plenty of other chances to do that in the past, but he had never done so. He always encouraged Tibetans to be kind and patient towards the Chinese. In fact, due to his insistence on seeking autonomy via the peaceful approach, he has been losing support from his very own people.

http://edition.cnn.com/2008/WORLD/asiapcf/03/18/tibet.independence/

My main aim is not to stir up feelings of negativity towards any party, but rather hoping that more people would understand and support the call for China to engage in a dialogue with Dalai Lama. China needs to understand that Dalai Lama can help them deal with the Tibet issue, that Dalai Lama is not against them.

So for people who are interested to find out a bit more, please read my reply to my friend below. If you're not interested, please just ignore what I wrote. What I am writing here is also entirely based on my personal subjective point of view, so do take everything with an open mind, as well as with a pinch of salt. If after your own research, you also arrive at the same conclusion as I do - that peaceful dialogue and non-violent approach is necessary - then you may wish to, in your own little ways, help raise awareness among people and urge their support for a peaceful resolution.

My prayer of encouragement for the Dalai Lama, quoted from :

"Although someone broadcasts throughout a billion worlds

A legion of libel about you,

In return, with a mind full of love,
To tell of their good qualities is the practice of bodhisattvas (heroic beings)."

I also pray for all - friends, relatives, enemies and strangers - to:

(1) have happiness and its causes;

(2) be free from suffering and its causes;

(3) be never separated from sorrowless bliss;

(4) abide in equanimity, free of bias, attachment and anger.

With love,

Jing Rui

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

My reply to a friend's question on my take on the Tibet unrest:

I am very sure dalai lama isn't involved in the violence, because he has always been very clear that it wouldn't help at all. His stance has been going for autonomy, not independence. And because of this, he has been risking the loss of support from Tibetans themselves, as there's a large group of Tibetans who emotionally want their own free and independent country and not an autonomous region of China.

When I was in Dharamsala in India (where dalai Lama's govt in exile operates), I could see that some of the Tibetans were struggling with the conflict of giving dalai lama very high respect and thus trying to practice restraint, yet also bursting with much anger and anguish towards the China govt and their plight of not being able to have a land and identity they cal their own for half a century. A few more vocal ones expressed their disappointment with Dalai Lama's decision to go for autonomy and support for the Olympics, whereas most Tibetans kept their sadness and disagreement within. Earlier on during the nomination stages, Dalai Lama already supported China hosting Olympics. Even now after the Tibet unrest, Dalai Lama still says that China deserves to host Olympics. All these have costed Dalai Lama support among his own people. Yet it is such an irony that China govt still insists that he is a separatist and his main aim is to split China.

Before this episode, sensing the anguish among the Tibetan community, I already thought that if China still doesn't engage the Dalai Lama, something will happen one day. Because the only reason why Tibetans have been showing restraint for past 49 years is out of their respect for the Dalai Lama. He is probably the only figure who can help China work out a peaceful way of integrating the Tibetans into China, because he still enjoys a very privileged position of being very widely revered and adored by the Tibetans. If China continues to wait for him to pass away (which is what they've been doing) or wait till he no longer has that kind of influence over the Tibetan community, then it would be very difficult to unite Tibetans. Anyway, China doesn't really need to care, they have the patience and capability to wait until the last Tibetan of this generation dies.

There are many other things that have been happening in Tibet, China itself in recent years and months that probably led to the escalation of the conflict too. They have been systematically doing quite a lot of things that increased the Tibetans' fear of losing their culture and traditions. Although I'm sure the China govt also did some good things like economic progress, but at the same time they've also done things that really added a strong sense of threat and insecurity to the Tibetan community. In the past, they only made the Tibetans read anti-Dalai Lama verses once in half a year; now they increased the frequency to two months once -it's really a direct hit at the heart of the Tibetans who really really really love dalai lama dearly ("really" many times, coz I saw it when I was in India). They stopped the system of young boys becoming lamas and said they can only do it after the age of 18, which has very great impact on the entire Buddhist education system in Tibet. They checked and scrutinized large monasteries and sent spies to India to check on monks who visit Dalai Lama or Karmapa in India and threaten to close down their monasteries. This is not hearsay, it's through personal contact I know of these things happening. The monastery in question is not at all interested in politics, they went to see Karmapa because he's the spiritual head of their school and they need his advice on their spiritual practice. The govt doesn't believe in reincarnation but elects the reincarnated Panchen lama. They also want the lamas to apply through the govt to be reincarnated in their next lives. All these are simply ridiculous and unnecessary.

In India we watched the Tibetan (China) channel and we could see that Dalai Lama has frequently been portrayed as the evil person in the channel. Even in the news, something as trivial as the grassroots leaders teaching the Tibetan locals how to use a fire extinguisher, they must add a comment that, "now the locals know how to protect themselves, in case the Dalai group sets fire on them". Now if I were a Tibetan, I would either be brainwashed into thinking that Dalai Lama is really an evil person, or I would feel really oppressed and unjust.

The other main thing is China brought an influx of Chinese into Tibet, successfully making Tibetans a minority in their own area. Statistics in 2007 stated that there are 6 million Tibetans and an estimated 7.5 million Chinese, most of whom are in Kham & Amdo (taken from Tibetan Voice, an Australian Tibetan magazine in English). In a government agency in Tibet, with 100 job openings, only 2 Tibetans got the job, while Chinese immigrants got 98 of the jobs. How then would the Tibetans feel happy under Chinese rule, when they've been treated as second class in their own area? The large extent of unemployment coupled with loss of own cultural identity breeds much discontent and unhappiness among the Tibetans, especially the Tibetan youths, who are also the main people pushing the Tibetan movement this time round. These are also the young people, who no longer feel as strongly towards the Dalai Lama as their fathers do. These young people are now the ones who are now asking Dalai Lama to give up on his "middle way approach" towards seeking autonomy and demanding for free tibet.

I don't want to come across as blaming the China govt either. There are many circumstances that lead to Tibet's plight today. But one must also understand why there is such resentment towards the China govt among the community, even though China supposedly brought more wealth and progress to selected parts of the region. If China has brought about so much development and freedom, why are so many Tibetans now still risking their lives to flee to India to become a refugee and live in poverty? Who would want to live as a refugee?? Ruling by military and iron fist just won't win you the hearts of the people. As the Chinese aphorism goes, a leader needs to "yi3 de2 fu2 ren2" - win the hearts of people through your virtues.

I personally believe Dalai Lama is the key and that China should not be afraid of him but actively engage him in dialogue, because then he can help China. Now China is rejecting dalai lama's help and just blankly stating that he's behind the violence- it's not going to help at all.

A number of Tibetans monks whom I know of had stated that while emotionally they feel they're Tibetan, they are able to accept that the nation-state is impermanent and they're not so concerned about Tibetan independence. Some say that now they think it's a good idea to be part of China. But they're really more concerned about the preservation of the Buddhist teaching and the system of the Buddhist education. As Tibet is probably one of the last living Buddhist traditions that still preserves an almost complete system of Buddhist philosophy and path. Once it gets interrupted, it's a loss to the whole buddhist community, and in my opinion, to the whole world too.

I hope China is able to show the evidence of Dalai Lama's involvement though, because it's just so unfair to Dalai Lama and proponents of the peaceful Middle way approach.

http://english.aljazeera.net/NR/exeres/2AE64C35-7CD5-4734-938A-82AFF9903485.htm

http://sg.news.yahoo.com/afp/20080318/tts-china-unrest-tibet-rights-dalai-resi-a73cdd6.html

http://sg.news.yahoo.com/afp/20080316/tap-china-unrest-tibet-rights-8d4ea94.html

Why I fwded the Avaaz letter to some of you is also because I think their approach is correct - urging for peaceful dialogue with the dalai lama. I'm not sure if it'll help, but I reckoned the least I can do is to lend some support to these activitsts and also to try to raise some awareness of what I know about the situation, and hopefully lend some perspectives which has not been really reported by the chinese media.

While initially I was upset and worried for the Dalai Lama, later I felt more settled, as I am sure that Dalai Lama, having practiced Buddhism for such a long time, would have the wisdom and patience to be able to live under such accusations. After all, it takes an adversity to show the strength of one's character. The power of peace is a long and arduous path and not without its challenges. But I believe, in the long run, his insistence on adopting a peaceful approach will bear fruit and people will appreciate the wisdom of remaining unmoved by agression.

With regards,

Jing Rui

Hi,

I just signed an urgent petition calling on the Chinese government to respect human rights in Tibet and engage in meaningful dialogue with the Dalai Lama. This is really important, and I thought you might want to take action:

http://www.avaaz.org/en/tibet_end_the_violence/98.php/?cl_tf_sign=1

After nearly 50 years of Chinese rule, the Tibetans are sending out a global cry for change. But violence is spreading across Tibet and neighbouring regions, and the Chinese regime is right now considering a choice between increasing brutality or dialogue, that could determine the future of Tibet and China.

We can affect this historic choice. China does care about its international reputation. Its economy is totally dependent on "Made in China" exports that we all buy, and it is keen to make the Olympics in Beijing this summer a celebration of a new China that is a respected world power.

President Hu needs to hear that 'Brand China' and the Olympics can succeed only if he makes the right choice. But it will take an avalanche of global people power to get his attention. Click below to join me and sign a petition to President Hu calling for restraint in Tibet and dialogue with the Dalai Lama -- and tell absolutely everyone you can right away. The petition is organized by Avaaz, and they are urgently aiming to reach 1 million signatures to deliver directly to Chinese officials:

http://www.avaaz.org/en/tibet_end_the_violence/98.php/?cl_tf_sign=1

Thank you so much for your help!

The principle behind technical analyst David Bensimon's accurate forecasts
lies in the symmetries in markets, reports GENEVIEVE CUA

MAKING forecasts is a tricky business, as many analysts and fund managers will tell you,
but it does not faze technical analyst David Bensimon.
Some of his calls on the markets have been so precise that on one of his
speaking engagements, it spurred an impromptu bidding war among some in the audience for
an on-the-spot copy of his award winning tome on markets, Polar Perspectives.

Mr Bensimon: Asia is in for a prosperity-driven inflationary era

One of the bidders paid for his copy with a gold coin. Worth about US$700
then in November, it was about equal to the price of the book. But the coin
has since appreciated, as Mr Bensimon notes with amusement.

The book last year won a gold medal as the 'best book in finance/
investment/economics' at New York's annual independent publishers awards.


Mr Bensimon's fundamental view is that most of the world - Asia in
particular - is in for a 'prosperity-driven inflationary era' over the next
few years, notwithstanding the jitters over the credit crisis. His
long-term view, for instance, is that the Straits Times Index (STI) will
hit 9,000 and the Hang Seng Index 100,000 by 2012; and gold will climb to
US$2,600 an ounce by 2014.

He has set up a fund to invest according to the themes of his book. One of
his first investors is Stephen Riady of the Lippo Group.


His forecasts may sound quite incredible, until you learn of his near-term
calls on markets which have turned out uncannily right. Last October, for
instance, he told an audience in Singapore that the STI would fall 15 per
cent from its level of 3,900 then to 3,300 shortly. The index fell from
3,906 to 3,306 within six weeks of his call. In The Business Times in
August, Executive Money quoted him as saying that the STI would fall to
2,800; the index was then at 3,300. It fell to a low of 2,866 in January.


The principle behind Mr Bensimon's calls lies in the proportionalities and
symmetries in markets, which he sees as functions of 'phi', also called the
'golden mean'. This is expressed in the number 1.618 and its inverse 0.618.
As he sees it, these symmetries permeate markets, and this is evident in
the scale of market rises and even in the pattern of retracements across
time. His calls have gained a following among banks, traders, hedge funds
and private individuals.


The outcome of a forecast, he says, is not cast in stone but is based on
probabilities. 'The power comes not from saying that markets will do this
or that. It comes from recognising that different alternatives can unfold,'
he says. 'The benefit is not to say the market might go up or down, that's
not of value to anyone. The value comes from being able to say that if the
market chooses this northward path, it will go this far and no more. If it
takes the southward path, it will go this far to a target.


'My speciality is to provide clients with a magnitude of duration and time,
of price and specific levels and dates . . . March does provide a broad
turning point that crosses different markets, not just the STI or equities
but across a spectrum.'


He believes the STI, currently trading at the 3,077 level, could still face
yet another downdraft. It needs to exceed 3,300, he says, to confirm that
it is out of the woods. Until then, there is a 'distinct risk' that it
could fall another 15 per cent to 2550, which will be a buying opportunity.
'In Singapore if we break the 2,850 level, the next level down is 2,550
which seems a little far and rather cheap. But these motions are driven by
panic and over-extension on the downside. But I'd be happy to invest
anywhere from 2,800 to 2,600 because at those levels, it's really very
cheap.'

He said: 'One of the benefits of looking at the very big picture history is
that it provides a degree of comfort and confidence that when we are in a
corrective mode, instead of being worried and panicking, we can be
comfortable that we know what the rhythm is and can recognise the
relationships. We know we'll get to the ultimate target of 8,800 or higher
several years from now, and there are natural levels to re-enter the
market.'


His view is that Asian markets - Australia, Shanghai, Singapore and in
particular, Hong Kong - will move in synch upwards. 'Asia will benefit from
the huge fundamental growth and prosperity sweeping across
the region, that is not in any way harmed by the slowdown in the US.
Asia now has enough internal demand and intra-Asian trade
and infrastructure and consumer spending that it has a life of its own.'


He notes that historically, in past US recessions, the stock market has
anticipated a recovery and rises well before the recession ends. 'There is
no impediment to have markets bottom in March, and have them recover
sharply even if a recession technically continues in the next few months.'


His views on oil and gold are positive but not equally so. He expects oil
to reach US$125 a barrel this year and to move sideways for two years.
'We're still en route to US$125, but the big story is that once we reach
US$125, everyone will scream that we're on the way to US$200
and that's not what's going to happen. '


The catch, too, is that consumer prices will not be adjusted downwards
during the consolidation period. 'The margins for products will be fabulous
and will power the stock market to much higher levels because the reduction of the oil price
will translate directly into the bottom line for
corporates in the industrial and financial sectors, telecom and blue chips.
They'll all be lifted by prosperity.'


He is bullish on gold in the long term but expects some consolidation this
year before it moves to US$1,030 an ounce in 2009, and eventually US$1,220 in 2010.
But the most rapid rise is expected between 2011 and 2014 when he expects the price to hit US$2,600.

Bearing the Bad News

by Ben Stein

Let me be the first to agree: The finance news lately is bad.

The collapse of venerable firm Bear Stearns in the past few days has been dazzling. The company was supposed to be worth a bare minimum of $80 per share. It turns out to have been worth one-fortieth of that -- a catastrophe for its employees, whose fortunes lay largely in Bear's stock (a super-good lesson in diversification for everyone).

That a business with a stellar reputation for measuring risk got it so wrong is a bad augury for other Wall Street firms. It turns out that the Street has been run largely as a gigantic casino, only a casino in which the house could lose big.

Waiting for the Other Shoe

Obviously, we're all wondering when the next shoe will drop, or if there will be another one at all.
In this environment, bank lending is curtailed and the legitimate work of Wall Street -- financing business investment -- slows down drastically. This, and not the collapse of Bear, is what will hurt the economy, and affect stock prices in the long run (or the medium run).
There's also an endless torrent of bad news about the falling dollar. Seven years of wild mismanagement of the federal budget by the Bush administration are coming home to roost. Bush, for whom I voted twice, inherited a giant surplus, and turned it into a giant deficit by his greatly excessive tax cuts. The need to finance the deficit has made the United States into the world's beggar, going from door to door with a tin cup.

A Perfect Storm

The need to finance the staggering trade deficit is even more horrific. We borrow close to $1.6 billion a day to feed our cars and air conditioners. These two deficits have simply demolished the value of the dollar. This has led to a self-reinforcing cycle in which oil states demand more dollars to offset the falling dollar and we need to borrow more to pay for those higher prices; this in turn leads to a still lower dollar, higher oil, and on and on.

Then there's the housing correction. Housing prices are falling in every part of the nation except Manhattan, and you can be sure Manhattan will join the ranks as soon as bankers lose their jobs. Homeowners get a bit discouraged when their homes fall in value, and this keeps them from buying at the local department store, which slows down the economy, too.

In other words, there is what some might cal la "perfect storm" of bad news on the economy.

Anti-Depression Tactics

However, as your oldest columnist, let me give you a few words of encouragement:

First, when recessions are building and when economic activity slows, the landscape always looks uniquely bleak. Commentators always say, "This time it's different and this time it's going to be another Great Depression." It isn't going to be another Great Depression, not by a long shot.

The Great Depression was caused by a Federal Reserve deliberately trying to slow down the economy and drastically overshooting its mark over and over again. This time, the Fed is actively stimulating the economy and flooding it with liquidity. To be sure, this effect is damped by the dim mood on Wall Street, but it always eventually gets traction and money starts to spread throughout society.

Unless the Fed is actively seeking to crimp economic activity -- as it did in the late 1970s and early 1980s, when we had the worst postwar recession -- there will not be a genuine depression. There could be a recession and there probably will be, but a real depression, with long-term unemployment over 15 percent, is a most unlikely prospect with a pro-expansion Fed.

Expansion on the Horizon

True, there are those immense federal budget deficits, which undeniably create havoc with our long-term dollar valuation and also create inflation. But in the short-run they're stimulative. They basically borrow from our grandchildren to buy goods and services today, and this is good for us right now.

So to have a serious downturn with a super-stimulative Fed and stimulative fiscal policy would be extremely rare.

Wall Street will suffer, and it will drag down the innocent as well as the guilty for a time. But eventually, the Fed moves will ease the pain for everyone, and people will once again start making money by lending money. Commodities will be a problem, too, but they always move in cycles. This one will come down, too, although it may take a very long time.

Finally, the immense surpluses that the far Eastern states and the petro states generate have to be invested here. There's simply no other market large enough to absorb them, and that, too, will be expansive.

Buy Now, Reap Later

In a word, this is going to be a rocky time for a while. Good people will suffer. But we'll get through it, and there will be no Great Depression in the foreseeable future.

If you have a good, long time horizon, it's time to buy European stocks, emerging markets, even our own market. But don't let yourself get short of liquidity. If you have a few years of cash and bonds on hand, get some stock now while there's blood in the streets. The good times will come back when you least expect them.

Outwitting the Bear

by Paul Merriman

Ten ways to crash-proof your investments

Everybody's a genius in a bull market, the old saying goes. But a bear market creates fear, uncertainty and costly mistakes.

The conventional definition of a bear market is a decline in stock prices of 20% or more, lasting at least two months. As markets have become more diverse, experts have developed other measures, too. Whether or not Wall Street is in a bear market, every investor can have his or her personal bear too. Your personal bear market is an unbearable price fall in the value of your nest egg.

You can experience two types of bear markets, temporary and permanent. Markets tend to go up and down and then back up. In a temporary bear market, you lose 20% or more but eventually recover. In a permanent bear market, you lose 20% or more and you never get it back. All the historical evidence I've seen indicates that a properly diversified portfolio has never suffered a permanent bear market. Unfortunately, some common investor behaviors can easily turn temporary losses into permanent ones.

Here are 10 ways to avoid permanent losses and crash-proof your portfolio:

1. Diversify among many stocks

If all your money is in Washington Mutual (WM) shares, you're hurting because of the sub-prime mortgage mess. Microsoft (MSFT) shares are still worth less than half their value at the start of 2000. If you own a diversified portfolio, you're unlikely to suffer that kind of pain. Own thousands of stocks via mutual funds.

2. Diversify across many sectors

Financial services and homebuilders are doing poorly now. Yet energy, natural resources and export-intensive industries that benefit from a weak dollar are holding up better. Own the Standard & Poor's 500 Index (SPX), and you're invested in energy, industrials, information technology, consumer products, healthcare, telecommunications and much more.

3. Spread your portfolio among different asset classes

Be sure to look beyond the S&P 500 to achieve this goal. Examples include value, small-cap, large-cap and growth. Every asset class we recommend has a long-term history of success. They have made money despite plenty of temporary losses.

4. Spread your investments geographically

I'm not talking about country funds. The answer is not to put some of your money in Brazil, a little in India and some more in Germany. The answer is to diversify throughout the world. International index funds are the best way to do this.

5. Don't forget fixed income

Even with all this diversification, you still need some fixed-income investments such as bond funds. Don't expose your entire portfolio to the stock market. Fixed-income funds can be a great stabilizer. Just how much fixed income you need depends on your circumstances, and figuring this out is worth spending some time with a good financial advisor. Further reading: "Fine tuning your asset allocation."

6. Consider a mechanical defensive strategy to limit losses

Active risk management isn't for everyone, but it is possible to follow systems that let you invest in an asset when its price is rising and switch to cash when its price is falling, without your having to make any forecasts. Every day that your money is in cash is a day you're not exposed to a possible bear market. Don't do this without a firm discipline. You're asking for big trouble if you base your moves on your emotions or your own judgments about the market.

7. Avoid paying unnecessary expenses

If you neglect this, you can lose a lot of money and have no way to gain it back. In fact, you can lose more than you invest in the first place. Here's an example from our investment workshop, "Live it Up Without Outliving Your Money:" A 25-year-old who invests $5,000 a year in equities and earns 12% will wind up with $3.8 million after 40 years. But if that same investor neglects to pay attention to expenses and lets the return fall to 10%, the account will be worth only $2.2 million in 40 years. The difference, $1.6 million, is eight times the total dollars that the investor saved for 40 years.

8. Avoid paying unnecessary taxes

In an actively managed fund, the fund manager decides when to sell and incur capital gains liability that will impact your tax bill. Choose funds in which the management pays attention to limiting your tax liability. Avoid funds that churn their portfolios, buying shares for short-term gains that can hurt you at tax time.

9. Don't panic

Selling an investment after it's taken a big hit can leave you with a permanent loss. If it rebounds, which it probably will, you won't be there to benefit.

10. You can't outwit the bear by avoiding all risk

One of the worst bears in the forest is inflation, and it can be especially painful for the most risk-averse investors. If you want to hang onto cash in an environment of 3% inflation, you are almost certain to lose purchasing power over the long run. Even staying exclusively in Treasuries or other fixed-income securities can't overcome the combination of taxes and inflation.

Crashes happen and so do those nasty bear markets. But every investor can limit the damage by following these guidelines. Be patient. And if you have trouble keeping track of all these things, a good professional advisor can help you.

Risk of global financial contagion: IMF's Singh

WASHINGTON - A MOUNTING global credit crisis could result in financial 'contagion' that could wipe US$800 billion (S$1.1 trillion) of value from the books of United States and global financial institutions, a senior International Monetary Fund official said.

Mr Anoop Singh, IMF director for the Western Hemisphere Department, including the US and Latin America, cited a high likelihood of a US recession and said he sees losses from the US subprime mortgage market crisis resulting in widening losses for European banks.

'This is clearly a period of exceptional uncertainty,' Mr Singh told a conference in Brazil on Monday. A copy of his speech was made available in Washington.

'The distribution of risks for the US outlook is wide and skewed clearly toward the downside, and the probability of additional shocks leading to a US recession is quite high,' he said.

'All in all, current estimates suggest that the global financial system could be facing losses of close to US$800 billion spread across banks, insurance companies, hedge funds and pension funds, although some analysts are projecting much higher losses,' he said.

Mr Singh said the US housing crisis was starting to spread beyond the subprime mortgage market to other real estate areas.

He said the US housing crisis was the 'ground zero' for the current financial market turmoil, with an asset price bubble in the process of deflating, adding that it will likely be 'a protracted process'.

'We know from past experiences that output effects from housing price bursts last about twice as long as those from, say, a bursting equity price bubble,' he said.

Broader implicationsThere is growing concern that housing prices abroad - many of which have been grew even more than US prices - might 'deflate abruptly', with potential financial implications, Mr Singh said.

'At this point, we expect banks' subprime-related losses to mount further to around US$230 billion worldwide, with about half of that amount residing in the US banking system and the remainder mostly in Europe,' he said.

An additional US$100 billion in losses may arise from bank holdings of other financial assets, including commercial mortgages and credit card debts, he said.

'However, losses could mount much further as an economic downturn brings with it a widening deterioration of credit across a broad range of household and corporate credit,' Mr Singh said.
He spoke a day after the US Federal Reserve announced emergency measures to stem the fast-spreading credit market seizure, pouring funds into cash-starved Wall Street firms.

The Fed cut the discount rate it charges on direct loans to banks to 3.25 per cent from 3.50 per cent and set up a new programme to provide cash to a wider range of big financial firms previously unable to borrow directly from the central bank. -- REUTERS

Irrational Times Call for Rational Measures

by Ben Stein

This is going to be a bit controversial. Bear in mind that I often make mistakes and could be wrong about some of this, but it's all food for thought.

Irrational Pessimism

First of all, markets are made up of human beings, and human beings can be irrational. They can be irrational on the upside, they can be irrational on the downside.

We saw "irrational exuberance" in the late 1990s, and it led to a crash. I believe we're now seeing highly irrational pessimism in the markets, especially the credit markets. The gloom comes from the bad results that banks and other lenders got when they loaned money on mortgage obligations in the form of collateralized mortgage obligations. These instruments were never meant to be as safe as AAA bonds, but they were thought to be much safer than they turned out to be.

Beware of Cold Stoves

There have indeed been major defaults in mortgages. Just as important, there's been wild speculation on indexes tied to mortgages, and this speculation by itself has led to immense losses in mortgage-linked investments. To a large extent, these losses will be recovered when the subject properties are sold and when speculation goes to the long side. But for now, national and local banks are sitting on big losses.

This has scared them about lending on anything at all. It shouldn't, but it does. It's sort of like the old saw about the cat: Forever after jumping on a hot stove, it'll be scared of hot stoves. But it'll also be scared of cold stoves.

Fear Working Overtime

So, lenders are terrified of loans even to very sound borrowers. Just to give an example, banks are scared of lending even on Fannie Mae and Freddie Mac bonds -- even though these bonds are backed by the federal government and can't default by any likely standard.

This reluctance to lend is causing a credit crunch, and this is terrifying markets and newspapers everywhere. This fear has knocked down the Dow by over 2,000 points from its October high. It's led to strong fears of a recession and to a slowdown in hiring and investment as businesses cut back their borrowing and spending.

By this point, the banks and bankers are terrified that they'll be fired if they make bad loans, and that if by some lightning strike of improbability their loans to good borrowers fail, they'll see their banks fail altogether. Again, that's irrational human fear at work.

The problem is that even irrational fear can have real consequences, and can indeed cause a serious recession -- even if the actual losses in mortgages aren't large enough to cause one by themselves. In fact, that's what's happening right now.

Let the Healing Begin

So what to do? First, bear in mind that irrational markets eventually get a taste of reason. Also bear in mind that, as Warren Buffett says, markets are at first a voting machine, but always eventually become a weighing machine. Reality will triumph, and the credit markets will get their act together, loans will start to be made, and credit will begin to flow.

But why not get the healing process started today instead of waiting for a bad recession? Why doesn't Mr. Bernanke call in the big bankers and tell them he'll make sure none of them fails? Why not tell them the Fed will always be there to bail them out and recapitalize them if need be? Why not stop solvency-risk fears today? Why wait until another day? Why wait until a million or 2 million more people lose their jobs or homes or both?

Further, why not tell the banks that a condition for recapitalizing them is much stricter regulation about lending policies -- not lending against bad collateral, not lending to borrowers with no credit history? Why not also impose rules about executive compensation to keep top brass from looting their own stockholders even as they kill their own companies?

Regulation to the Rescue

It's a myth that all regulation is bad. In banking, regulation saves greedy, foolish people from killing their own banks and the economy in general. Let's save the banks, save the economy, and lay the foundation for a smarter tomorrow -- starting today.

And then let's investigate what role speculation by hedge funds against the credit markets has played in our current problems. Some killers have made a bundle out of our troubles; let's find out exactly what they did. It's going to be a scary story, but that's fear for another day.

Stay Hungry. Stay Foolish.

Hi all,

An inspiring speech by Steve Jobs relating his personal career and life challenges of the extremes.

This is the text of the Commencement address by Steve Jobs, CEO of Apple Computer and of Pixar Animation Studios, delivered on June 12, 2005.

I am honored to be with you today at your commencement from one of the finest universities in the world. I never graduated from college. Truth be told, this is the closest I've ever gotten to a college graduation. Today I want to tell you three stories from my life. That's it. No big deal. Just three stories.

The first story is about connecting the dots.

I dropped out of Reed College after the first 6 months, but then stayed around as a drop-in for another 18 months or so before I really quit. So why did I drop out?

It started before I was born. My biological mother was a young, unwed college graduate student, and she decided to put me up for adoption. She felt very strongly that I should be adopted by college graduates, so everything was all set for me to be adopted at birth by a lawyer and his
wife. Except that when I popped out they decided at the last minute that they really wanted a girl. So my parents, who were on a waiting list, got a call in the middle of the night asking: "We have an unexpected baby boy; do you want him?" They said: "Of course." My biological mother later found out that my mother had never graduated from college and that my father had
never graduated from high school. She refused to sign the final adoption papers. She only relented a few months later when my parents promised that I would someday go to college.

And 17 years later I did go to college. But I naively chose a college that was almost as expensive as Stanford, and all of my working-class parents' savings were being spent on my college tuition. After six months, I couldn't see the value in it. I had no idea what I wanted to do with my
life and no idea how college was going to help me figure it out. And here I was spending all of the money my parents had saved their entire life. So I decided to drop out and trust that it would all work out OK. It was pretty cary at the time, but looking back it was one of the best decisions I ever made. The minute I dropped out I could stop taking the required classes that didn't interest me, and begin dropping in on the ones that looked interesting.

It wasn't all romantic. I didn't have a dorm room, so I slept on the floor in friends' rooms, I returned coke bottles for the 5?deposits to buy food with, and I would walk the 7 miles across town every Sunday night to get one good meal a week at the Hare Krishna temple. I loved it. And much of what I stumbled into by following my curiosity and intuition turned out to
be priceless later on. Let me give you one example:

Reed Collegeat that time offered perhaps the best calligraphy instruction in the country. Throughout the campus every poster, every label on every drawer, was beautifully hand calligraphed. Because I had dropped out and didn't have to take the normal classes, I decided to take a calligraphy class to learn how to do this. I learned about serif and san serif
typefaces, about varying the amount of space between different letter combinations, about what makes great typography great. It was beautiful, historical, artistically subtle in a way that science can't capture, and I found it fascinating.

None of this had even a hope of any practical application in my life. But ten years later, when we were designing the first Macintosh computer, it all came back to me. And we designed it all into the Mac. It was the first computer with beautiful typography. If I had never dropped
in on that single course in college, the Mac would have never had multiple typefaces or proportionally spaced fonts. And since Windows just copied the Mac, its likely that no personal computer would have them. If I had never dropped out, I would have never dropped in on this calligraphy class, and personal computers might not have the wonderful typography that they do. Of course it was impossible to connect the dots looking forward when I was in
college. But it was very, very clear looking backwards ten years later.

Again, you can't connect the dots looking forward; you can only connect them looking backwards. So you have to trust that the dots will somehow connect in your future. You have to trust in something - your gut, destiny, life, karma, whatever. This approach has never let me down, and it has made all the difference in my life.

My second story is about love and loss.

I was lucky ? I found what I loved to do early in life. Woz and I started Apple in my parents garage when I was 20. We worked hard, and in 10 years Apple had grown from just the two of us in a garage into a $2 billion company with over 4000 employees. We had just released our finest creation - the Macintosh - a year earlier, and I had just turned 30. And then I got fired. How can you get fired from a company you started? Well, as Apple grew we hired someone who I thought was very talented to run the company with me, and for the first year or so things went well. But then our visions of the future began to diverge and eventually we had a falling out. When we did, our Board of Directors sided with him. So at 30 I was out. And very publicly out. What had been the focus of my entire adult life was gone, and it was devastating.

I really didn't know what to do for a few months. I felt that I had let the previous generation of entrepreneurs down - that I had dropped the baton as it was being passed to me. I met with David Packard and Bob Noyce and tried to apologize for screwing up so badly. I was a very public failure, and I even thought about running away from the valley. But something slowly began to dawn on me ? I still loved what I did. The turn of events at Apple had not changed that one bit. I had been rejected, but I was still in love. And so I decided to start over.

I didn't see it then, but it turned out that getting fired from Apple was the best thing that could have ever happened to me. The heaviness of being successful was replaced by the lightness of being a beginner again, less sure about everything. It freed me to enter one of the most creative
periods of my life.

During the next five years, I started a company named NeXT, another company named Pixar, and fell in love with an amazing woman who would become my wife. Pixar went on to create the worlds first computer animated feature film, Toy Story, and is now the most successful animation studio in the world. In a remarkable turn of events, Apple bought NeXT, I retuned to
Apple, and the technology we developed at NeXT is at the heart of Apple's current renaissance. And Laurene and I have a wonderful family together.

I'm pretty sure none of this would have happened if I hadn't been fired from Apple. It was awful tasting medicine, but I guess the patient needed it. Sometimes life hits you in the head with a brick. Don't lose faith. I'm convinced that the only thing that kept me going was that I loved what I did. You've got to find what you love. And that is as true for your work as it is for your lovers. Your work is going to fill a large part of your life, and the only way to be truly satisfied is to do what you believe is great work. And the only way to do great work is to love what you do. If
you haven't found it yet, keep looking. Don't settle. As with all matters of the heart, you'll know when you find it. And, like any great relationship, it just gets better and better as the years roll on. So keep looking until you find it. Don't settle.

My third story is about death.

When I was 17, I read a quote that went something like: "If you live each day as if it was your last, someday you'll most certainly be right." It made an impression on me, and since then, for the past 33 years, I have looked in the mirror every morning and asked myself: "If today were the last day of my life, would I want to do what I am about to do today?" And whenever the answer has been "No" for too many days in a row, I know I need to change something.

Remembering that I'll be dead soon is the most important tool I've ever encountered to help me make the big choices in life. Because almost everything ? all external expectations, all pride, all fear of embarrassment or failure - these things just fall away in the face of death, leaving only what is truly important. Remembering that you are going to die is the best way I know to avoid the trap of thinking you have something to lose. You are already naked. There is no reason not to follow your heart.

About a year ago I was diagnosed with cancer. I had a scan at 7:30 in the morning, and it clearly showed a tumor on my pancreas. I didn't even know what a pancreas was. The doctors told me this was almost certainly a type of cancer that is incurable, and that I should expect to live no longer than three to six months. My doctor advised me to go home and get my affairs in order, which is doctor's code for prepare to die. It means to try to tell your kids everything you thought you'd have the next 10 years to tell them in just a few months. It means to make sure everything is buttoned up so that it will be as easy as possible for your family. It means to say your goodbyes.

I lived with that diagnosis all day. Later that evening I had a biopsy, where they stuck an endoscope down my throat, through my stomach and into my intestines, put a needle into my pancreas and got a few cells from the tumor. I was sedated, but my wife, who was there, told me that when they viewed the cells under a microscope the doctors started crying because it
turned out to be a very rare form of pancreatic cancer that is curable with surgery. I had the surgery and I'm fine now.

This was the closest I've been to facing death, and I hope its the closest I get for a few more decades. Having lived through it, I can now say this to you with a bit more certainty than when death was a useful but purely intellectual concept:

No one wants to die. Even people who want to go to heaven don't want to die to get there. And yet death is the destination we all share. No one has ever escaped it. And that is as it should be, because Death is very likely the single best invention of Life. It is Life's change agent. It clears out the old to make way for the new. Right now the new is you, but someday not too long from now, you will gradually become the old and be cleared away. Sorry to be so dramatic, but it is quite true.

Your time is limited, so don't waste it living someone else's life. Don't be trapped by dogma - which is living with the results of other people's thinking. Don't let the noise of other's opinions drown out your own inner voice. And most important, have the courage to follow your heart
and intuition. They somehow already know what you truly want to become. Everything else is secondary.

When I was young, there was an amazing publication called The Whole Earth Catalog, which was one of the bibles of my generation. It was created by a fellow named Stewart Brand not far from here in Menlo Park, and he brought it to life with his poetic touch. This was in the late 1960's, before personal computers and desktop publishing, so it was all made with typewriters, scissors, and polaroid cameras. It was sort of like Google in paperback form, 35 years before Google came along: it was idealistic, and overflowing with neat tools and great notions.

Stewart and his team put out several issues of The Whole Earth Catalog, and then when it had run its course, they put out a final issue. It was the mid-1970s, and I was your age. On the back cover of their final issue was a photograph of an early morning country road, the kind you might find yourself hitchhiking on if you were so adventurous. Beneath it were the words: "Stay Hungry. Stay Foolish." It was their farewell message as they signed off. Stay Hungry. Stay Foolish. And I have always wished that for myself. And now, as you graduate to begin anew, I wish that for you.

Stay Hungry. Stay Foolish.

Thank you all very much.

5 ways to stay calm in a down market

When stocks are falling, take these steps. They'll keep you from doing things you'll be sorry for later.

1. Paste this to your computer

Had you invested in an S&P 500 index fund in August 1997 and sat tight for 10 years, you'd have racked up an 88% return. Had you missed just the 20 best days in the market over that period, you would have had a 20% loss, according to Chicago's Altair Advisers. Moral: Stock returns come in bursts. Step out of the market, even temporarily, and you may miss the whole point of owning stocks.

By Janice Revell

2. Get your emotions out of the picture

Invest via an automatic plan that moves money into mutual funds every month. Then have your portfolio rebalanced automatically - lifestyle or target-date retirement funds can do the job. Some 401(k) plans offer a rebalancing service.

3. Focus on what you can control

That would be costs. Assuming an 8% annual return, if you invest in an actively managed fund with a 1.5% expense ratio vs. an index fund that charges 0.2% you'll give up almost 20% of your profits.

4. Give yourself a taste of power

Set aside 5% or so of your portfolio as mad money in which you're free to deviate from your long-term plan. That way you can indulge hunches and gut feelings without harming yourself too much.

5. Seek professional help

If you move money around every time the Dow drops 200 points, hire a financial planner. Yes, your expenses will go up. But if that keeps you in the market, it'll be well worth it.

What you really want from your money

A growing number of advisers say that until you think hard about that question, you can't have a successful lifelong financial plan. They're right.

By George Mannes

(Money Magazine) -- Yes, the stock market is down. But you can handle it, can't you? Certainly you could do without the sick feeling you get each time the Dow takes another triple-digit dive.

But - and here's a pep talk you've probably given yourself more than once in the past few months - there was a reason you took on the perils of investing in stocks: You couldn't reach your goals without the returns that a higher-risk investment offered. And your goals are worth a little discomfort, right? Right?

Of course. Your pep talk has a better chance of success, though, if the goals in question matter deeply to you. "Goals" here doesn't mean only general concepts like retiring by 62 but something bigger and more fundamental: serious dreams that you've taken the time to think hard about and you believe will make your life richer.

Granted, pausing in the middle of a scary market to ask yourself grand-scheme- of-things questions might seem like a luxury you can't afford. Shouldn't you be rushing to buy gold or short credit-default swaps, whatever those are? In fact, the self-reflection can actually be a source of strength, helping you to do the right thing - stay calm.

"Where you run into trouble is when you focus just on your investment accounts and their losses," says Tim Brown, a wealth manager in Eden Prairie, Minn. "But if you look at the big picture, you'll see that to reach the goals you want, you're going to have to do some tough work, like riding through choppy markets. Having perspective can give you comfort."

The notion that for you to arrive at - and stick to - a good financial plan it has to be about more than numbers is the hottest idea to hit planning since the assetmanagement fee. Just about every planners' conference includes some discussion of "life planning" in which advisers are encouraged to engage clients in conversations once confined to shrinks' offices or bar stools.

The number crunchers and sales types who become financial planners, it should be noted, don't always gravitate naturally to such soft issues. But those who've applied life planning (also known by alternate monikers like holistic planning) in their practices say they're convinced that it helps clients.

And the fact is, whether you use a financial pro or you're a do-it-yourselfer, life planning - or goal setting, as Pittsburgh planner Kathryn Nusbaum calls the process plainly - gets at fundamental issues that are more important than squeezing out an extra tenth of a percentage point in annual return.

Skeptical? Take a break from the screaming heads on CNBC, go through the mindstretching exercises that accompany this feature, and read the stories below of people who have thought a little deeper about their relationship to their money - and what that's done for them.

The big questions

The best known soul-searching exercise in financial planning is the creation of George Kinder, a onetime tax accountant and money manager who developed a set of three questions which pose hypothetical situations about money and mortality to get you to focus on your life's real priorities.

When not writing poetry at his home in Hawaii or leading weeklong meditation retreats, Kinder runs emotion-laden seminars for advisers who want to learn his ways. Other teachers have developed their own methods for unearthing clients' deep relationships with money, and many planners have started to cherry-pick their tools and processes.

In any case, don't be surprised if your adviser, whether or not he refers to life planning, spends surprisingly little time on your investments - and a whole lot more time on your life - when you meet for the first time.

To be cynical, part of the appeal for planners is that this approach offers them a new way to market themselves as trusted advisers and not mere purveyors of mutual funds and life insurance or managers of your assets. But that doesn't change the basic premise, which psychologists and behavioral scientists - and unfortunately, divorce lawyers - can all attest to: Your relationship with your money is complicated.

Life planning posits that to find satisfaction, you should do two things: put in the effort to figure out what you really want your money to allow you to do in life and examine how the attitudes you picked up about money decades ago may stand in the way of your reaching those goals. Take on those assignments and you're more likely to stick to the numbers part of a financial plan.

Ask Cynthia Zelis, a family physician in Strongsville, Ohio who still keeps the sheet of paper dated Feb. 26, 2004 that changed her life. For years Zelis, a mother of two, had wanted to cut back on her hours. But her professional responsibilities, her desire to salt away money for her family and the endless to-do list that was her life always seemed to get in the way.

Then she and her husband Brian, also a physician, met with Don James, a local financial planner. Among the exercises he gave them was to answer Kinder's three questions. Her answers, Zelis says, made it clear how much she wanted to find more time to spend with her family.

Soon after, she cut back her hours and responsibilities and the Zelises developed a financial plan with James that accommodated Cynthia's taking a 25% pay cut. "My daughters know me so much more," she says. "It's worth any 25%."

Do you know what you want?

David Strege, a veteran planner in West Des Moines, Iowa, laments that all too often a first conversation between a new client and an adviser goes something like this: "So you want to retire?"

"Yeah, at 65."

"What do you want to do then?"

"I dunno."

"So why do you want to retire?"

"I dunno."

Strege sighs, "You have to work hard with some people."

Actually, that's not so surprising. You may have a particular objective in mind when you, say, sit down with an online retirement calculator. But you may also have conflicting goals making demands on your money and never have stopped to sort them in order of importance.

You may have expensive pipe dreams you've never pursued because you've assumed they're out of reach (even if they're not). Or you may have priorities that don't match standard-issue financial goals; perhaps you're more interested in giving away money than collecting it or maybe your ideal retirement is working in a low-paying teaching job.

"Most clients don't know what they want," says Philadelphia financial planner Roy Diliberto. "They know what they've been told they should want."

For help in clarifying things, many planners start with a "life transition" questionnaire, which lists a few dozen situations ranging from "concerned about an aging parent" to "considering an investment opportunity" to "job loss" and prompts you to indicate how much of a worry, if any, each of these issues is to you right now.

But the simplest and most thought-provoking technique for confronting your goals comes from Kinder. On the surface, his three questions aren't startling. But if you stop to answer them for yourself, you'll discover they're very good at focusing your mind on what's important in your life.

Question No. 2, for example, asks you to imagine what you'd do if you learned you had five to 10 years left to live and would never know when your last moment would come. The natural follow- up questions, of course, are "So why aren't you doing that now, and how can you arrange your finances to make that possible?" and "What are you waiting for?"

Think of the recent Jack Nicholson-Morgan Freeman movie "The Bucket List," in which two men in failing health tick off the list of things they want to do before they die. "If you can really nail the goals that are meaningful and profound and urgent," says Kinder, "it inspires people to take action."

The point isn't to make sure you go skydiving, as Nicholson's and Freeman's characters do. It's to get you to come up with well-thought-out, attainable goals and develop a path to reaching them. After Susan Stanton, a registrar at a community college, met with Williamsville, N.Y. financial planner Gary Witten, she and her husband got moving on something they'd long been avoiding: finding a continuing-care retirement center for the two of them, getting on a waiting list and setting aside enough money to finance their eventual move.

"Would it have happened anyway without life planning? Maybe," says Stanton, 62. "But I'm not sure I would have gotten as realistic about what this would entail in terms of money."

We all carry money baggage

It's not just fuzzy thinking about our future that keeps us from realizing our goals. It's also what we drag along from the past.

"Childhood experience has deep, long-lasting carryover into adult behavior, especially in emotionally charged areas like money and relationships," says James Gottfurcht, a Los Angeles clinical psychologist who specializes in money issues. "If there's recurring stress or pain, then even more so."

Catherine Stine buys that. For much of her life, says the 54-year-old public radio fund raiser from St. Paul, she's been "prickly" around money - angry about men making more than she did and worried about ending up as a "poor old woman."

But she never understood where her feelings came from until last year, when Roseville, Minn. financial adviser Barbara Kirby gave Stine a Money Quotient questionnaire entitled "Money Memories" to go over with her boyfriend Rod Johnson.

That's when Stine recalled an episode from 40 years ago: A farmer hired her four brothers to work in his fields. For three long days Stine helped her mother cook the boys' meals and wash their clothes on top of her regular chores. Afterward, the farmer stopped by to pay her brothers. Stine got nothing.

Recalling that and other gender-based economic inequities from her childhood was a revelation for Stine. In hindsight, these episodes both fueled her ambition and, she says, "made me not very happy with men, economically speaking."

Different planners have different methods for getting at the roots of these often destructive attitudes about money.

One of the more engaging paths was developed by Rick Kahler, a Rapid City, S.D. planner, and father-son psychologists Ted and Brad Klontz. The three turned their work into a book, "The Financial Wisdom of Ebenezer Scrooge."

Kahler asks his clients to examine what he calls money scripts - blanket pronouncements that they (or Scrooge) may have learned young, such as "You can't trust anyone with your money" or "If you had more money, things would be better." By examining such longheld beliefs - or by stopping to recall vivid memories about money from your youth - you can get a better sense of what may be holding you back today.

Johnson, 52, recalls that when he was 12 or 13 years old and a member of a 4-H club, he sold a half-interest in a steer that he had raised to an acquaintance, who then took it to a livestock show in Maryland where it won a major prize and sold for $2,000.

"It took a year of just hounding this person to get our half of the money," recalls Johnson, who later heard that the same man had ripped off someone else under similar circumstances. That memory, says Johnson, an executive coach, contributed to his persistent fear of being swindled. That wariness serves him well - usually. "There are definitely times," he concedes, "when I've been too cautious."

Exploring their money pasts, Johnson and Stine agree, eased the tension they had felt around money and helped them understand each other better. "If you can feel safe talking about money," says Johnson, "other things are relatively easy to talk about."

The process, they believe, helped paved the way for them to move in together and tackle the financial decisions they had to make, including selling Stine's old family home. "I would have been trapped in my house forever," she says, "because it was my definition of security."

That's a reminder of the real value in looking back and thinking forward: Those paid-off mortgages and insurance policies and (soon to be growing again, right?) retirement accounts, no matter how much you want them, aren't the end. They're a means to a more satisfying life.

Your top priority is figuring out what that life is. As Cynthia Zelis puts it, "Even if you have an incredible amount of money, if you don't know what it's for, it makes no difference."

Keep your cool in a dangerous market

With every dip in the Dow, that inner voice urging you to sell gets louder. Here are four reasons you shouldn't listen.

By Janice Revell, Money Magazine senior writer

Reason No. 1 Your brain is wired for panic.

Money Magazine) -- Don't give in. Pros have all sorts of clever computer models for assessing risk. But even those brilliant machines misjudge risk from time to time (like in the subprime meltdown).

So how can the rest of us expect to be right on risk when all we have to work with is that carbon-based computer we keep between our ears? "Most people just can't think about risk in an analytic way," says Paul Slovic, a University of Oregon psychologist and an authority on how we assess risk. "The average person goes by gut feelings."

As behavioral scientists have proved, those feelings are notoriously unreliable in a market like this. Part of the problem is that your brain evolved to feel the pain of loss more acutely than the pleasure of gains.

That means that the normal human reaction in a downturn is to turn fearful and sell - even though risk is lower than it was when stocks were higher and the rational move would be to buy.

"We always say 'Buy low and sell high,' " says John Nofsinger, a finance professor at Washington State University and author of "Investment Madness: How Psychology Affects Your Investing." "But after the market has gone down for a while, the 'buy low' option is just not emotionally available to most people."

Obsessing over every bit of market news only raises the odds that you'll overestimate risk, according to behavioral economist Richard Thaler of the University of Chicago. The more often you check stock prices, he found, the greater you perceive your risk to be.

Prices move up and down pretty much constantly. If you're watching that activity minute by minute on your PC or TV, your brain gets the message that it's dangerous out there.

A simple, effective way to lower your anxiety: In Thaler's experiment, the subjects who perceived the least risk were those who checked their investments no more than once a year.
Reason No. 2 You see safety in the herd.

It's an illusion. Faced with uncertainty, your instinct is to follow the crowd. Bad idea.

"The herding tendency clouds your judgment," says UCLA finance professor Subra Subrahmanyam. "If others are selling, you'll be prone to ignore your own assessment and sell as well." Economists dub this progression "information cascading." You might call it a lemming parade.

The record of mutual fund cash flows shows that the crowd's investing moves are a reliable indicator of what not to do.

The great manager of FPA Capital fund, Robert Rodriguez, notes that the largest fund in 2000, as stocks were peaking, was growth star Fidelity Magellan. Three years later the new darling had become bond fund Pimco Total Return, just as bond returns peaked. "You can't make this stuff up," he marvels.

Today's fund cash flows suggest that you should buy stocks, since stock funds saw a net $44 billion withdrawn in January, and should avoid bonds and commodities, which saw multibilliondollar inflows.

Sure, it's not easy to hang on to stocks when everyone around is bailing or to avoid buying bonds or commodities when others are cashing in. But if you do, history suggests that you won't regret it.
Reason No. 3 You underestimate the risk of being out of stocks.

These days it's helpful to remind yourself of this: In the long run the risk of missing stocks' upside poses a graver threat to your wealth than taking hits on the downside does. There's no denying that the big one-day drops we've seen recently are no fun, but if you hang in, the math works in your favor.

"Stocks go up and down," says Stephen Wood, senior portfolio strategist at Russell Investment Group. "To make money you need to capture their upward movements. The only way to do that is to stay invested in dicey times."

Don't kid yourself that if you flee stocks now, you can slip back in just in time for a rebound. Years of data and volumes of research have proved that not even the pros can time the market with any consistent success. Focus instead on the fundamentals.
When the market plunges, so too do price/earnings ratios. And the cheaper you can buy, the better your chances of making money in the future. For proof, consider the crash of October 1987 and its aftermath. Had you owned an S&P 500 index fund, you would have lost 23% during that month, including a stunning 21% on Black Monday, the 19th.

Had you sold, you would have locked in that loss. But had you stuck it out, you would have gotten back to even in 20 months. And then you would have participated in the great bull run that followed, racking up an annualized 15% return over the next 10 years.

Sticking to your guns was psychologically no easier 20 years ago than it is today; but the results suggest that the investors who will look the smartest in a few years won't be the ones who are now jumping out of stocks and plunging into commodities.
Reason No. 4 There's no such thing as 'risk tolerance.'

Open a brokerage account, click around your 401(k) provider's website or consult with a financial pro and you're bound to come across a questionnaire that tries to assess your appetite for risk.

You might be asked what you'd do if the market dropped 20% or if a stock you owned doubled. Answer a bunch of these and a formula spits back an assessment of how "risk tolerant" you are and recommends a portfolio that supposedly suits you.

Three months into the crazy '08 market, you probably already see the flaw in this thinking: You can't predict what you'd do in a downturn until you're in one.

No doubt you felt a lot more daring when the Dow was at 14,000 last fall than you feel now - and you might have picked a much different portfolio. You're not alone. Says Nofsinger: "The idea that you have a constant risk tolerance is just not an accurate view of how things work."

Moreover, your appetite for risk doesn't wax and wane solely with the market's ups and downs. It changes for all kinds of reasons.

"It can depend on your mood, the time of day, whether you had a fight with your spouse, even the weather," says UCLA's Subrahmanyam. He notes, for instance, that stocks typically spike prior to holidays like the Fourth of July when investors are happily anticipating their vacations.

The lesson: Research into investor psychology shows that you're likely to see the risk in today's stock market as greater than it really is, just as last fall you saw it as less than it really was. And postwar market history suggests that if you act on that emotional perception, you'll regret it later when stocks rebound and leave you behind.

What do you do? Instead of relying on your gut feel for risk and reward today, you'll be far better off focusing on your long-term financial goals, allocating your assets accordingly and sticking to your plan.

The model portfolios above are a beginning. But before you can build a strategy around goals, you need to spend some time figuring out what yours truly are - which is the second big thing you need to get right in this market.

Five Rules for Thriving in a Bad Economy

by Leslie Haggin Geary

The news is grim. Housing values are dropping, subprime mortgage meltdowns are spreading, the stock market's uncertain and the overall economy seems to be heading into a recession.

No wonder plenty of us are worried.

Still, you can protect yourself. Here are some experts' top five must-make strategies to do your best now that the economy is likely in for a choppy ride.

Rule No. 1: Don't panic
The stock market's gyrations can give even the hardiest investors a case of the jitters.

However, converting all your investments to cash is likely to cause you far more harm than good, says Joe Baker, CFP and president of Alcus Financial Group in Mount Pleasant, S.C.

"People are scared," he says. "They're asking, 'Is the economy crashing? Should I move my 401(k) to a money market?'"

Baker answers: "Please do not, unless you need the cash tomorrow. You'd be making a huge mistake."

Unless you need the money short-term -- say, within two years -- it's best to remind yourself that good and bad times pass. Historically, the market's made up all its losses fairly quickly.

Since 1945, there have been 11 recessions as officially defined by the National Bureau of Economic Research. The S&P 500 -- the index of widely held stocks used as a barometer for the overall market -- generally has hit bottom six months into the typical 10-month-long recession, according to Sam Stovall, chief investment strategist at Standard & Poor's.

After that point, the market typically starts regaining its footing. If you include the very worst meltdowns, when the S&P 500 lost more than 45 percent of its value, it took 19 months for investors to recoup their losses. But exclude the mega losses, and you find that it's actually taken just eight months on average for the index to bounce back.

"The reason the market peaks before recessions start on average and troughs before they're finished is that investors are anticipators," says Stovall. They're willing to become more optimistic once the bad news is out," says Stovall.

Stovall's advice to today's worrywarts is direct: "Don't freak out."

Rule No. 2: Bullet-proof your portfolio
Sure, we all know the warnings about putting all our eggs in one basket. But when it comes to investing, too few heed this advice.

One study by Hewitt Associates, for example, found that three out of five workers participating in a 401(k) plan never rebalanced their portfolios over a four-year period from 2000 to 2004. Failing to rebalance causes your portfolio to skew over time, leaving you overloaded with one kind of asset while owning too little of something else.
If you've neglected your assets, such imbalance could put you at greater risk.

Recent drops have left many investors in a position where they need more equities and less fixed-income. That may come as a shock for safety-hungry investors who are eager to stock up on fixed-income, cash and other "safe" assets.

"If your asset allocation was good for you six months ago, it should be good for you today," says Ellen Rinaldi, executive director of investment planning and research at Vanguard. "The fact that the market is volatile should remind you to be appropriately diversified."

Personal factors like your age and risk tolerance -- not the current state of the economy -- should drive your investing. For example, workers in their 20s and 30s should generally devote roughly 80 percent to 90 percent of their assets in equities while people in their 60s approaching retirement may devote up to 50 percent of their assets to stocks.

"Use market declines as opportunities to add to holdings," says Stovall.

Remember, it's a misstep to put your faith in gold, commodities or any other particular asset that seems popular now that the stock market is roiling.

"If you liked the market four months ago, it's at a 15 percent discount," says Brett Horowitz, a financial planner at Evensky & Katz. "It's a great time to buy. When you buy at a point when everything looks ugly, that's good. You're buying low. It's forward thinking."

Rule No. 3: Don't let your home become a trap
Experts agree that tough economic times mean homeowners must figure out if they've got the best mortgage possible. Many people have adjustable-rate mortgages that are about to reset higher, causing their monthly payment to balloon.

It's imperative for these homeowners to refinance to a lower, fixed-rate mortgage that will give them more stability in their month-to-month finances.

Unfortunately, that's easier said than done right now.

The nation's credit crunch and subprime mortgage debacle mean access to loans is fast disappearing, or becoming prohibitively pricey, for borrowers with less-than-sterling credit.

"Interest rates are being more unevenly applied in the marketplace than they have been in recent years," says Keith Gumbinger, vice president of HSH Associates, which tracks mortgage trends nationwide.

If you count yourself among those with good credit and have a FICO score of at least 680, don't squander current opportunities to save.

Recently, mortgage rates have moved up and down in yo-yo fashion. Try to take advantage of the best rate you can find.

It may be more prudent to spend a little extra on a fixed-rate loan and lock in a super deal rather than selecting an ARM that may cost far more when it resets, says Gumbinger.

Those with less-than-stellar credit have fewer options. That's especially true of borrowers who took out ARMs to pay for their homes.

"ARMs are strangling people. They are like a B-rated horror movie. If at all possible, get out of them," says Dee Lee, a Certified Financial Planner and author of "Let's Talk Money."

Consumer groups may help those whose credit is making it difficult to reset. The Homeownership Preservation Counsel, (888) 995-4673, has a 24/7 hot line where you can reach counselors. The Homeowner Crisis Resource Center, (866) 557-2227, also has professionals who can help individuals facing foreclosure.

Rule No. 4: Dust off your resume
When the threat of recession looms, it's smart to pay extra attention to your job.

"Corporations are in a wait-and-see mode when it comes to hiring," says John Challenger, CEO of Challenger, Gray & Christmas, the Chicago-based staffing firm. "Employers are getting more cautious about opening new offices, adding staff."

Working hard can help protect your job, but may not be enough. Instead, be strategic and figure out where you stand. Workers who cost employers money are most likely to be laid off. These include support staff in bureaucratic positions or workers in overstaffed departments.

By contrast, employees who add to a company's revenues are more likely to be viewed as valuable assets. So, try to take on work that no one else can do, or volunteer to head up long-range projects vital to your employer.

Also take note of your boss' performance. If your one ally looks like he or she may be at risk of getting bounced out, start forging additional alliances.

"Connect with higher ups so if your boss leaves, you aren't stuck," Challenger says.

Meanwhile, start networking now. It takes time to get a new job, especially if you're already several rungs up the career ladder. Entry-level employees in lower-paid positions need roughly two months to get re-employed. But higher-paid executives generally will spend five months on average to find another position.

"Keep your resume updated," urges Lee. "Keep a list of projects you've worked on as success stories."

Rule No. 5: Reduce your debt and boost savings
It's even more important to get rid of bills and amass extra cash now that the economy is on shaky ground. That's because various assets, such as homes and stocks, that helped bail out Americans out in the past few years have now plummeted in value.

For example, homeowners tapped $1.6 trillion in home equity from 2001 to 2006 to access extra cash, according to the watchdog group Demos. But that lifeline is already well-frayed.

"You need an emergency fund," Lee says. "Three months is realistic. No frills such as meals out or vacations -- just basics."

Unfortunately, "more low- and moderate-income households don't have adequate savings," says Stephen Brobeck, executive director of Consumer Federation of America.

So start saving.

"Most families can find $100 a month," Brobeck says.

This is also the time to eliminate plastic debt. Six out of 10 households don't pay off their entire credit bills from month to month, according to Demos.

Pay off your most expensive credit cards first. While credit card rates may fall, don't count on it, especially if you have a tarnished payment history. A shaky economy often gives banks a reason to increase rates.

"Banks are writing in terms that say 'We can change our rates for economic conditions or financial conditions,'" says Linda Sherry, director of national priorities at Consumer Action. "If they're not making profits in other areas, they have to make up that income."

Those who make late payments shoulder any increase in rates.

"At any given time, 5 percent of the population is delinquent," Robert Hammer, chief executive of R.K. Hammer, a bank card consulting firm. "You'll generally have to pay on time for at least a year before you can start renegotiating lower rates."

However, if a job loss pushed you to fall behind on payments and you have found new employment, don't wait the year.

"Call the company and ask for relief," Hammer says. "You may get it."

Avoid Overcorrecting Economy, Bush Warns

By Terence Hunt, AP White House Correspondent

Bush: Federal Government Must Guard Against Overcorrecting Economy With Sweeping Changes

WASHINGTON (AP) -- President Bush on Saturday said the government must guard against going too far in trying to fix the troubled economy, cautioning that "one of the worst things you can do is overcorrect." Democrats said Bush was relying on inaction to solve the problem.

Bush, in his weekly radio address, said the recently passed program of tax rebates for families and businesses should begin to lift the economy in the second quarter of the year and have an even stronger impact in the third quarter. But he urged caution about doing more, particularly about the crisis in the housing market where prices are tumbling and home foreclosures have soared to an all-time high.

"If we were to pursue some of the sweeping government solutions that we hear about in Washington, we would make a complicated problem even worse -- and end up hurting far more homeowners than we help," the president said.

The economy has surpassed the Iraq war as the No. 1 concern among voters in this presidential election year amid big job losses, soaring fuel costs, a credit crisis and turmoil on Wall Street.

"In the long run, we can be confident that our economy will continue to grow, but in the short run, it is clear that growth has slowed," Bush said. He was spending the weekend at the Camp David presidential retreat in Maryland's Catoctin Mountains after delivering a speech in New York about the economy and helping raise $1.4 million for the national Republican Party.

Democrats said they would try to strengthen the economy with measures dealing with housing, energy efficiency and renewable energy.

"The president continues to convince himself that inaction is the cure-all for the economic problems hurting hardworking Americans," Senate Majority Leader Harry Reid said in a written statement. "But Democrats know that wait-and-see is not a responsible strategy for an economy that is teetering on the brink of recession."

"Wages and home values are down," Reid said, "but prices for everything from health care to tuition to energy are up. Just this week, oil and gas prices reached record highs while the value of the dollar reached historic lows. I hope the president, who has been slow to acknowledge this problem, joins us in recognizing how urgently we need a solution."

Bush said he opposed several measures pending on Capitol Hill to deal with the housing crisis. They included proposals to allocate $400 billion to purchase foreclosed-upon and now-abandoned homes, to change the bankruptcy code to allow judges to adjust mortgage rates and to artificially prop up home prices.

"Many young couples trying to buy their first home have been priced out of the market because of inflated prices," the president said. "The market now is in the process of correcting itself, and delaying that correction would only prolong the problem."

Bush said his administration has offered steps offering flexibility for refinancing to homeowners with good credit histories yet are having trouble paying their mortgage. He cited other measures which he said would streamline the process for refinancing and modify many mortgages.

He said there were steps Congress could take, as well.

"As we take decisive action, we will keep this in mind: When you are steering a car in a rough patch, one of the worst things you can do is overcorrect," the president said.

"That often results in losing control and can end up with the car in a ditch," Bush said. "Steering through a rough patch requires a steady hand on the wheel and your eyes up on the horizon. And that's exactly what we're going to do."

Avoid Overcorrecting Economy, Bush Warns

By Terence Hunt, AP White House Correspondent

Bush: Federal Government Must Guard Against Overcorrecting Economy With Sweeping Changes

WASHINGTON (AP) -- President Bush on Saturday said the government must guard against going too far in trying to fix the troubled economy, cautioning that "one of the worst things you can do is overcorrect." Democrats said Bush was relying on inaction to solve the problem.

Bush, in his weekly radio address, said the recently passed program of tax rebates for families and businesses should begin to lift the economy in the second quarter of the year and have an even stronger impact in the third quarter. But he urged caution about doing more, particularly about the crisis in the housing market where prices are tumbling and home foreclosures have soared to an all-time high.

"If we were to pursue some of the sweeping government solutions that we hear about in Washington, we would make a complicated problem even worse -- and end up hurting far more homeowners than we help," the president said.

The economy has surpassed the Iraq war as the No. 1 concern among voters in this presidential election year amid big job losses, soaring fuel costs, a credit crisis and turmoil on Wall Street.

"In the long run, we can be confident that our economy will continue to grow, but in the short run, it is clear that growth has slowed," Bush said. He was spending the weekend at the Camp David presidential retreat in Maryland's Catoctin Mountains after delivering a speech in New York about the economy and helping raise $1.4 million for the national Republican Party.

Democrats said they would try to strengthen the economy with measures dealing with housing, energy efficiency and renewable energy.

"The president continues to convince himself that inaction is the cure-all for the economic problems hurting hardworking Americans," Senate Majority Leader Harry Reid said in a written statement. "But Democrats know that wait-and-see is not a responsible strategy for an economy that is teetering on the brink of recession."

"Wages and home values are down," Reid said, "but prices for everything from health care to tuition to energy are up. Just this week, oil and gas prices reached record highs while the value of the dollar reached historic lows. I hope the president, who has been slow to acknowledge this problem, joins us in recognizing how urgently we need a solution."

Bush said he opposed several measures pending on Capitol Hill to deal with the housing crisis. They included proposals to allocate $400 billion to purchase foreclosed-upon and now-abandoned homes, to change the bankruptcy code to allow judges to adjust mortgage rates and to artificially prop up home prices.

"Many young couples trying to buy their first home have been priced out of the market because of inflated prices," the president said. "The market now is in the process of correcting itself, and delaying that correction would only prolong the problem."

Bush said his administration has offered steps offering flexibility for refinancing to homeowners with good credit histories yet are having trouble paying their mortgage. He cited other measures which he said would streamline the process for refinancing and modify many mortgages.

He said there were steps Congress could take, as well.

"As we take decisive action, we will keep this in mind: When you are steering a car in a rough patch, one of the worst things you can do is overcorrect," the president said.

"That often results in losing control and can end up with the car in a ditch," Bush said. "Steering through a rough patch requires a steady hand on the wheel and your eyes up on the horizon. And that's exactly what we're going to do."

Is Wall Street Close to a Bottom?

By Eileen Aj Connelly, AP Business Writer

The Stock Market Will Remain Volatile, but Some Analysts See Signs That the Bottom May Be Near NEW YORK (AP) -- Investors nursing whiplash symptoms after watching the market's recent wild swings may find that Wall Street will deliver some relief in the coming weeks.

While volatility isn't going to disappear overnight, some experts suggest the market may be near the beginning of a recovery.

"I think we've seen a bottom," said Alfred E. Goldman, chief market strategist at A.G. Edwards & Sons Inc., a division of Wachovia. "It's probably not 'the' bottom," he said, "I think it would be presumptuous to call it 'the' bottom."

Some might consider any positive view contrarian, especially given the shock caused Friday by news of a bailout needed by investment bank Bear Stearns Cos., but Goldman said he thinks long-term investors have reason to start expecting some relief ahead.

"I think what we have is a Bear Stearns crisis, not a stock market crisis," he said of the Wall Street bank's liquidity problems, which stemmed from investors, customers and lenders withdrawing their business and pulling back on credit lines. "Right now, I'm not aware of any other major brokerage firms or banks that have this type of solvency problem."

Still, Goldman said, such news can generate further negative feelings. "The level of pessimism, the calls I'm getting, are it's like the end of the Western world."

"The market is very nervous."

Those nerves were reflected in the market's moves this past week, as stocks on Monday sold off for the third straight day, then bounced back Tuesday after the Federal Reserve said it would put up cash to help loosen tight credit market. After a modest decline Wednesday, it got a lift Thursday from Standard & Poor's prediction of an end to massive write-downs of mortgage-backed securities, then dropped sharply Friday following Bear Stearns' revelation.

For the year, the Dow Jones industrial average is down about 10 percent, and off nearly 16 percent since its October high. The S&P 500 index has slipped 12 percent since the start of the year, and about 18 percent since October. The Nasdaq composite index is down about 16 percent for 2007, and off more than 22 percent since its October high -- officially within "bear market" territory.

David Wyss, chief economist for Standard & Poor's said he thinks several factors will likely mean the markets should hit their low point soon. "I think the economy is going to hit bottom in the summer," he said. "Normally, the market leads the economy by about three months," which would put the bottom sometime near the end of March, he suggested.

While there's still plenty in the economy to be worried about, Wyss said, he thinks that signs of a recovery in the market will be helpful in easing investor fears.

"I think people are going to have a little more confidence," he said, adding, however, "It doesn't mean they're going to be back to normal."

The coming week could bring some news that helps. Along with the Federal Reserve meeting that is expected to deliver another big interest rate cut, several major investment banks, including Bear Stearns, are slated to report their first-quarter financial results. Most major corporations will follow starting next month.

Global investment strategist Subodh Kumar expects the earnings reports will produce some difficult numbers, but that could help in the long run.

"I think there's one more leg of earnings reductions that the analysts haven't taken yet," he said. "What I'm anticipating is that as the first-quarter earnings are reported, (analysts) will cut their second quarter estimates and that will help us find a bottom."

"In terms of the market drop, I think most of that has already been done," he said. "In terms of expectations, in terms of earnings, I think there's more to come."

Brett Hammond, chief investment strategist at TIAA-CREF Asset Management, agreed that first-quarter results are not likely to be pretty. "Overall, I think we can expect some fairly negative news on the corporate front," he said, noting that, among other factors, financial companies are probably not done writing down the value of certain holdings.

He also said the credit crisis must also play itself out before market turns.

"The story over the last quarter or so is the 'sound of credit crunching' can be heard everywhere, and I think that's what driving both reality and perception," he said. "You have to talk about both reality and perception when you're talking about turn."

Still, Hammond said, while it might take a few more quarters before the markets show signs of real strength, "the chances of there being a much further downturn from here are less than there's going to be an upturn."

Stocks Rise After S&P Report

By Madlen Read, AP Business Writer

Stocks Rebound From Steep Drop As S&P Forecasts End Is Near for Asset Write-Downs

NEW YORK (AP) -- A fractious Wall Street rebounded from an early plunge to finish moderately higher Thursday, after Standard & Poor's predicted financial companies are nearing the end of the massive asset write-downs that have devastated the stock and credit markets.

The S&P projection gave investors some hope that the seemingly unrelenting losses from the mortage and credit crisis might indeed be bottoming out. Standard & Poor's Ratings Services said it estimates writedowns of subprime asset-backed securities could reach $285 billion globally, up from its previous projection of $265 billion, but added that "the end of write-downs is now in sight for large financial institutions."

"The S&P comment was a positive for the market because investors were relieved to think that the subprime problem may be behind us," said Al Goldman, chief market strategist at A.G. Edwards.

Wall Street clearly remains anxious, however. On Tuesday, the stock market launched its largest rally in more than five years after the Federal Reserve said it would auction $200 billion in Treasurys to help alleviate investment banks' financial bind. But since then, stocks have been extremely volatile.

Kim Caughey, equity research analyst at Fort Pitt Capital Group, said that while she is a market bull, it's possible investors extrapolated a bit too much good news from the S&P report. "I would rather see fewer foreclosures and housing prices bottoming out to decide that the credit crisis is drawing to a close," she said.

The S&P's note arrived on the heels of a spate of troubling news. A Carlyle Group fund warned late Wednesday it expects creditors will seize all the fund's remaining assets after unsuccessful negotiations to prevent its liquidation. Meanwhile, the government reported Thursday an unexpected dip in retail sales, and a research firm said nearly 60 percent more U.S. homes faced foreclosure in February than in the same month last year.

The Dow Jones industrial average finished up 35.50, or 0.29 percent, at 12,145.74, after being down more than 220 points early in the session and then popping up more than 100.

Broader market indexes also recovered from steep early losses. The S&P 500 index rose 6.71, or 0.51 percent, to 1,315.48, while the Nasdaq composite index rose 19.74, or 0.88 percent, at 2,263.61.

Bond prices fell as stocks rose. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.54 percent from 3.44 percent late Wednesday.

As investors contend with tight credit markets, they also face weakness in the U.S. dollar and soaring commodities prices. The dollar dropped to fresh lows against the euro and fell below 100 yen during Asian trading Thursday, the weakest level for the greenback against the Japanese currency in 12 years. Gold surpassed the psychological benchmark of $1,000 an ounce for the first time, and crude oil briefly passed $111 a barrel.

Light, sweet crude rose 41 cents to settle at a record $110.33 on the New York Mercantile Exchange.

The Fed's Open Markets Committee meets next Tuesday and is widely expected to lower interest rates, with many analysts forecasting a drop of 0.50 percentage point. However, in the past few weeks investors have been questioning whether another rate cut will help the economy.

Talk of regulatory changes for the mortgage industry Thursday were largely shrugged off by the market. Treasury Secretary Henry Paulson outlined a plan to provide stronger oversight of mortgage lenders, whose lax standards are blamed for touching off the concerns about souring debt that have led to turmoil in the credit markets.

The market remains worried about more evidence of weak consumer spending. The Commerce Department reported that retail sales fell 0.6 percent last month, after analysts predicted an increase of 0.2 percent. Friday, the government releases data on consumer prices.

"Things just aren't good for the consumer, and thus, they're not good for Wall Street," Caughey said. And on the corporate side of the coin, no one is positive which companies and which investors are going to end up losing money if more funds collapse. "It is going to be difficult to see who has the Old Maid card. And time will tell," she said.

In other economic news, Labor Department said the number of workers seeking unemployment benefits was unchanged last week. A government report released last week said employers cut payrolls by 63,000 in February -- the second straight month of losses -- and sent a wave of unease across Wall Street.

Advancing issues outnumbered decliners by about 9 to 7 on the New York Stock Exchange, where consolidated volume came to 4.94 billion shares, up from 4.27 billion Wednesday.

The Russell 2000 index of smaller companies rose 12.40, or 1.86 percent, to 679.71.

Overseas, Japan's Nikkei 225 index tumbled 3.3 percent to its lowest level in 2 1/2 years. Britain's FTSE 100 fell 1.45 percent, Germany's DAX index slid 1.50 percent, and France's CAC-40 lost 1.42 percent.

Marketing Your Way Through a Recession

Author: John Quelch

The signs of an imminent recession are all around us. The spillover from the subprime mortgage crisis is weakening both consumer confidence and the consumer spending—much of it on credit—that has been buoying the U.S. economy.

Companies should bear eight factors in mind when making their marketing plans for 2008 and 2009:

1. Research the customer. Instead of cutting the market research budget, you need to know more than ever how consumers are redefining value and responding to the recession. Price elasticity curves are changing. Consumers take more time searching for durable goods and negotiate harder at the point of sale. They are more willing to postpone purchases, trade down, or buy less. Must-have features of yesterday are today's can-live-withouts. Trusted brands are especially valued and they can still launch new products successfully, but interest in new brands and new categories fades. Conspicuous consumption becomes less prevalent.

2. Focus on family values. When economic hard times loom, we tend to retreat to our village. Look for cozy hearth-and-home family scenes in advertising to replace images of extreme sports, adventure, and rugged individualism. Zany humor and appeals on the basis of fear are out. Greeting card sales, telephone use, and discretionary spending on home furnishings and home entertainment will hold up well, as uncertainty prompts us to stay at home but also stay connected with family and friends.

3. Maintain marketing spending. This is not the time to cut advertising. It is well documented that brands that increase advertising during a recession, when competitors are cutting back, can improve market share and return on investment at lower cost than during good economic times. Uncertain consumers need the reassurance of known brands, and more consumers at home watching television can deliver higher than expected audiences at lower cost-per-thousand impressions. Brands with deep pockets may be able to negotiate favorable advertising rates and lock them in for several years. If you have to cut marketing spending, try to maintain the frequency of advertisements by shifting from 30-second to 15-second advertisements, substituting radio for television advertising, or increasing the use of direct marketing, which gives more immediate sales impact.

4. Adjust product portfolios. Marketers must reforecast demand for each item in their product lines as consumers trade down to models that stress good value, such as cars with fewer options. Tough times favor multi-purpose goods over specialized products, and weaker items in product lines should be pruned. In grocery-products categories, good-quality own-brands gain at the expense of national brands. Industrial customers prefer to see products and services unbundled and priced separately. Gimmicks are out; reliability, durability, safety, and performance are in. New products, especially those that address the new consumer reality and thereby put pressure on competitors, should still be introduced, but advertising should stress superior price performance, not corporate image.

5. Support distributors. In uncertain times, no one wants to tie up working capital in excess inventories. Early-buy allowances, extended financing, and generous return policies motivate distributors to stock your full product line. This is particularly true with unproven new products. Be careful about expanding distribution to lower-priced channels; doing so can jeopardize existing relationships and your brand image. However, now may be the time to drop your weaker distributors and upgrade your sales force by recruiting those sacked by other companies.

6. Adjust pricing tactics. Customers will be shopping around for the best deals. You do not necessarily have to cut list prices, but you may need to offer more temporary price promotions, reduce thresholds for quantity discounts, extend credit to long-standing customers, and price smaller pack sizes more aggressively. In tough times, price cuts attract more consumer support than promotions such as sweepstakes and mail-in offers.

7. Stress market share. In all but a few technology categories where growth prospects are strong, companies are in a battle for market share and, in some cases, survival. Knowing your cost structure can ensure that any cuts or consolidation initiatives will save the most money with minimum customer impact. Companies such as Wal-Mart and Southwest Airlines, with strong positions and the most productive cost structures in their industries, can expect to gain market share. Other companies with healthy balance sheets can do so by acquiring weak competitors.

8. Emphasize core values. Although most companies are making employees redundant, chief executives can cement the loyalty of those who remain by assuring employees that the company has survived difficult times before, maintaining quality rather than cutting corners, and servicing existing customers rather than trying to be all things to all people. CEOs must spend more time with customers and employees. Economic recession can elevate the importance of the finance director's balance sheet over the marketing manager's income statement. Managing working capital can easily dominate managing customer relationships. CEOs must counter this. Successful companies do not abandon their marketing strategies in a recession; they adapt them.

About the author

John Quelch is Senior Associate Dean and Lincoln Filene Professor of Business Administration at Harvard Business School.

Avoiding Conflicts, the Too-Nice Boss Makes Matters Worse

by Jared Sandberg

Lowrie Beacham didn't like confronting people or making decisions that favored one staffer over another, including the time two of his people were vying to be in charge of the new fitness center.

"Instead of having one bad day and getting over it, it went on for literally years," he recalls. "You just kick the can a little farther down the road -- 'Let's have a meeting on this next month' -- anything you can try to keep from having that confrontation."

Anytime his employees bristled at his gentle criticisms, he'd change the subject: "You're getting to work on time; that's wonderful!" he'd say, "Never mind that your clients say you're difficult to work with."

What resulted was a dysfunctional department, he admits, "with no discipline, no confidence in where they stood, lots of scheming and kvetching, backstabbing." He gave up his management role. "I'm extremely happy not managing," he says.

The bad manager tends to conjure images of the blood-vessel-bursting screamer looking for a handle to fly off. But these types are increasingly rare. Far more common, and more insidious, are the managers who won't say a critical word to the staffers who need to hear it. In avoiding an unpleasant conversation, they allow something worse to ferment in the delay. They achieve kindness in the short term but heartlessness in the long run, dooming the problem employee to nonimprovement. You can't fix what you can't say is broken.

"In a knowledge economy, where work is more complex and interdependent, people need feedback more -- what they particularly need feedback on are on things that are difficult to give: one's interpersonal style," says David Bradford, a lecturer at Stanford's Graduate School of Business.

John Hardcastle, formerly in financial reporting, was one of the countless people who, surveys show, want to learn and improve. But every time he had to submit a report and asked for feedback, his boss couldn't say anything negative. "He would visibly dance around the aspects of my reports that needed improvement," he says. "I never really knew exactly where I stood."

Bosses who want to avoid any discomfort, "use generalities so people really don't know what they're talking about," says Laura Collins, an HR consultant. Instead, they tend toward one-size-fits-all comments: "pay a little more attention to detail" and "improve the way you communicate" and "develop better organization skills."

Those were the ones Ryan Broderick, formerly an assistant account executive in advertising, heard from a boss. The substanceless nature of his feedback stuck him with one of the worst performance-related torments: Being left to your own imagination. "Hearing nothing is worse than hearing something," he said.

It makes one pine for the boss who throws venomous tirades. "Those kinds of people may not control their emotions but at least they're honest about it," says James Fuller, an IT project manager whose former boss didn't assign him any projects for six months and never hashed out why.

Such avoidance is a recipe for an employee blindsiding. During the year she worked for one such boss, Maxine Erlwein got glowing 90-day and six-month reviews, and held daily meetings with her boss to whom she'd tell her plans. Then, in the annual review, her former boss "tried to claim my performance was not meeting any of the minimum requirements of the position," she says. The stress leveled her appetite, memory and sleep. "Nonconfrontational people will nurse a grudge," she says.

No one appreciates the deceptive peace and quiet. Lawrence Levine, program analyst, has witnessed a colleague spending much of his day on eBay, among other online time-killers. There's no doubt the supervisor saw it, too. It mystified the staff.

"We all pondered in the absence of any action why the heck this person drawing a decent salary was allowed to do this stuff," he says. "The anger was that all the rest of us were evaluated on what we produced."

But John Traylor, a chief engineer who once experienced a similar frustration over a lazy colleague, sees a different side now that he's a conflict-avoiding manager himself. He hates to give an employee news that would "crush his spirit."

He even once quietly arranged to have an employee transferred at the request of others. "He could leave with the dignity of having been asked by higher levels to move to a more important project -- and I didn't have to confront the real issue," he says.

He concedes that his handling didn't help the employee improve. He also says that the management training he received from the company didn't teach him how to deal with such conflict. "It would have been helpful," he says.

One IT manager at an insurance company who didn't want to be identified as the guy who confirmed our worst fears, also admits to a tendency to avoid battles. But he blames a system in which such clashes just cause HR headaches.

He wishes it were otherwise. "I'd rather be mean once to one person than cause this unrest across the team," he says.

As it stands, he adds, "it's a horrible cycle, because now I have even more work to keep everyone else happy."

Billionaire Investor Sees Bank Failures Ahead

Billionaire investor Wilbur Ross says the current market downturn differs from previous slumps in that no American banks have yet failed this time, but he suggests that's about to change.

"I think that's going to be the next wave, and coupled with problems in the commercial real estate market; I think they'll be the next bubbles that burst," the chairman and CEO of W. L. Ross and Company told CNBC's "Squawk Box" in an exclusive interview.

He was asked about the risks to big banks.

"I think that the big banks won't fail in the sense that they will go to zero and depositors would lose money," Ross replied. "I think the Fed and other regulators will make things happen.| I think it's the medium-sized banks, and particularly some of those that got overextended with the subprime and other kind of mortgage debt.| I think those are the ones that had the serious mismatch, making 20- and 30-year loans based on 90-day deposits."

Ross's comments echo those made by Federal Reserve Chairman Ben Bernanke, who told a Senate committee on Feb. 28 that some smaller regional banks that heavily invested in real estate could go under.

Ross and other high-profile investors have made recent moves in the credit markets, explaining that they have done so to snap up bargains. Last week it was reported that Ross had invested $1 billion into municipal bonds.

In the meantime, Ross said he didn't think the U.S. economy would recover any time soon.

"I think at best we're in for stagflation," Ross said, referring to the combination of higher inflation and weak economic growth. "I think the consumer has been tapped out for quite a while and is frightened by the poverty effect of seeing the house go down."

Straightening out the problems in the bond industry, particularly the situation of the insurers who backstop bond offerings, would go a long way toward fixing the current paralysis in the credit markets, Ross intimated. That process is underway, he suggested, with the current reassessment by ratings agencies of the bond insurers.

"Making real triple-As will solve a lot of the problem," he said. "The problem is we've had a lot fake triple-As before."|

That effort is far from over, indicated New York State Insurance Commissioner Eric Dinallo, who has been at the center of efforts to stabilize the sector. Troubled bond insurers MBIA (NYSE:MBI - News) and Ambac (NYSE:ABK - News) successfully raised fresh capital last week, he noted. Now attention now turns to FGIC, he said, also during an appearance on "Squawk Box."

When analysts are way off the mark

By CONRAD RAJ

WHILE most analysts provide invaluable advice to investors, there are some who are not only extremely sloppy in their work but do a disservice to the industry.

For example, take a recent report from CIMB on Hersing, the local franchise holder for property broker ERA and remittance agency Western Union.

In its report of Feb 27, CIMB downgraded the stock to 'underperform' and reduced its target price by more than half, from 79 cents a share to 36 cents. That day the stock closed at 52 cents apiece.

This was based on the weaker outlook for the property brokerage business and on 'investors' lower risk appetite and poor trading liquidity'. But the report also contained a couple of glaring errors, including a claim that Hersing had posted a pretax loss of $8.5 million on the remittance business and that it had declared a final dividend of only a cent.

Next day, Hersing shares fell.

On Feb 29, CIMB issued another report on the company saying: 'In a recent discussion, Hersing clarified with us a number of things.'

This time CIMB said that it had 'erroneously stated' that Hersing had lost money on its remittance business and that even after stripping out the sale of 49 per cent of Western Union Global Network to its US parent on Oct 10 last year, the company had turned in pretax profits of $2.02 million for the second half of 2007 and $3.04 million for the full year.

CIMB then went on to add: 'The business (remittance) remains healthy, and with the active participation of WU (Western Union), Hersing's management expects the business to thrive in FY08, given an influx of blue-collar workers in Singapore on the back of the current construction boom.'

It also noted that Hersing had proposed a special dividend of three cents a share which, together with the final and interim dividend of one cent respectively, took the total dividends for the year to five cents.

CIMB, however, continued to maintain its 'underperform' rating on 'unattractive valuations' but set a new target price of 40 cents a share, saying that the impact of a weaker real estate brokerage business should be alleviated by growth in Hersing's remittance and self-storage businesses.

There was not a single word of apology from CIMB despite the fact that Hersing's release to Masnet had contained all the information of WU's profitability and the special dividend.

What worries me more is that some investors could have dumped their holdings in Hersing on the basis of the earlier report. What recourse do they have?

For Hersing's founder and controlling shareholder Harry Chua, the price decline appears to have provided an opportunity to pick up shares on the cheap. Over the last few days, he bought about 3.36 million shares from the open market and transferred another five million shares from his deemed interest holdings through Hong Leong Finance to his direct stake in Hersing.

Sometimes you also wonder how analysts set their price targets for a particular stock. Rarely do you see a price range. So precise are their forecasts that they are often a cause of astonishment to me and my colleagues.

On Jan 14, Kim Eng wrote a piece titled Trash to Treasure on Advance SCT's business of recycling scrap copper to a reusable state. The analyst in question described the stock as 'Immaculate collection at a bargain!' on the basis that there was growing demand for the metal. It recommended a 'buy' with a target price of $1.97 a share when it was trading at 90 cents apiece.

After Advance issued its results for FY07, Kim Eng - noting that they were 'highly disappointing', with net earnings falling 47 per cent to $4.2 million compared with its earlier forecast of $20.9 million - set a new price target of 60 cents a share when they were trading on the market at around 41 cents apiece.

It also cut its forecasts for FY08 and FY09 by 55-60 per cent due to higher financing and conversion costs of copper and reduced output. Maintaining the 'buy' call, Kim Eng now sees the stock as an 'opportunity to buy on weakness'.

So what happens to those who bought shares at prices higher than 60 cents, based on its earlier recommendation?

Paul Krugman

Krugman gave a good explanation of the theory between Fed interventions like the TAF and its new $100 billion repo facility announced Friday (Krugman deemed the post "very wonkish" but it just has the sort of conceptual charts you see in econ courses, no scary formulas. Curious readers should most assuredly have a look).

His bottom line is sobering:


The financial crisis seems to have entered its third wave. Panic in August, then partial recovery thanks to lots of money thrown at the system by the Fed. Renewed panic late fall, then partial recovery thanks to even more money thrown in, especially the Temporary Auction Facility. And panic has set in yet again...

So the Fed is throwing another wave of money in, via the TAF and also additional loans to banks. All this lending is backed by collateral: the banks are setting aside various stuff, but probably mainly mortgage-backed securities....

OK, this is just like the way you analyze sterilized intervention in currencies. And the usual problem with such intervention applies: the financial markets are so huge that even big interventions tend to look like a drop in the bucket. If foreign exchange intervention works, it’s usually because of the “slap in the face” effect: the markets are getting hysterical, and intervention gives them a chance to come to their senses.

And the problem now becomes obvious. This is now the third time Ben & co. have tried slapping the market in the face — and panic keeps coming back. So maybe the markets aren’t hysterical — maybe they’re just facing reality. And in that case the markets don’t need a slap in the face, they need more fundamental treatment — and maybe triage.

There has been a small. lonely cohort, whose members include Australia's former Reserve Bank governor Ian Macfarlane, Henry Kaufman, Steven Roach, and James Hamilton, who early in the credit upheaval argued that monetary measures would not be sufficient, that our regulatory regime is outdated and needs a serious overhaul.

As a reader reminded me, the credit implosion has often and inaccurately been characterized as a subprime crisis; it should instead be depicted as a securitization crisis. In a wonderful illustration, "How the French invented subprime in 1719," James Macdonald in the Financial Times draws out the key parallels between the French Compagnie des Indes bubble of 1719-1720. The key element: repackaging bad debt (you might almost think of it as rebranding) and securitizing it made it vastly more attractive. Liquidity (or the belief that there would be liquidity) made investors willing to hold assets they would otherwise shun.

In our updated version, packagers used credit enhancement of various forms to sell dubious credits. But bear in mind: these same mechanisms were also used to sell higher quality debt as well, presumably for a better price.

There are two factors at work. The first is that, without any optical or real improvements to the credit quality, securitization is cheaper than bank intermediation. Any study of banks' share of total financial intermediation will show a steady drop since 1980. Banks' cost of capital and deposit insurance payments make them a more costly source of funds for all but small borrowers (and even those now find their assets securitized, via auto loan, credit card, and the well know mortgage bonds).

But separately, investment banks cleverly extended the market for securitized credit beyond what in retrospect was its natural boundaries: sourcing increasingly dodgy assets because the lucrative fees all along the pipeline created huge incentives to con investors; the use of credit enhancement that broke down under stress; the creation of considerable structural rigidity in the relentless pursuit of efficiency and profit (namely, the inability of mortgage servicers to do mods because their operations are incapable of doing anything on an individualized basis).

Securitizaton has become vital to the functioning of our credit system. But we are seeing multiple failures: not only has mortgage related debt become harder to sell, but the asset backed commercial paper market has been shrinking, and credit card debt is becoming much harder to sell as well. Some of this no doubt is due to worries about deteriorating borrower performance, but it appears to be exacerbated by the strains on the securitization machinery.

Paul Jackson of Housing Wire elaborated after attending the American Securitization Forum annual conference:

While the monoline business may or may not be less important in the municipal bond markets due to the unbelievably low incidence of defaults, the guaranty business is actually far more important to the MBS business than most have given attention to thus far — precisely because defaults can and do happen.

For secondary mortgage market participants, resolving this crisis isn’t just a piece of the puzzle; it might be the puzzle. At the American Securitization Conference in Las Vegas last week, many investment bankers suggested on panels and in hallways that the bond insurer mess is the single largest issue keeping the private-party market from having a chance at establishing any modicum of recovery going forward.

This is troubling, since a fair number of people (yours truly included) believe the bond guarantors' days are numbered. And the need for credit enhancement has been implicitly acknowledged in the calls for Fannie and Freddie to play a larger role. That, however, seems to be going pear-shaped due to the decay in agency spreads that appears to be in direct response to these very proposals.

Certain elements of the securitization problem have gotten a great deal of attention, such as the problematic role of the credit agencies, bad incentives, lack of transparency. But most of the approaches attempt to address isolated elements of the problem, independent of each other. That isn't going to work. There needs to be an integrated, systematic approach to reform.

The fallback, going back to finance circa 1980, with banks holding loans on their balance sheets, is such a costly reversal as to be unthinkable (particularly given the near-impossibility of coming up with sufficient bank equity to support big enough balance sheets to carry all those loans).

We need more serious attention to the real problem. I don't pretend to have answers, but if people like Krugman, who have the attention and respect of policymakers, can get the fundamental issues on the table, it improves the odds of working our way through this mess.

Jim Rogers, who has moved to Singapore with his family, said he is not buying Singapore property for now for a number of reasons. 'I expect there to be a slowdown, if not a decline; it is happening already.'

Slower growth, for one, may cause a drop in the number of foreigners here, which could dampen home prices, he said.

Dennis Ng's comments:
in the worst case scenario of a Global Financial Crisis whereby we have Crash in Stock Markets, Property Markets and Bond Markets, low-end private property prices in Singapore might crash to S$550 psf, from about S$700 psf currently (or a drop of 21%).

Note: property prices dropped to as low as S$350 psf in year 2003. This is Unlikely to be repeated in my opinion, as each Property Cycle will have higher low and higher high. (similar to stock markets).

S'pore stock market might drop to 2,100 level or lower. (another 30% drop).

Prices of HDB resale flats and Prices of New HDB flats would provide support and act as a "floor" for property prices.

Just my personal opinion, which might be worth not even 1 cent.

Year 2009 is likely to be a very bad year, so better build up Cash Now. Whatever Cash/CPF you have now better don't invest in stocks and also please don't use it to reduce/pay off Housing Loans.

Currently, Housing Loan interest rate is below 2.6% while inflation is over 5%. It does NOT make any Financial Sense to reduce/pay off your Housing Loan.

Cheers!

Dennis Ng

“Thirty years ago, no one could have foreseen the huge expansion of the Vietnam War, wage & price controls, two oil shocks, the resignation of a president, the dissolution of the Soviet Union, a one-day drop in the Dow of 508 points, or treasury bill yields fluctuating between 2.8% and 17.4%. But, surprise – none of these blockbuster events made the slightest dent in Ben Graham’s investment principles. Nor did they render unsound the negotiated prices of fine businesses at sensible prices. Imagine the cost to us, then, if we had let the fear of the unknowns cause us to defer or alter the deployment of capital. Indeed, we’ve usually made our best purchases when apprehensions about some macro event were at a peak. Fear is the foe of the faddist, but the friend of the fundamentalist. A different sort of major shock is sure to occur in the next 30 years. We will neither try to predict those nor profit from them. If we can identify businesses similar to those we have purchased in the past, external surprises will have little effect on our long-term results.” – Warren Buffett

Five Practical Moves to Help You Outrun Inflation

by Jennifer Openshaw

Rising health-care and education costs have topped the headlines for years. We're getting used to paying more at the pump. But recent figures show rising prices hitting closer to home. Higher commodity costs are driving prices for food, clothing and other basic necessities.

Sure, we've gotten our breaks. Electronics have been getting cheaper for years. The China effect has held prices steady for lots of manufactured goods, including clothing. And the housing market -- well, you could say that housing is getting cheaper, but that only helps those lucky few in the market today.

Inflation happens slowly -- an increase here, and increase there, and suddenly your finances fall behind the curve. If you spend $50,000 a year excluding housing payments, a 4% annual inflation rate suggests your expenses will rise by some $2,000.

Your income may keep up, but it's hard to count on that. I say it's time to aim high -- to figure out how to save at least $1,000 this year. Not to pay down debt, put in savings or improve our lifestyles -- but to stay ahead of the inflation monster.

Five ways to save a grand:

The following five practical suggestions can save $1,000 apiece:

1. Don't "obey your thirst." At least, not all the time. The cost of beverages, in all forms, adds up. Wine, soda, beer, even bottled water are expensive at home, not to mention at restaurants. Order drinks with free refills, or drink ice water. At home, try a filtered water pitcher or learn to drink juices, especially from concentrate. One friend of mine quaffed two 12-packs of soda a week -- $12 or so considering redemption values -- and quit when his kids started to follow suit. He switched to lime juice with great success. Without much sacrifice, I think you can save $20 a week on beverages -- at home, at restaurants, or some combination of the two. I can hardly think of an easier way to save a grand.

2. Put your cars in "econo-drive." Energy prices send no clearer message than it's time to cut back on driving. Put differently: gas prices are part of the problem, but how much we drive is usually the other problem. Learn how to combine trips and think of alternatives to trips, like putting kids on school busses instead of driving them to school (which will train them to ride the bus too). Or challenge yourself and your family to make one day a week car-free. Save 2,000 miles a year -- which isn't so much for an average family driving 25,000-30,000 miles. I think the IRS reimbursement of 50.5 cents/mile is pretty close to actual cost, so that'll save the $1,000. And your cars will last longer.

3. Thrift-shop for those threads. According to the latest Bureau of Labor Statistics inflation report, overall apparel costs rose for the first time since 1998. What do you do? Naturally, buying fewer clothes and shopping for enduring value is part of it. But consignment and thrift shops are great places to get good stuff, even fancy designer names. Lately, consignment stores have acquired new stock as people turn their extras into a little cash. It's fun. A friend of mine checks out the consignment stores when she travels -- it gives her more to choose from and something to do.

4. Do you own work. That is, the housework, indoor or outdoor. Mow your own lawn and save maybe $40 to $60 a month. It's good exercise, too. Learn to paint walls or cut hair. I mean, don't get silly -- if you can't iron a shirt, don't iron shirts. If you can't reach the drain plug, don't change your oil. But I bet you can find at least a couple of things you can do yourself, and it's a satisfying feeling.

5. Suspend services you don't need. Seems obvious, but I bet you have a few you've forgotten about or are hanging on to for obscure just-in-case reasons. Still have that old dial-up account? How about the "premium" cable or satellite package? Or those "hot" domain names they keep asking you to renew. Do you really need them still? Could that pest control be done every other month instead of monthly?

Some perspective

The point isn't to turn into a miserable miser -- the point is to prepare for the inevitable. Good financial management implies always planning ahead.

And if today's inflationary monster turns out to be more growl than bite, or if your income keeps up with inflation on its own, so much the better. You'll have $1,000 extra to spend on something you want -- or to prepare for the next financial storm. Either way, it's a good thing.

Why banking sucks

David Bledin, ex-banker, now author and MBA student, on why he wouldn’t go back into banking if you paid him.

I’ve just started an MBA programme and it’s amazing the number of people coming from non-banking industries who have somehow managed to maintain a startling innocence regarding the Street – despite the bleak stories they must have soaked up from their acquaintances. They seem to focus on that starting salary and rationalize away everything else – they tell themselves it will only be a few years before they’ll have racked up enough bonus pay to buy an achingly sophisticated loft in Soho and subsist on a steady diet of yellow-tail sashimi.

I’m here to tell you that if you don’t think your life is going to be miserable as an investment banker, then you’re wrong. Here’s a short guide to set you straight.

Don’t think you’ll remain unscathed.

You will not be the exception to the rule, the golden child who will remain untarnished by the industry. History will repeat itself, as it has since the founding of the House of Morgan: you will get a receding hairline, you will hate your Blackberry, you will tremble every time your phone rings, you will spend the occasional evening curled up under your desk.

Never forget that as a freshly minted analyst or associate, you are viewed by everybody senior to you as nothing more than a spreadsheet-laden donkey, somebody to crank out endless PowerPoint piecharts and not ask too many questions. And remember that your bosses were once in your shoes, too, so don’t expect any sympathy. It’s the vicious cycle of abuse, and you’re at the nexus of it.

Don’t think you won’t become bitter.

Your first week on the job, you’ll be bragging to all your non-profit buddies about your $30 dinner allowance, your company car transport, and your shared assistant. A month later, you’ll actually be nauseated by the sight of another prime rib, leaking its juice onto your mousepad and ready to expand your waist size even further since you don’t have time to hit the gym. You’ll be ashamed that you know more about your company car driver’s domestic turmoils than you do about the upheavals in your own family. And you’ll soon realize that your incompetent assistant is only there to make your life more miserable than it already is, sending out the wrong conference call numbers and printing out the wrong reports and getting much better Christmas presents than you ever will.

Don’t think the work will be interesting enough to warrant the all-nighters.

Let me introduce you to comps. Right now the word sounds innocent enough, but it won’t be long before the mere utterance of it will elicit night sweats and dilated pupils. Dealing with comps involves the meticulous and very time-consuming – even for Harvard grads – computation of endless financial ratios and multiples. Even once you eventually graduate to Excel modelling, it won’t be long before yet another circular reference will make you want to commit hara-kiri with your staple remover.

Don’t believe that any of your new relationships are genuinely sincere.

When I first started in the M&A department at my bank, I was trapped in a cubicle next to a guy who was nicknamed the Star. The Star was an Excel powerhouse, a guy who could shoulder the workload of three lesser analysts and still maintain the disposition of a Buddha. Everybody would constantly sing his praises, except for our head of HR, who was too removed from the actual workflow to recognize the Star’s supernatural abilities and passed him up for a promotion to the associate level. Any one of the senior guys in our department could have stepped up to the plate and fought for the Star’s promotion, yet nobody rose to the task. The senior guys were all too self-absorbed to genuinely care about the fate of their underlings. The Star skulked back to b-school and was replaced by a former marketing guy who had never seen an Excel spreadsheet in his life.

Just accept the fact that you’re doing it for the money, and it will help dull the pain.

You will be miserable as an investment banker, but heh, you’ll also be flush with cash. I’ve been out of banking for a few years now and my heart still hurts when I hear the bonus numbers from my friends who stuck around in the industry. While I’m taking out loans to pay for my MBA, they’re putting down 50% deposits on million-dollar brownstones.

So here’s a piece of advice: every time you’ve had a really horrible day at the office, go out and buy yourself an Hermès tie. If you’re going to need a noose, it might as well be a fashionable one.

David Bledin is a banker turned MBA student and author of Bank: A Novel.

Good and Honest Personal Insurance Advice

1. How much life insurance do I need?

It depends on your personal circumstances. If you have dependents, you should aim to insure for 5 to 10 years of your earnings. If you have accumulated savings, the insurance cover can be reduced by this amount.

For example, if you earn $40,000 a year, you should have life insurance for $200,000 to $400,000. If you have accumulated savings of $50,000, this can be reduced from the amount of your insurance.

As a minimum, you should insure for 5 years of earning. If you are able to afford it, you can increase your coverage to 10 years of earning.

The sum assured is payable on death and permanent total disability.

2. What type of life insurance should I buy?

You should buy decreasing term insurance that covers you up to your retirement age, say 65 years.

If you are now 35 years old, you can buy a decreasing term insurance to cover you for 30 years.

If your sum assured is $300,000, you will be covered for $300,000 during the first year. The sum assured will reduce by $10,000 for each subsequent year, until it disappears completely at the end of 30 years.

The reduction in the sum assured each year will be offset by your savings for the year. As your savings grows, you need less coverage for your life insurance.

The premium that you pay for decreasing term insurance is about 50% of the cost of level term insurance. It is about 20% of the cost of a whole life insurance.

By paying a lower premium for your decreasing term insurance, you have more money to save in a low cost investment fund to earn a higher return for your future needs.

3. Do I need medical insurance?

If your employer covers your medical expenses, you do not need any personal medical insurance.

If you wish to buy a personal insurance now, so that you are assured of continuing coverage after your retire from work, you should choose a low cost Medishield plan provided by the Central Provident Fund.

There are many Shield plans in the market. They cover different classes of wards in restructured and private hospitals.

In selecting your plan, you should consider the total lifetime cost. You should add the premium for the various ages from now until you reach age 85 years. As the premium rate increases with age, you must take the higher cost into account, when you select your plan.

There is no need for you to buy an expensive plan, unless you have a high income. If you enter into a subsidised ward, your medical expenses will be quite affordable and can be covered by Medishield or a lower priced private Shield plan.

Do not spend too much premium on your Shield plan when you are young. You need the savings to cover your insurance premium and medical expenses when you grow old.

The Shield plan has a Deductible and a co-insurance portion, which have to be paid by you. Some insurance company offer a rider to cover these items. As the amounts are not large, you do not need to buy the rider. You can pay them from your Medisave account.

4. How much should I spend on insurance?

You should spend not more than 2% of your earnings on the life and medical insurance on your life. If you include your family, you should spend not more than 3% of your earnings.

By spending less on insurance, you can set aside more savings for your retirement. This should be 10% to 15% of your earnings.

5. Do I need to insure against critical illness?

There is no need to buy insurance to cover critical illness. Your Medishield or private Shield plan can cover most of the medical expenses.

The chance of making a critical illness claim is small. Less than 5% of people make this claim during their working life.

If you wish to have insurance to provide a cash payment, a sum of $50,000 should be adequate. The cost of critical illness cover is high. You should not spend too much premium on this risk, as the return is poor.

6. Do I need insurance for the whole of life?

You need insurance to take care of your dependents, if you are the breadwinner. If premature death or permanent disability occurs, the life insurance will pay a cash sum to take care of their future needs.

When you retire from work, there is no loss of future earnings. You do not need life insurance to cover this risk, as there is no financial loss.

You are likely to have accumulated sufficient savings to take care of yourself and your spouse.

You need insurance only to provide for the financial needs of your dependents. If you retire from work, your children are likely to be grown up and able to take care of their own financial needs.

There is no need for life insurance beyond age 65.

7. Why does the insurance adviser recommend a few insurance plans that take up more than 10% of my earnings?

These insurance plans provide a combination of protection and savings and give you a return on your insurance premiums.

The insurance adviser earns a commission based on the amount of premium that you pay. They wish to sell you as much insurance as possible, so that they can earn more commission.

It is better for you to buy decreasing term insurance and to invest your savings in a low cost investment fund. You can get a higher return by separating the insurance from your investment.

8. Sample Premium Rates

Whole life – covers death and permanent disability for a lifetime

Living – covers death, permanent disability and critical illness for a lifetime

Term – covers death and permanent disability during the selected term

Decreasing term – like term insurance, but sum assured reduces each year

Living benefit – covers death, permanent disability and critical illness during the selected term.

Monthly premium for $50,000 sum assured

Male
Age	20	25	30	35
Whole life	$62.00	$71.50	$84.00	$99.50
Living	$76.00	$89.50	$106.50	$129.00
20 yrs term	$6.10	$6.60	$7.95	$10.70
20 yrs decreasing term	$4.60	$4.70	$5.30	$6.95
20 yrs living benefit	$8.85	$11.30	$16.20	$24.70

Female
Age	20	25	30	35
Whole life	$57.00	$65.50	$76.50	$89.50
Living	$69.50	$81.00	$96.00	$115.00
20 yrs term	$4.75	$5.35	$6.45	$8.25
20 yrs decreasing term	$3.85	$3.95	$4.35	$5.45
20 yrs living benefit	$8.40	$10.45	$15.05	$23.85

Monthly premium for $100,000 sum assured

Male
Age	20	25	30	35
Protection	$121.50	$140.50	$165.50	$196.50
Living	$149.50	$176.50	$210.50	$255.50
20 yrs term	$9.70	$10.70	$13.40	$18.90
20 yrs decreasing term	$6.70	$6.90	$8.10	$11.40
20 yrs living benefit	$15.20	$20.10	$29.90	$46.90

Female
Age	20	25	30	35
Protection	$111.50	$128.50	$150.50	$176.50
Living	$136.50	$159.50	$189.50	$227.50
20 yrs term	$7.00	$8.20	$10.40	$14.00
20 yrs decreasing term	$5.20	$5.40	$6.20	$8.40
20 yrs living benefit	$14.30	$18.40	$27.60	$45.20

Freedom at 44

extracted from Business Times

Published March 3, 2008

Freedom at 44

Last week, we discussed how retiring young and rich can be an attainable goal if one plans early and invests wisely. Today, we run a personal letter from RONALD HEE, who shows it is possible to become financially free as a hardworking salaryman, without needing to rob a bank or be a corporate high-flier

YOU are entering a world of amazing possibilities - possibilities that people of my generation barely believed would be possible. The world is, quite literally, your oyster. You also enter a world fraught with challenges and dangers, and ever rising costs of everything.

In our day, the options were limited, but inflation remained low most of the time, and there was job security. I still have friends who are in the same company since they graduated 20 years ago. For you today, inflation is roughly twice the interest the banks are giving you. You will probably change jobs every two to three years. And you can be fired from any of them at any time. Or, any company you work for could downsize or close down just when you least expect it.

So, for middle-class working Joes like us, does it mean that just to survive, we will be chained to our desks until the day we die - if we're lucky and not get replaced or downsized? Is financial freedom at the tender age of 44 - for you, 20 years of earning - an impossible dream? It really boils down to one simple formula. Earn more than you spend; invest what you save.

The first thing, of course, is to find a good job. There will be many, here and around the world. But don't rely on your company or your boss to take care of you. You have to take care of yourself, regardless of the profession you choose. Assuming you are not in the lucky handful who will inherit a fortune or get a job that pays you in the six figures, or win the lottery, the career you choose is what makes your path to financial freedom possible. But you have to plan that path.

Let's first look at the cost side of the equation. Buy what you need and some of what you want and know the difference. Do you really need a 200-inch high-definition plasma TV, complete with state-of-the-art home theatre system? And how many hours per day are you going to enjoy that system? Instead of spending tens of thousands on something you will use for a few hours a week, consider instead how that money could work for you.

One thing that surprises me about the younger generation is your propensity to spend on credit. Why buy things you don't need, with money you don't have? To impress people you don't like? Here's a crazy idea: Have the bank pay you interest for your money, rather than you pay the bank interest for their money. Twenty-four per cent interest? That's approaching loan shark rates. Always, always, pay your credit card bills in full. Can't afford to pay? Simple solution. Spend less. Be low maintenance.

At some point, you'd probably want to buy a car. With an excellent MRT and bus system, and taxis when you need them, is it worth getting a car? Unless you have a real need - you're a salesman, you have a family to ferry around, your child is sick all the time, your mum is old, your girlfriend will leave you otherwise - the reality is that a car is simply not worth it. Over 10 years, a $50,000 car will cost you about $130,000, once you factor in petrol, road tax, repairs, car payments and interest on the payments, parking tickets, a few minor accidents... Again, it's better for that money to work for you. (See Table 1)

Like most people, your biggest purchase will probably be a home. For most of us, our first home will be a government flat. Whether you buy public or private, consider buying something that you can continue to pay for, for at least six months, should you be suddenly out of work. If you don't mind the loss of privacy, consider renting out any spare rooms. It's not impossible for your rental income to match your mortgage payments.

Now let's look at the income side. Your basic fallback is your CPF account. Let's assume that by age 44, you've worked 20 years. Assuming an average of $1,000 a month, you will accumulate $240,000, not including interest. Invest it if you wish, but the main use of CPF should be to pay for your home, so your cash outlay is minimised. In 20 years, with $240,000, you could quite easily pay off your flat. With your spouse also chipping in 50 per cent for the flat, you should have more than enough.

If you've managed your expenses right, it's quite possible to save an average of $1,000 a month. This, of course, gets easier as you grow older and earn more. Put some away into a savings account as your rainy day fund, eventually building up enough to keep you going for six months or more. Put the rest in the hands of a good financial planner. This is someone who should be able to give you an average return of at least 10 per cent a year. The miracle of compound interest will yield you $756,030 at the end of 20 years, more than three times what you put in! (See Table 2)
It's now 2028. Twenty years have passed and it's your 44th birthday. You are into your second or third home by now, or maybe even have a spare house, each time either breaking even or making a small profit. You have a healthy CPF balance that covers basic needs. You've taken care of some health risks by buying insurance policies when you were young and they were cheap. And your investment portfolio is chugging along very nicely, yielding around $70,000 a year, without depleting your capital, so it's sustainable for the long-term. $70,000 a year is equal to a tax-free monthly 'salary' of $5,800. Not too bad.

CPF + savings + especially your investments = financial freedom. Work part time. Start your own business. Do something else that pays a lot less but fulfils you more, such as church or charity work. Become a beach bum in Bali. Or travel round the world for six months. Financial freedom means the freedom to make these kinds of choices.

So, my young friends, my wish for you as you embark on the next stage of your life is that you will plan from the beginning to be financially free. May you have the discipline and luck to accomplish it!

Ronald Hee, 44, is a freelance writer, and just a little shy of financial freedom

Why We Spend and What We Can Do About It

by Sheyna Steiner

A lot of changes have taken place in American society since the 1970s. We have made exponential leaps in technology, for example. Yet people haven't changed all that much. We still respond to societal cues and, as a result, often behave irrationally with money as we face increasing pressures to spend.

According to Stuart Vyse, author of the book, "Going Broke: Why Americans Can't Hold on to their Money," the five variables that controlled spending in the past have undergone tremendous changes in recent history.

These external mechanisms kept people from going hog wild on shopping sprees in the past. As these constraints have loosened, society witnessed a massive increase in personal debt and bankruptcies.

It's gotten easier to spend

Vyse discusses these five variables in "Going Broke":

1. Availability of goods and services.
Before: Warehouse stores, with products packed on shelves from floor to ceiling, weren't as common as mom-and-pop shops. Shopping online was not an option.
Now: Almost anything in the world can be procured just down the road at the superstore or, better yet, delivered to your door with only a few clicks of the mouse.

2. Wherewithal to buy or trade.
Before: Layaway was the common way for consumers to set aside products they couldn't yet afford.

Now: Consumers' buying power is almost unlimited as credit card issuers compete for business.

3. Time to get the goods or services.
Before: Consumers generally planned and saved money before making big-ticket expenditures.
Now: The ability to buy products before you can afford them dramatically reduces wait time. Plus you can get almost anything shipped overnight from all corners of the globe.

4. The effort required to get the goods or services.
Before: You had to at least shower, dress, get in the car and drive to the mall.
Now: Online shopping anyone?

5. Self-service retail society removes social barriers.
Before: Social interaction was virtually assured when shopping. Some purchases involved stigmas or required a level of knowledge or sophistication that the buyer might not have felt comfortable with. Even using a credit card may have been cause for raised eyebrows due to the shame of debt.

Now: There really isn't a stigma to any purchase these days, and using a credit card is much more common than cash. Even if someone were to judge your purchases, you don't have to talk to them until you hand them your credit card -- if at all.

A shift in national priorities

Most people are in debt to some extent. More than three-quarters of all families carry some form of debt, according to the 2004 Survey of Consumer Finances, conducted every three years by the Federal Reserve. That includes credit cards, mortgages, installment loans and others.
Robert Manning, Ph.D., author of "Credit Card Nation," has studied messages about saving and spending that have been imparted from World War I to the present. His findings will be used in the sequel to the film "In Debt We Trust."

In the early 20th century, saving was a national priority, he says. "There was a very strong effort to influence people's savings behavior among the public government sector, the corporate sector and the household sector. So the message of savings was really a national security issue, a core value, and really emblematic of the power and superiority of American society," Manning says.

"Literally any item, from milk to cigarettes and liquor, in that period of America from World War I to the Korean War, was promoting that it was our national duty to save."

Conversely, current messages promote spending as the way to power the economy.

"Now it's the triangle of debt, and what we see is the consistency of the government, corporations and households all basing their budgets on debt," says Manning, director of the Center for Consumer Financial Services and research professor of consumer finance at Rochester Institute of Technology. "Just a generation earlier that would have been anathema."

Vyse, a professor of psychology at Connecticut College, concurs. "We've designed the economy so that the consumer is an important resource for the overall economy," he says. "Unfortunately we are overfishing that resource; we are going to destroy that by putting people in too much debt."

Confusing needs with wants

Basic needs have not changed, yet there are so many more of them now than ever before.
The widespread introduction of indoor plumbing and the associated conveniences of hot showers rendered obsolete the outhouse and chamber pot. Toilets and showers quickly became regarded as necessities. Similarly, recent innovations are considered needs rather than wants.

"We have experienced an incredible technological burst in the past 30 years and things that we never imagined are now things that we can't live without," says Vyse. "And that includes technological devices like computers and cell phones."

The other side of the coin is that keeping wants and needs separate is harder than ever. Though everyone now needs a digital copy of a resume and e-mail, a computer may not be absolutely necessary. Using one at Kinko's or a cyber cafe could be a less expensive alternative.

"The things that you need are at a more basic level," says Steve Bucci, president of Money Management International Financial Education Foundation. "For instance, you need a place to live. You may want a two-bedroom apartment, but you need a one-bedroom or even a studio."
Failure to really differentiate between wants and needs leads to what Manning calls competitive consumption.

Societal pressure to spend

Citizens are exhorted by the government to spend money to get the economy moving. The possessions of neighbors and friends prompt judgment of their relative worth. Even leisure time is dominated by opportunities to spend money.

"The idea of saving and having cash on hand for a rainy day has really gone away," says Vyse.
The population has become obsessed with having the right things and the status that those things ostensibly project. From the cool jeans in high school to the shiny new car or living in the best ZIP code as an adult -- these values can work to the financial detriment of individuals.
Parents can be especially vulnerable to competitive consumption in today's world. Feeling pressure to equip their kids with skills and education to put them ahead of peers in the race of life, parents spend themselves into the ground.

"It seems like parents today have been persuaded that they can't do enough for their children," says Manning, citing expensive summer camps, sports programs and debutante balls as competing demands for their money. "And that then explains why there's not enough savings for college."

Availability of credit

People can borrow buckets more money than ever before. "Over the past decade it's gotten so that a family living on a modest income of $50,000 can leverage up to their yearly income in unsecured credit. That's unprecedented," says Dave Jones, president of the Association of Independent Consumer Credit Counseling Agencies.

"One of the things about the availability of credit is the fact that it allows you to think in the short term. It lets you have this object right now even though you don't have the money in the bank. People can easily get enough credit that they can get themselves in debt," says Vyse.
More recently, the consumer debt debacle was exacerbated by the skyrocketing growth of real estate values plus low interest rates on mortgages, home equity loans and lines of credit which lenders were all too eager to give out.

Alternatives to fixed-rate loans abounded and buyers were allowed to buy more home than they could afford. Homeowners could remodel, take vacations and buy beyond their means on the value of their homes. Then the housing party ended, which led to unfortunate, though not entirely unforeseen, consequences.

"People had borrowed not only up to their income limit but also on the artificial valuation of their homes. And now that those valuations have plummeted, millions of people are in financial shock. They always thought that they could sell their homes and pay off debt, but now they're finding out that their homes have depreciated substantially," says Manning.

Lack of financial education

With the dizzying array of options and responsibilities consumers have, financial education has gotten complicated. In the early 20th century, when there were two options available for making purchases -- save for it or don't buy -- basic financial management was fairly straightforward. Credit was available, though it was very limited or required collateral.

"It was much less easy to go into debt in an era before credit cards became ubiquitous," says Vyse.

Credit has undoubtedly made life easier in many respects. From bigger houses to safer cars, average consumers can extend their buying power. But without education on how to handle the spending power, credit can be as destructive as a high-octane sports car in the hands of a novice driver.

"Debt is a very serious issue and should be understood," says Jones. "We graduate kids from high school every year that don't even know how to fill out a check book register. There is nothing taught in the public schools about personal financial management, and a lot of people don't understand the basics of finances, like credit cards and interest rates and universal default clauses," he says.

Make long-term choices

To a certain extent consumers make choices that land them in the debt hole. When borrowing money, buying on credit or spending instead of saving, choices are being made.
Consumers should try to be more mindful of spending money and account for the total cost of their purchase -- which is often more than the amount shown on the price tag. If you use a credit card and don't pay off the balance each month, interest accrues.

Paying off a large credit card bill over time requires you to commit future earnings to that purchase plus interest. Say you have a $10,000 credit card bill at 18 percent interest and you make minimum payments of 4 percent of the balance. "It will take almost 15 years to pay off that bill, and that's if you never make another purchase on that card," Jones says.

Get rid of your credit card debt

Vyse says people often have the best intentions to pay off credit card debt right away. "But we don't anticipate the normal bumps that come along that will also draw upon our finances. Then it's very easy to get in trouble."

Know what you're up against

Stores target you for impulse purchases; the layout and design of stores and malls is no accident.
At the grocery store, "The milk is always at the back of the store -- it's never by the checkout," says Bucci. "But a lot of people buy milk, so they have to walk through the store.
"The music is chosen carefully to make you feel a little more carefree. That's how they want you to feel. The things that they want you to buy are at eye level. Other stuff is elsewhere. When you get to the checkout line, candy is down low where the kids are."

Advertising also plays into decisions to spend. Omnipresent ads crowd the landscape and have bled into movies and even video games.

People can control their impulses to spend and look toward the long-term in part by limiting their exposure to advertising and making their lives less commercial, says Vyse.

Just tune out those messages that are out to destroy your financial security.

"Also, cultivate leisure time activities that don't involve large sums of money," Vyse says.

Save, save, save

Though plastic makes an easy target, it's only a part of the issue. The real problem is spending and not saving.

The younger generations are being trained to spend rather than save, says Manning. "Many young people have a false impression from their prior generational influences that they've got to get out of debt, and I make the point in my next book that it's OK to be in debt as long as you have a plan to invest. Being at zero dollars at retirement isn't going to do it," he says.

Even if you don't have much credit card debt carried over month to month, spending everything you make rather than saving some can put you in a much more precarious financial position than someone who does carry a lot of debt but also has savings.

"The importance of having cash on hand for the unexpected expenses of life is something that we really need to get back to," says Vyse.

For instance, if you have no savings and your car breaks down, he says, "you have no choice at that point. You're going to go into debt to pay for that repair."

A person with savings can absorb much more because he can use his savings to pay for emergencies, plus fall back on credit.

"So they have, in a sense, twice as much safety in emergency situations," Vyse says.

Keep in mind that you do have control over your own financial situation -- if you exercise it.

"Everyone thinks that it was the event that threw them into financial distress," says Gail Cunningham, senior director of public relations for the National Foundation for Credit Counseling. "It was the visit to the emergency room or the leaky faucet or the washer going out that put them over the edge. But it wasn't. It was lack of preparation that caused that to happen.
"As soon as we think we have our ducks in a row, the bottom is going to fall out."

Copyrighted, Bankrate.com. All rights reserved.

The Wisdom of Abey

1. Money alone will not make you happy. Living an "authentic life" will. People have more money today than 50 years ago, yet are no more happy.

2. Have a financial plan for you, not your money. Those with a financial plan report greater satisfaction with life than those who do not.

3. Your plan should be based on your goals, not goals someone else says you should have. Those selling dreams are probably trying to sell you something else.

4. Understand the Prize. Over the long term, cash makes a real return of 0%-1%, bonds 1%-3%, property (without leverage) 3%-5% and shares 5%-8%.

5. Understand the "enemy within". You are wired to make bad investment decisions, and your financial plan needs to defeat that.

6. Beware false accounting. An investment you bought for $100 5 years ago, and sold for $150 yesterday, but cost you $4 to buy, $10 in finance interest costs, and $11 to maintain and insure, made a 25%, not a 50% return.

7. Drip feed money into the market so you do not worry about short term ups and downs. You will be buying in both.

8. Do not attempt to case fads or time the market. You will fall, unless you are lucky. Very few people are consistently lucky.

9. Do not watch your investments constantly. Review annually.

10. Have a financial planner. Make sure he is not a commission salesman.

Views on market volatility

Temporary falls in the prices of quality companies only cause a real loss if you are forced to sell. Astute investors are those who emotionally overcome their distaste of volatility and recognise that their ability to it is what gives them a high return.

Or, as Warren Buffet puts it: To invest successfully over a life time does not require a stratospheric IQ, unusual business insights or inside information. What's needed is a sound intellectual framework for making decisions and the ability to keep emotions from eroding that framework.

Is a banking career worth the sacrifice?

Are long hours, high pressure and bonus obsession worth it? The premature death of a close relative has helped one ex-banker put things into perspective.

Over the past couple of weeks, I’ve been asking myself a lot of questions about my recent life. My cousin, one of my best friends and more akin to a sister than a cousin, died two weeks ago at just 42. A life tragically cut short, suddenly one sunny January Monday morning. She leaves behind a husband, two young toddlers who don’t understand what has happened and will not remember their mother, and a wealth of grief compounded by legal and tax hell.

For 15 years I worked hard in the City. I was obsessed with doing a good job, working long hours, winning mandates, getting paid and promoted. It was exciting to be a 'name' in the market and to be cited in the financial press. It gave me a buzz.

The accolades of my clients and colleagues were crystallized in a year-end review and bonus number. I felt worthy.

My firm had a genuine commitment to work-life balance, and as an MD, I was encouraged to promote it. But for most of my career, I didn’t really follow it myself. Many of the people I worked with were the same: we thrived in the high pressure environment. I had an adrenaline rush from going to work, wrapped up in the excitement of doing deals.

My friends stopped calling me as I was never available (or if I did make plans I generally had to change them), my husband was fed up with the phone ringing in the middle of the night, and at me for constantly focusing on my Blackberry. I didn’t care; I was seduced by my work. I was ensconced in my own bubble.

These days, I think about my cousin, her children and husband constantly. The things I could have said and done. How often I blew her off because I had to work, how often I forgot to call back, called her back with my mind on other things, didn’t go to see her, was critical of her. I can’t sleep.

I quit work 18 months ago to spend time with my family, to change my life, to get to know my children, to reconnect with my husband, to have a life. Yes, we have less money than before – we have gone from two incomes to one. But we are happier. The stress has dissipated. My husband and I have a normal relationship. Our children know both their parents. It was the right decision. My life has moved on. I wish I could have shared it with my cousin for longer.

Make Your Money Work for You

by Anya Kamenetz

How much do you really know about what to do with your money?

Recently, a reader named Dave left this comment on my blog:

"I have tried asking for advice through other sites like Forbes and Vanguard, but it is all so confusing to me. I have money to invest; I just don't know how to invest it. With all of the fees and gimmicks, it is very frustrating. I know I need to get into stocks to get the max return, but I just can't make the distinction between mutual funds and that sort of thing. Any advice would be great."

I decided to write this column on my own approach to investing as a primer for readers like Dave, and a refresher course for those who may have gotten started with their investment planning already.

Saving, Retirement Planning, and Speculation

Saving, retirement planning, and speculation are three very distinct categories that are often lumped together under the heading "investments," which can be extremely confusing.

First, it's important to understand that you can't bury your money under your mattress; if you do this, inflation will destroy its value over time.

That leaves paying down debt; spending on necessary or elective depreciating assets such as food, clothing, and entertainment; and the three options above: saving, retirement planning, and speculation.

For the sake of this column, let's say that you've managed to pay down your high-interest debt -- such as credit cards -- and you manage your expenses well enough to reserve 10 percent or 15 percent of your income each month. Now we can cover what you are going to do with that reserved money in order to live with financial security both now and in the future.

First, there's saving. Saving means putting your money in a very safe vehicle such as a savings account, a money-market account, or a CD (certificate of deposit). With the majority of these ultra-safe vehicles, the rate of return is barely above inflation -- currently an average of 3.08 percent for a six-month CD on Bankrate.com.

Everyone must save. If you're just starting to put away money, you should aim to build up an emergency fund totaling three to six months' expenses. On top of that, you should have a dream fund for planned expenses such as a house, car, vacation, wedding, or baby -- whatever is in your one-year and five-year plans.

Next, there's retirement planning. This is the investment activity I'm going to spend the most time on because it's what people tend to need the most help with.

Everyone needs to plan for his or her own retirement, and most people don't start soon enough or save enough. Here's where members of Generation Debt can be savvy. If you start in your 20s, you can get away with saving just 5 percent of your income and be fairly well set when it's time to retire. If you're starting in your 40s, you'll be shoveling in 30 to 40 percent of your income just to make it to the finish line in decent shape.

Retirement planning should start with the money set aside from your salary in a tax-deferred retirement account: a 401(k) or 403(b) if your employer provides them, or an IRA if they don't. With those contributions, you will mostly want to buy a balanced portfolio of stocks. A good retirement plan is defined by reasonable, targeted long-term returns in the 7 percent range, similar to the rate of growth of the stock market as a whole.

You should try to diversify the funds in that account as much as possible while keeping your costs as low as you can (partly by keeping transactions to a minimum). And you need to take a long-term view.

To keep down your expenses, look for no-load, low-cost mutual funds. When you look up a fund, a number called the "expense ratio" tells you how expensive it is in terms of fees and commissions compared to other funds. The average expense ratio is over 1 percent, while an index fund can be as low as 0.02 percent. This article tells you more about fund expenses.

Speculating is the riskiest type of investment, and it has no place in retirement planning. You are speculating, not planning for retirement, if you're taking advice from Jim Cramer's "Mad Money", trying to maximize your returns into the double digits by choosing particular stocks, and timing the market so that you can buy low and sell high. Another activity that falls under the category of speculation is buying a house in order to "flip" it.

Most individuals find it very difficult to beat the market by speculating. If you want to try it for fun, after you've maxed out your retirement contributions, that's fine. But if you are really that good at doing research on individual companies or predicting what the economy is going to do, do what Cramer did: Go into finance for a living.

Get Good Sources of Information

Two-thirds to three-fourths of the information you will find on Yahoo! Finance, on CNBC, and similar resources about "investing" is really about speculating. That's because it's exciting for financial journalists to cover "stocks everyone is talking about" or the daily ups and downs of the market. But this won't help your long-term retirement-planning strategy.

The big brokerage firms like Fidelity and Vanguard offer some great information on retirement planning, but remember that their income depends on fees and commissions, so you have to be vigilant in seeking out the lowest-cost investment options on their sites.

That leaves folks who specialize in personal finance, which is distinct from investing. We all have our own personal philosophies and agendas, so it's good to read as widely as possible and compare to find an approach that sounds good. As a rule of thumb, don't pay attention to anyone who promises to make you rich.

I like Henry Blodget's "Wall Street Self Defense Manual" (you can read about his approach here in Slate). He was once on the dark side, disgraced and banned from the securities biz for playing a part in pumping the biggest stock bubble in history, but in his new, reformed life, Blodget gives solid advice.

This recent "New York Times" article about top Yale investor David Swensen's book, "Unconventional Success: A Fundamental Approach to Personal Investment", contains some good information as well.

Diversify

So, you have maxed out your contributions to a 401(k). Now what?

Buying and holding a low-cost index stock fund such as Fidelity's Spartan 500 is the easiest way to capture returns close to the overall market return of 7 percent to 10 percent. The 500 refers to the 500-stock average; owning this fund is like owning the whole stock market.

If you want to diversify beyond owning a U.S. stock index, two good places to look are foreign stock markets and real estate. Most of the value of the world's markets is outside the U.S., but most American investors keep the majority of their money inside the country. Right now I have about a third of my retirement money in foreign stock indexes.

You can also invest in real estate. Such investing could mean buying a home or other property, especially if you plan to live in it as well. But you can also invest in a REIT, or Real Estate Investment Trust. With a REIT, you are owning a piece of a bunch of properties, similar to a mutual fund of stocks. That way, you're not gambling on the rise or fall of one particular real estate market. Check out the Vanguard REIT Index Fund.

Set It and Forget It

Every time you make a trade, you pay commissions and fees, and when you sell an investment, you pay capital gains taxes on any income from that sale. Over the long run, these costs can eat heavily into your returns. So save more money and add to your investment mix over time, but don't make rash decisions based on short-term changes in the market. Remember -- if you're a young investor, time is on your side.

Six Ways to Thrive During a Recession

by Rick Newman

Everybody's aware of the pain caused by a recession: Companies lay off workers, jobs become hard to find, and those who remain employed often have their wages and benefits frozen, or even cut. General anxiety leads millions of consumers to hunker down and stop spending, which slows the economy even more.

But recessions always end, and in most downturns, the majority of consumers actually fare OK. For people with secure jobs, ample savings, or a strong financial safety net, lean economic times can even represent an opportunity to snap up bargains and exploit newfound leverage in a buyer's market.

As with all financial decisions, trying to time the market and guess where the bottom is can be risky. But with a bit of luck, smart consumers, abiding by the usual prudent caveats, can turn a downturn to their advantage, whether seeking fire sales on electronics, negotiating more responsibility at work, or buying a home. Here's how:

Call the shots when buying a house. Prices in many markets are falling, of course, and while buyers need to be as careful as ever about speculating, those in for the long haul can find some great buys. It's critical to research sales of comparable homes, remodeling records, and other data available at sites like zillow.com and trulia.com. In addition to falling prices, buyers may be surprised to find that with activity drying up, they suddenly have the power to dictate the terms of a deal: Agents may be willing to cut commissions, sellers may agree to cover repairs or other costs they would have dismissed just a year ago, and contractors eager for work might lower their fees for additions or other home improvements.

Buy a distressed property. As an unfortunate outcome of the housing bust, more than a million foreclosed and distressed homes are likely to hit the market this year. It's obviously unpleasant when families lose their homes—but somebody needs to buy them, sometimes at deeply discounted prices. Buyers of distressed homes usually end up dealing with the bank that has repossessed the home, not with the original owners. If you wait for such properties to show up in traditional listing services, you'll probably miss out. Better places to look: the websites for banks and county offices that would know about foreclosures. Real-estate agents plugged into local happenings should also know.

Foreclosure deals are riskier than other real-estate transactions. Properties offered at public auctions often sell for more than they're worth, so buyers can't just assume that if it's up for auction, it's a steal. Buyers may not have time to conduct a thorough inspection or do other due diligence. Insiders may grab the best deals before they ever become public. But for careful buyers who do their homework, there may be plenty of opportunities.

Borrow cheap. True, banks have reined in loans to riskier borrowers, but rates are still historically low, and they might go lower still this year if the Fed continues its rate-cutting ways. So for people with good credit, it's a great time to borrow. That goes for mortgages, obviously, but also for loans people can use to buy a car, ramp up a small business, or remodel their current home.

Refresh your wheels. Automakers are going to need your business in 2008 and will increasingly offer deals to lure buyers into showrooms. Default rates on auto loans have been rising just as they have for mortgages, which means lenders are shunning risky borrowers but wooing those with good credit. And with overall sales slipping, automakers have already started upping rebates and other deals, even on popular models like the Toyota Sienna minivan, the Lexus RX350 SUV, and most pickup trucks. Incentives should continue to improve, predicts Jesse Toprak of Edmunds.com. And cleverly designed vehicles like the Kia Rio5, Nissan Altima, and Hyundai Santa Fe offer a mix of quality, thriftiness, and fun that make them great cars for lean times.

Boost your value to your employer. There's probably little you can do to prevent layoffs at your company. But if they happen, and you're one of the survivors, there are several steps you can take to enhance your standing with the boss. Many times, after layoffs, there's a kind of ghoulish scavenging for the spoils: newly vacant offices, stylish furniture, even phones and staplers. Don't be so crass—or narrow-minded. Instead, figure out what your company may have lost in the ax-wielding, and step in to provide it.

If the sales force has been reduced, for example, there might be key accounts that need to be salvaged. Ask if you can take them over. Many times, during layoffs, companies get rid of specialists who were nice to have during flush times but too costly when it comes to pinching pennies. Can you replace part of the skill set that just went out the door? If so, it might not bring rewards right away. But if you enhance your value to the company, you'll be at the head of the line for a raise or promotion when things improve.

If you do end up out of work, there are more opportunities than ever to start a business as a consultant, find flexible part-time work, or set up a Web operation. Yes, it's easy to talk about "rebranding" yourself and starting a second or third career. But the fact is, trends like telecommuting and flextime have made companies—and customers—more open than ever to creative work arrangements. Take advantage of it.

Pick up some cheap electronics. Fire sales by bankrupt retailers are the obvious place to look, but with rising home foreclosures, expect a flood of used appliances and electronics on craigslist and other secondary marketplaces. Buying somebody else's TV or iPod can be tricky, needless to say, since there's often no way to measure mileage or tell if there's damage to internal components. Here are some rules of thumb:

A used plasma or LCD television ought to be a pretty safe buy; if there's a problem, most likely you'll know just from the picture quality. Desktop PCs and Blu-ray DVD players might be worth buying if they're substantially discounted, less than a year old, and bear a decent brand name. For laptops, don't buy anything more than three months old. Flash-based iPods and MP3 players are pretty durable; just check that the LCD screen is intact, the USB port is clear—and the device works.

Avoid projection TVs, most computers, digital cameras and camcorders, standard DVD players, and MP3 players that rely on a hard drive for storage. In general, these types of devices have lots of moving parts that can easily wear out, or they rely on machinery that's costly to repair if it breaks, and not worth it. Also, skip newer DVD players in the HD DVD format, which Toshiba has just announced it plans to stop developing. Times are tough enough. Don't make it worse by investing in obsolescence.