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Saturday, 28 February 2009

Half of bankers would quit UK if bonuses capped: poll

LONDON (Reuters) - Half of British bankers would consider leaving the country if a cap were put on their cash bonuses, a survey showed on Friday.

The poll by jobs website eFinancialCareers.com found that 49 percent of British-based bankers would consider voting with their feet such a limit to their income were introduced. That figure rose to 71 percent among financiers with six to ten years experience.

"Were bonuses to be capped unilaterally in the UK, the country would run the risk of an exodus of top financial talent," said John Benson, chief executive of eFinancialCareers.

However, the number of alternative locations in which to work has shrunk dramatically as the credit crisis has hit hiring and pay around the world.

"(That) 71 percent (of people with six to 10 years experience) would move abroad I don't doubt, given the opportunity. That last word is the operative word," said Shaun Springer, who heads recruitment firm Napier Scott.

"If you could tell me of the areas that could harbor those skill sets (of bankers), please let me know -- I'll be flying out there."

U.S. President Barack Obama this month set a $500,000 cap on executive pay at state-backed banks -- pocket money on Wall Street before the crisis.

European banks are also under pressure to curb bonuses, especially those that have taken government help, and many have cut them.

Thirty-three percent of bankers polled said they believed caps on cash bonuses are the most likely change to be implemented over the next year and 39 percent support such caps.

The poll was conducted between February 16 and February 20, with 888 financial professionals responding.

(Reporting by Olesya Dmitracova; editing by Karen Foster)

More pain to come for Big 3 banks

Net interest income will not race ahead: Analysts
By Gabriel Chen

ANYONE holding bank shares would have been jittery these past months, and with the three big guns having reported their fourth-quarter results it is clear investors had good reason to be nervous. DBS Group Holdings, OCBC Bank and United Overseas Bank all posted net earnings that fell below market expectations.

UOB was the last to report, announcing yesterday that profit for the three months to Dec 31, 2008, had fallen 34 per cent to $332 million.

Its two rivals did not fare much better.

DBS saw a 40 per cent drop in quarterly profit to $295 million, its worst result in three years. The fall was 30 per cent at OCBC, with profits at $301 million.

Much of their weakness was down to steep falls in the cash-generating, non-interest-based portion of earnings, like trading and capital-market activities.

The three banks also made sharply higher bad debt provisions, which took the shine off their earnings.

While net interest income (NII) - seen as a bank's lifeblood - rose, there are fears that it may not grow as fast as before. Certainly, NII - or what a bank earns from borrowers after paying interest to depositors - was a big winner for the three lenders this time.

OCBC's NII rose 28 per cent from a year ago to $783 million in the quarter, helped by a 12 per cent growth in loans. DBS saw NII rise 5 per cent to $1.12 billion, while NII at UOB surged 28.8 per cent to $957 million.

Those good NII numbers are no longer sure things. While net interest margins could inch up further this year, loan growth is expected to stay muted.

And given the sluggish lending environment, net interest income is unlikely to jump by much, stifling earnings growth.

'We expect 0 per cent loan growth for all three banks for this year,' said UBS analyst Jaj Singh.

This would be a dramatic turnaround for the lenders, as they all posted healthy loan growth for the full year.

UOB's net customer loans rose 7.7 per cent from the previous year while at DBS, they expanded by 17 per cent.

Morgan Stanley analyst Matthew Wilson said DBS confronts a challenge: 'As deposits will continue to grow, does DBS stop loan growth to preserve capital, or is it prepared to run capital down to maintain its loan-to-deposits ratio?'

All three banks saw quarter-on-quarter improvement in net interest margins.

Mr Trevor Kalcic, regional bank analyst at ABN Amro Asia Securities, said it is 'likely that at least some of the net interest margins improvement at the fourth quarter will recur this year'.

So what more can investors expect? The quality of loan books will remain an issue because there are likely to be more bankruptcies, corporate failures and increasing unemployment across Asia.

Analyst Leng Seng Choon at DMG & Partners Securities tips OCBC's non-performing loan (NPL) rate to rise from 1.5 per cent to 3.7 per cent by this December.

At DBS it could surge to 4.4 per cent from 1.5 per cent while UOB's rate is also expected to rise from its current 2 per cent, he added.

There might also be more cost-cutting. UOB has cut its final dividend to 40 cents from 45 cents a year ago and implemented a wage freeze across the board.

Deputy chairman and chief executive Wee Ee Cheong yesterday rejected talk that UOB needs to raise capital, saying: 'We've gone through a few (stress) tests. And we believe if NPL levels go up by 100 basis points, we'll be able to withstand it without getting affected.'

Are You Taking Too Much (or Too Little) Risk?

by Christine Benz

Assessing a client's risk tolerance--an individual's own assessment of his or her ability to withstand investment losses--is standard practice in the financial-planning world. The Web is full of tools to help investors gauge how they would respond if the market dropped 10%, 20%, or even 50%, and I often hear from readers who tell me that their risk tolerance is "high" or "low."

The basic premise behind getting investors to identify their pain thresholds makes sense. After all, reams of data, including Morningstar Investor Returns, show that investors often buy high and sell low. By identifying their ability to handle losses and avoiding those investments that will cause them to sell at the wrong time, investors should be able to improve their overall return records.

Yet relying disproportionately on your risk tolerance to shape your investments carries its own big risk: namely, that you'll end up with a portfolio that doesn't help you reach your goals because you've been too aggressive or too timid. Instead, risk tolerance should take a back seat to the really important considerations, such as the size of your current nest egg, your savings rate, the years you have until retirement, and the number of years you expect to be retired. Only after you've developed a portfolio plan based on those factors should you consider making adjustments around the margins to suit your risk tolerance.

The Risk of Being Too Aggressive ...

Generally speaking, I'm happy to hear from investors who rate their risk tolerance as "high." These folks' long-term mind-sets allow them to tune out the market's inevitable day-to-day gyrations and weather big losses from time to time--characteristics that usually go hand in hand with profitable investing.

Yet being too aggressive isn't always a good thing. For one thing, it's possible that you're misreading your own risk tolerance and won't behave as you think you will if and when your investments lose money. Studies from the field of behavioral finance indicate that investors' confidence level--and in turn their perceived ability to handle risk--ebbs and flows with the market's direction. Thus, an investor might rate highly his own ability to handle risk at the very worst time--when the market is skyrocketing and stock valuations are high--only to exhibit much less confidence in the event of a market drop. (Not surprisingly, buoyant markets are also when most financial-services firms hawk the riskiest products.)

Moreover, being loss-averse has a foundation in simple math. After all, the stock that drops from $60 to $45 has lost 25% of its value, but it will have to gain 33% to get back to $60. The same cruel math holds for the whole of your portfolio, so it's no wonder that investors are inclined to rate themselves as risk-averse; losses are tough to recover from.

Big losses can be particularly painful for those who are getting close to retirement, because their portfolios have less time to recover from the hit. If you're 30 and your 401(k) balance goes down by 37%--as the S&P 500 did last year--it's a painful but not cataclysmic blow. After all, you might have 30 years or more to recoup those losses, and depressed stock valuations give you the opportunity to buy stocks on the cheap.

By contrast, if you're in your mid-60s and saw your retirement-plan balance shrink from $800,000 to little more than $500,000 over the past year, you don't have as many options. You could continue working to amass more savings or dramatically scale back your planned standard of living in retirement, neither of which is particularly appealing. The bottom line is that there are real reasons to grow more protective of your nest egg as you grow closer to needing your money, and there are real risks to letting your own assessment of your risk tolerance guide your asset-allocation decisions.

... Or Too Conservative

However, with the market dropping sharply over the past year, I'd wager that being too conservative is a bigger risk for many investors right now than is maintaining a portfolio that's too aggressive. Just as investor confidence improves as stocks march upward, so does pessimism take over when stocks are in the dumps.

Yet anyone tempted to make his portfolio more conservative should ponder a real risk of that tactic. By avoiding stocks and sticking exclusively with "safe," fixed-rate securities such as CDs or short-term Treasuries, you also put a cap on your portfolio's upside potential, which in turn heightens the risk of a shortfall come retirement. True, stocks have greater loss potential than do short-term fixed-income investments, but they also have the potential for greater gains. Moreover, the gains from short-term, high-quality investments are pretty darn skimpy right now: You're lucky to earn 3% on a one-year CD.

That might not sound terrible. After all, the S&P 500 Index has lost about 3%, on an annualized basis. Yet while inflation is currently minimal right now, it won't always be so benign. In fact, inflation has the potential to gobble up most, if not all, of the return you earn from any fixed-rate investment. The upshot? For retirees, pre-retirees, and 20-somethings alike, hunkering down in safe, fixed-rate investments is a luxury you probably can't afford, even if it helps you sleep at night. To help offset the effects of inflation, you need to have at least part of your portfolio in stocks, whose returns have the potential to outstrip inflation over time.

Just Right

So if it's a bad idea to let your gut guide your stock/bond mix, what should you do? Your key mission is to let hard numbers--rather than your own comfort level--be the chief determinant of your asset-allocation plan. Employ an online asset-allocation tool, such as Morningstar's Asset Allocator, to help you optimize your asset allocation based on your goals, your savings rate, and the number of years you have until retirement. Alternatively, you could hire a financial advisor for even more customized help or look to the asset allocations of target-maturity funds for back-of-the-envelope guidance. (David Kathman discussed how to do that in a recent The Short Answer column.)

Once you've put your basic asset-allocation framework in place, it's fine to make some adjustments around the margins based on your own comfort level. For example, if you determine that you should have the majority of assets in equities, you could focus on underpriced large-cap stocks or invest with a stock-fund manager who places a premium on limiting losses. On the bond side, you could limit your portfolio's risk level by going light on more-volatile asset classes like high-yield bonds and sticking with high-quality short- and intermediate-term bonds.

Beyond these small adjustments, it's a big mistake to let your emotions--and that's essentially what irrational risk aversion is--drive your portfolio planning. If the market's ups and downs leave you with excess nervous energy to burn, focus on factors you can actually influence, such as improving your security selection and lowering your overall investment-related and tax costs.

Copyrighted, Morningstar, Inc. All rights reserved.

You've Sold Your Stocks. Now What?

provided by
The New York Times

Back in the summer of 2007, Ben Mickus, a New York architect, had a bad feeling. He and his wife, Taryn, had invested in the stock market and had done well, but now that they had reached their goal of about $200,000 for a down payment on a house, Mr. Mickus was unsettled. “Things had been very erratic, and there had been a lot of press about the market becoming more chaotic,” he said.

In October of that year they sat down for a serious talk. Ms. Mickus had once lost a lot of money in the tech bubble, and the prospect of losing their down payment made Mr. Mickus nervous. “I wanted to pull everything out then; Taryn wanted to keep it all in,” he said. They compromised, cashing in 60 percent of their stocks that fall — just before the Dow began its slide.

A couple of months later, with the market still falling, Ms. Mickus was convinced that her husband was right, and they sold the remainder of their stocks. Their down payment was almost completely preserved. Ms. Mickus said that in private they had “been feeling pretty smug about it.”

“Now our quandary is, what do we do going forward?” Ms. Mickus said.

Having $200,000 in cash is a problem many people would like to have. But there is yet another worry: it’s no use taking money out of the market at the right time unless it is put back in at the right time. So to get the most from their move, the Mickuses will have to be right twice.

“Market timing requires two smart moves,” said Bruce R. Barton, a financial planner in San Jose, Calif. “Getting out ahead of a drop. And getting back in before the recovery.”

It’s a challenge many investors face, judging from the amount of cash on the sidelines. According to Fidelity Investments, in September 2007 money market accounts made up 15 percent of stock market capitalization in the United States. By December 2008, it was 40 percent.

“In 2008 people took money out of equities and took money out of bond funds,” said Steven Kaplan, a professor at the Booth School of Business at the University of Chicago.

He cited figures showing that in 2007 investors put $93 billion into equity funds. By contrast, in 2008 they took out $230 billion.

Michael Roden, a consultant to the Department of Defense from the Leesburg, Va., area, joined the ranks of the cash rich after a sense of déjà vu washed over him in August 2007, as the markets continued their steep climb. “I had taken quite a bath when the tech bubble burst,” he said. “I would never let that happen again.”

With his 2002 drubbing in mind, he started with some profit taking in the summer of 2007, but as the market turned he kept liquidating his investments in an orderly retreat. But he was not quite fast enough.

“When Bear Stearns went under I realized something was seriously wrong,” he said. The market was still in the 12,000 range at that time. When the Federal Reserve announced it would back Bear Stearns in March 2008, there was a brief market rebound. “I used that rally to get everything else out,” he said.

Mr. Roden said he had taken a 6 percent loss by not liquidating sooner, which still put him ahead of the current total market loss. Now he has about $130,000, with about 10 percent in gold mutual funds, 25 percent in foreign cash funds and the rest in a money market account.

“I am looking for parts of the economy where business is not impaired by the credit crunch or changes in consumer behavior,” he said. He is cautiously watching the energy markets, he said, but his chief strategy is “just trying not to lose money.”

As chief financial officer of Dewberry Capital in Atlanta, a real estate firm managing two million square feet of offices, stores and apartments, Steve Cesinger witnessed the financial collapse up close. Yet it was just a gut feeling that led him to cash out not only 95 percent of his personal equities, but also those of his firm in April 2007.

“I spent a lot of time trying to figure out what was happening in the financial industry, and I came to the conclusion that people weren’t fessing up,” he said. “In fact, they were going the other way.”

Now, he said, “We have cash on our statement, and it’s hard to know what to do with it.”

Having suffered through a real estate market crash in Los Angeles in the early 1990s, Mr. Cesinger is cautious to the point of re-examining the banks where he deposits his cash. “Basically, I’m making sure it’s somewhere it won’t disappear,” he said.

The F.D.I.C. assurance doesn’t give him “a lot of warm and fuzzy,” Mr. Cesinger said. “My recollection is, if the institution goes down, it can take you a while to get your money out. It doesn’t help to know you’ll get it one day if you have to pay your mortgage today.”

His plan is to re-enter the market when it looks safe. Very safe. “I would rather miss the brief rally, be late to the party and be happy with not a 30 percent return, but a bankable 10 percent return,” he said.

Not everyone is satisfied just to stem losses. John Branch, a business consultant in Los Angeles, said his accounts were up 100 percent from short-selling — essentially betting against recovery. “The real killer was, I missed the last leg down on this thing,” Mr. Branch said. “If I hadn’t missed it, I would be up 240 percent.”

Mr. Branch said he had seen signs of a bubble in the summer of 2007 and liquidated his stocks, leaving him with cash well into six figures. Then he waited for his chance to begin shorting. The Dow was overvalued, he said, and ripe for a fall.

Shorting is a risky strategy, which Mr. Branch readily admits. He said he had tried to limit risk by trading rather than investing. He rises at 4:30 a.m., puts his money in the market and sets up his electronic trading so a stock will automatically sell if it falls by one-half of 1 percent. “If it turns against me, I am out quickly,” he said. By 8, he is off to his regular job.

Because Mr. Branch switches his trades daily based on which stocks are changing the fastest, he cannot say in advance where he will put his money.

And if he did know, he’d rather not tell. “I hate giving people financial advice,” he said. “If they make money they might say thank you; if they miss the next run-up, they hate you.”

Brace for 'recession crimes'

SINGAPORE courts are preparing to cope with more criminal and civil cases during this downturn.

In 1999 and 2002, when the country was battling recessions, the courts' workload hit record levels.

Chief Justice Chan Sek Keong expects the numbers to spike again. 'Recession brings many social and other difficulties and problems for people in their daily lives,' he noted yesterday, as he rolled out the workplan for the Subordinate Courts at a seminar.

'We must therefore brace ourselves again for an expected influx of cases this year and while the recession lasts.'

Home Affairs Minister Wong Kan Seng had warned last month about a possible rise in crimes such as theft, vice and loan-sharking; separately, Police Commissioner Khoo Boon Hui expressed worry about white-collar crime.

Senior Counsel Cavinder Bull said he has already noticed a 'very significant increase' in cases on the civil front, in the form of companies landing in court for winding-up proceedings and insolvency-related litigation. More are also seeking court protection from creditors, asking for time to restructure operations.

Figures from the Insolvency and Public Trustee's Office have it that 109 firms were forced to liquidate in the last four months of last year, up from 69 in the corresponding period the year before.

Key to the CJ's plans for the Subordinate Courts is reducing the time and manpower needed for criminal processes.

Those who can raise money for bail, for example, will no longer have to wait long to get out of remand. Guidelines say the bail process takes a day, but this has been cut down to an hour or so in practice.

The task of bringing those in remand to court for routine processes such as bail mentions is also being done away with. Video links are now used instead.

Europe's Crisis: Much Bigger Than Subprime, Worse Than U.S.

John Mauldin, president of Millennium Wave Advisors, was among the few analysts whose forecasts for 2008 proved accurate. Mauldin, author of the popular "Thoughts from the Frontline" e-letter, joined us to discuss the economic situation in Eastern Europe.

Scroll down to read highlights from Mauldin's analysis, and click "more" to embed the video.

From The Business Insider:

If you think things are bad here, take a quick peek at what's going on across the pond:

The Telegraph: Stephen Jen, currency chief at Morgan Stanley, said Eastern Europe has borrowed $1.7 trillion abroad, much on short-term maturities. It must repay – or roll over – $400bn this year, equal to a third of the region's GDP. Good luck. The credit window has slammed shut.

Not even Russia can easily cover the $500bn dollar debts of its oligarchs while oil remains near $33 a barrel. The budget is based on Urals crude at $95. Russia has bled 36pc of its foreign reserves since August defending the rouble.

"This is the largest run on a currency in history," said Mr Jen.

In Poland, 60pc of mortgages are in Swiss francs. The zloty has just halved against the franc. Hungary, the Balkans, the Baltics, and Ukraine are all suffering variants of this story. As an act of collective folly – by lenders and borrowers – it matches America's sub-prime debacle. There is a crucial difference, however. European banks are on the hook for both. US banks are not.

Almost all East bloc debts are owed to West Europe, especially Austrian, Swedish, Greek, Italian, and Belgian banks. En plus, Europeans account for an astonishing 74pc of the entire $4.9 trillion portfolio of loans to emerging markets.

They are five times more exposed to this latest bust than American or Japanese banks, and they are 50pc more leveraged (IMF data).

Spain is up to its neck in Latin America, which has belatedly joined the slump (Mexico's car output fell 51pc in January, and Brazil lost 650,000 jobs in one month). Britain and Switzerland are up to their necks in Asia.

Whether it takes months, or just weeks, the world is going to discover that Europe's financial system is sunk, and that there is no EU Federal Reserve yet ready to act as a lender of last resort or to flood the markets with emergency stimulus.

A note from Strategic Energy, as quoted by John Mauldin:

"The sums needed are beyond the limits of the IMF, which has already bailed out Hungary, Ukraine, Latvia, Belarus, Iceland, and Pakistan -- and Turkey next -- and is fast exhausting its own $200bn (€155bn) reserve. We are nearing the point where the IMF may have to print money for the world, using arcane powers to issue Special Drawing Rights. Its $16bn rescue of Ukraine has unravelled. The country -- facing a 12% contraction in GDP after the collapse of steel prices -- is hurtling towards default, leaving Unicredit, Raffeisen and ING in the lurch. Pakistan wants another $7.6bn. Latvia's central bank governor has declared his economy "clinically dead" after it shrank 10.5% in the fourth quarter. Protesters have smashed the treasury and stormed parliament.

"'This is much worse than the East Asia crisis in the 1990s,' said Lars Christensen, at Danske Bank. 'There are accidents waiting to happen across the region, but the EU institutions don't have any framework for dealing with this. The day they decide not to save one of these one countries will be the trigger for a massive crisis with contagion spreading into the EU.' Europe is already in deeper trouble than the ECB or EU leaders ever expected. Germany contracted at an annual rate of 8.4% in the fourth quarter. If Deutsche Bank is correct, the economy will have shrunk by nearly 9% before the end of this year. This is the sort of level that stokes popular revolt.

"The implications are obvious. Berlin is not going to rescue Ireland, Spain, Greece and Portugal as the collapse of their credit bubbles leads to rising defaults, or rescue Italy by accepting plans for EU "union bonds" should the debt markets take fright at the rocketing trajectory of Italy's public debt (hitting 112pc of GDP next year, just revised up from 101pc -- big change), or rescue Austria from its Habsburg adventurism. So we watch and wait as the lethal brush fires move closer. If one spark jumps across the eurozone line, we will have global systemic crisis within days. Are the firemen ready?"

This is why some folks think the dollar is going to remain strong over the coming months: Because the rest of the world is falling apart even faster than we are.

Just as the global economy wasn't "decoupled" at the beginning of 2007, however (when the majority of Wall Street strategists believed that it was), it's not "decoupled" now. So the collapse of Eastern Europe--and, with it, the Western European banks--would almost certainly jump across the pond.

John Mauldin summarizes:

Eastern Europe has borrowed an estimated $1.7 trillion, primarily from Western European banks. And much of Eastern Europe is already in a deep recession bordering on depression. A great deal of that $1.7 trillion is at risk, especially the portion that is in Swiss francs. It is a story that could easily be as big as the US subprime problem.

In Poland, as an example, 60% of mortgages are in Swiss francs. When times are good and currencies are stable, it is nice to have a low-interest Swiss mortgage. And as a requirement for joining the euro currency union, Poland has been required to keep its currency stable against the euro. This gave borrowers comfort that they could borrow at low interest in francs or euros, rather than at much higher local rates.

But in an echo of teaser-rate subprimes here in the US, there is a problem. Along came the synchronized global recession and large Polish current-account trade deficits, which were three times those of the US in terms of GDP, just to give us some perspective. Of course, if you are not a reserve currency this is going to bring some pressure to bear. And it did. The Polish zloty has basically dropped in half compared to the Swiss franc. That means if you are a mortgage holder, your house payment just doubled. That same story is repeated all over the Baltics and Eastern Europe.

Austrian banks have lent $289 billion (230 billion euros) to Eastern Europe. That is 70% of Austrian GDP. Much of it is in Swiss francs they borrowed from Swiss banks. Even a 10% impairment (highly optimistic) would bankrupt the Austrian financial system, says the Austrian finance minister, Joseph Proll. In the US we speak of banks that are too big to be allowed to fail. But the reality is that we could nationalize them if we needed to do so. (And for the record, I favor nationalization and swift privatization. We cannot afford a repeat of Japan's zombie banks.)

The problem is that in Europe there are many banks that are simply too big to save. The size of the banks in terms of the GDP of the country in which they are domiciled is all out of proportion. For my American readers, it would be as if the bank bailout package were in excess of $14 trillion (give or take a few trillion). In essence, there are small countries which have very large banks (relatively speaking) that have gone outside their own borders to make loans and have done so at levels of leverage which are far in excess of the most leveraged US banks. The ability of the "host" countries to nationalize their banks is simply not there. They are going to have to have help from larger countries. But as we will see below, that help is problematical.

As John Mauldin explains, fixing the problem in Europe will be even more difficult than it is here:

This has the potential to be a real crisis, far worse than in the US. Without concerted action on the part of the ECB and the European countries that are relatively strong, much of Europe could fall further into what would feel like a depression. There is a problem, though. Imagine being a politician in Germany, for instance. Your GDP is down by 8% last quarter. Unemployment is rising. Budgets are under pressure, as tax collections are down. And you are going to be asked to vote in favor of bailing out (pick a small country)? What will the voters who put you into office think?

We are going to find out this year whether the European Union is like the Three Musketeers. Are they "all for one and one for all?" or is it every country for itself? My bet (or hope) is that it is the former. Dissolution at this point would be devastating for all concerned, and for the world economy at large. Many of us in the US don't think much about Europe or the rest of the world, but without a healthy Europe, much of our world trade would vanish.

However, getting all the parties to agree on what to do will take some serious leadership, which does not seem to be in evidence at this point. The US almost waited too long to respond to our crisis, but we had the "luxury" of only needing to get a few people to agree as to the nature of the problems (whether they were wrong or right is beside the point). And we have a central bank that could act decisively.

As I understand the European agreement, that situation does not exist in Europe. For the ECB to print money as the US and the UK (and much of the non-EU developed world) will do, takes agreement from all the member countries, and right now it appears the German and Dutch governments are resisting such an idea.

As I write this (on a plane on my way to Orlando) German finance minister Peer Steinbruck has said it would be intolerable to let fellow EMU members fall victim to the global financial crisis. "We have a number of countries in the eurozone that are clearly getting into trouble on their payments," he said. "Ireland is in a very difficult situation.

"The euro-region treaties don't foresee any help for insolvent states, but in reality the others would have to rescue those running into difficulty."

That is a hopeful sign. Ireland is indeed in dire straits, and is particularly vulnerable as it is going to have to spend a serious percentage of its GDP on bailing out its banks.

It is not clear how it will all play out. But there is real risk of Europe dragging the world into a longer, darker night. Their banks not only have exposure to our US foibles, much of which has already been written off, but now many banks will have to contend with massive losses from emerging-market loans, which could be even larger than the losses stemming from US problems. Plus, they are more leveraged.

Thursday, 26 February 2009

Banks discuss tough times in recruitment

Simon Mortlock

Security and stability are replacing pay and bonuses as the key career factors for bankers, according to a seven-strong panel of senior HR professionals from leading global banks in Hong Kong.

Delegates on the recent roundtable, which was organised by eFinancialCareers, agreed that uncertainly about the future prospects of financial institutions is prompting interviewees to probe more deeply into firms’ strengths and strategies.

One panelist commented: “Junior candidates are especially scared of being last in, first out. They want to join a prudently run organisation. The monetary aspects of a job are less important than getting some degree of security.”

Flexibility to the fore

If HK bankers are becoming less money-obsessed, many of them are also getting more flexible with their careers. Since the financial crisis escalated in October last year, some banks have relocated a few front-office staff into mid-office positions rather than make them redundant. “We try to ensure that they see this move as a long-term option, but of course it’s difficult to tell that staff aren’t doing it purely out of desperation.”

Investment banking candidates are also more open to opportunities in retail and commercial banking. And Chinese firms in Hong Kong are now able to cherry pick talent more easily. “Chinese banks can often move faster with an offer, depending on the job function. They have more money to hire and might even still give sign-ons,” said one attendee.

Recruitment on the ropes

The roundtable delegates, who all asked not to be named, were downbeat on when mass redundancies will be over in HK and when hiring levels will pick up. The fourth quarter of this year remains an optimistic bet for a turn-around in the employment market, with many believing 2010 is more realistic.

In the meantime, most recruitment will continue to be limited and focused on upgrading. “If we can get a better person to do the job then now is a good time to do so…In a bull market, when candidates are in short supply, quality suffers. These days mid to exceptional-level people are out on the street.”

Small pockets activity of remain, especially in private banking where banks still consider taking on experienced relationship managers who can give them new assets-under-management. There are also replacement vacancies in business-critical functions such as risk and compliance.

The young and the jobless

If you have been laid off in HK and only have one or two years’ experience, your immediate job prospects aren’t great, according to the roundtable. “These people are in a bad position and unfortunately we don’t have the time to train them up. So in a couple of years there could be a skills shortage created at the four-year level.”

And even if you ace your interview, the approval process is likely to be complicated and often three to five times as long as it was a year ago. In the words of one delegate: “Head office wants to know about every role we do.”

Change is here to stay (or is it?)

Roundtable attendees agreed that there will be fundamental and lasting changes to the way bonuses are calculated – equities will make up a greater percentage of reward and performance will be measured across longer timescales.

The change-jobs-every-six-months culture of the mid-decade boom has disappeared and attrition rates have dropped markedly as a result. “We have gone from one extreme to the other,” said one delegate.

But the roundtable was divided as to whether bankers will value stability so much when the market picks up. “Candidates could just go back to how they were before the crisis.”

Commentary by Kathy Lien: Dollar Rallies Despite Bernanke's Pessimistic Comments and Weak US Data

The US dollar continues to rally against the Japanese Yen (USD/JPY) despite pessimistic comments from Federal Reserve Chairman Ben Bernanke and weaker US economic data. The bleaker outlook for the US economy is sending investors flocking into the safety of US dollars. In his prepared comments, Bernanke warned that a recovery could take more than 2 to 3 years. A turnaround in 2010 is only possible if the the markets and banks stabilize. This is why Bernanke has been a big supporter of focusing relief efforts on the financial sector. He believes that there are still significant stresses in many markets and a sharp contraction in economic activity is expected in the first quarter. Therefore US interest rates will remain at an exceptionally low level for some time. His pessimistic sentiment was shared by US consumers. According to the Conference Board's report, consumer confidence hit a record low in the month of February. In addition, house prices and manufacturing activity have plunged.

Yet the dollar's rally remains unabated against the Japanese Yen despite weak economic data. It is important to realize that the state of the US economy is not driving the dollar higher. Instead it is the expectation that if the US does not recover, no one else will. Therefore if it will take 2 to 3 years for the US economy to start recovering, it may take 3 to 4 years for other countries to stabilize.

There could still be more surprises in Bernanke's testimony, which is only beginning as he will be facing questioning by the members of the Senate. Although the Q&A session could set the tone for trading this afternoon, the USD/JPY rally has been voracious. Unless there are new revelations from Bernanke, USD/JPY could be headed to 98.

5 Childhood Lies That Are Costing You Money

Mom and Dad were right a lot of the time: Scratching only makes it worse; high school's not the end of the world; and that style (whatever "that style" was in your day) isn't flattering, even if all the popular girls are wearing it.

But they got a few things wrong, too -- your face didn't stick permanently in that expression, and your eyebrows did grow back. Eventually.

Still, some false kernels of wisdom passed down the family tree could be stunting your financial growth to this day. So settle in for some regression therapy, as we identify the little white lies from your tender years that you need to relinquish.

"Don't cry at the checkout counter." Actually, go ahead and unleash the tears. When you let yourself feel the physical loss of spending money (actually taking cash from your wallet and handing it over to the clerk), you're more likely to make better decisions about what you buy. Credit cards -- like Vegas gambling chips -- on the other hand, remove the emotion from the transaction. And numb spending leads to dumb spending.

"Money doesn't buy happiness." Oh yes it does. Sorta. You don't need a behavioral economist to tell you that a raise or unexpected windfall puts a kick in your step. But you should consult a scientist to measure your buzz. We consistently overestimate (or don't accurately remember) how joyful something makes us feel. Studies show that once you're financially stable (meaning you can cover your bills and still have some fun money left over), extra financial padding has only a limited and rapidly diminishing effect on your overall happiness. Making the pursuit of wealth one of your top goals in life will more likely lead to depression, anxiety, and stress.

"Everyone is not staring at you." Well, maybe not in that way. But acquaintances and strangers are sizing you up all the time. It's not your jeans or prom date that they're judging, but your banking, driving, renting, and health habits. Employers, insurers, landlords, and credit card companies (as well as the IRS, DOJ, FBI, and other acronym-happy entities) regularly pull your consumer files. Luckily, you don't have to read the rumors about yourself on a bathroom wall. You are entitled to see your consumer disclosures (there could be as many as 14) for free once a year. Take a peek into your secret files to see what everyone's saying about you.

"You'll never be sorry if you play it safe." No dad in history ever said, "Let 'er rip!" before handing Junior the keys to the car. But he'd have done his progeny a favor if he gave that advice about money. It's true that gambling and uninformed risk-taking is bad for your bottom line. But so is playing it too safe with your money. If you stash your cash in the mattress, sure, it'll still be there years later (provided mom didn't find your hiding place). But its buying power will be severely hampered. Historically, inflation runs between 3% and 4%, meaning the spending power of that cash kitty you hid your senior year in high school will be cut in half by your 20-year reunion. You'd be better served if your parents warned you that inflation was a silent killer.

"Soda and cigarettes are bad for you." Physically, yes, but the companies behind these products -- PepsiCo (NYSE: PEP - News) and Altria (NYSE: MO - News) -- have provided a healthy kick to shareholders by paying handsome dividends over time. In fact, there are mutual funds solely devoted to investing in all those vices your elders said to avoid. Unfortunately, the rub with many such investments is the higher-than-average fees they charge investors to buy into them. That exposes yet another white lie -- nice guys don't necessarily finish first (financially, at least).

Your parents obviously did a great job raising you. (You're around to read this, right?) Now it's time to fully take the reins of your finances and show Mom and Dad that their kids can teach them a few things, too.

Tracking the bear: How bad could it get?

Major indexes have tumbled to 12-year lows, only to rally right back. Experts weigh in on what to expect next.
By Eugenia Levenson, writer-reporter

NEW YORK (Fortune) -- Don't let Tuesday's rally fool you. While the Dow roared back more than 236 points and the S&P 500 gained 4%, Monday's 12-year lows showed that this bear market may still grow bigger and meaner.

To start the week, both the S&P 500 (SPX) and the Dow Jones industrial average (DJIA) slipped past their November troughs to close at their worst levels since 1997. The Dow's 49.8% drop from its October 2007 peak marked the index's second-sharpest decline since 1901, according to Ned Davis Research. The only steeper drop occurred in the 1930s, during the 813-day free fall that ended with an 86% loss.

Now comes the question: Have we hit the bottom, or will we resume our downward slide?

To make sense of this bear, we sought out some of the smartest market watchers we know and asked them to interpret the signs.

The bottoming out process. First things first. As Charles Schwab Investment Management CIO Jeff Mortimer points out, bear markets rarely hit their low points only once before turning around. More commonly, they go through a "bottoming process" -- a months-long period during which the market retreats to recent lows multiple times.

"The double-bottom we're seeing here is still a natural occurrence, as long as it holds," says Mortimer. "We're in that range on the Dow where we want to see if the buyers who came in last time will step in again at this valuation, or have things changed to [whether] they no longer find it attractive."

And the fact that the Dow sank below 7,200 on Monday doesn't necessarily mean the whole market broke the bottom, says BlackRock vice chairman Bob Doll. For one, he says the 30-stock index is simply too narrow to serve as a market proxy.

Doll prefers to look at broader indexes like the S&P 500 and the Value Line Arithmetic Index. The S&P 500 ended Monday at 743, several points below its November low (On an intraday basis, the S&P 500 hasn't dipped below its Nov. 21 trading low of 741.) But Value Line, a broad equal-weighted index, remained 9% above its November trough; as of Tuesday, it's up 15%.

Another positive indicator Doll says is the number of "new low" stocks -- shares that sink to their cheapest price of the year. That number has not exceeded last fall's levels. "That indicates to me that the average stock is slowly but surely working its way higher," he says.

In fact, of the 4,700 stocks in the Dow Jones Wilshire 5000 index, 2,503 hit or matched their 52-week lows on Nov. 20, according to Wilshire Associates. That's more than three times the number of stocks that sank to new lows on Feb. 20.

Doll says the fact that 2009 started at the tail end of a late-year double-digit percentage rally has overshadowed those and other encouraging signs. "If the calendar ended in mid-November, we wouldn't be feeling so bad because stocks would still be up a little bit," he points out.

He expects that the November low could still hold -- though it might be tested several more times -- and predicts that the S&P 500 could end the year in the 1,000 to 1,050 range.

More bad news on the horizon? On the other end of the spectrum, one of the gloomier voices belongs to bear market investor Doug Noland, who shorts individual stocks and ETFs in his $1.1 billion Federated Prudent Bear fund. In his view, the recent credit bubble warped the economy to such an extent that current valuations are largely meaningless.

"Bubbles distort the nature of spending throughout the economy," says Noland. "People won't spend as much on luxury items, they won't consume as much. It's this change on spending patterns that has this big impact on companies and industries, so you can't value them on historic metrics."

Not only that, but Noland expects that many companies won't survive the current downturn. For one, he says, our services- and finance-fueled economy will need to return to a broader manufacturing base.

"This readjustment period is not going to be kind to a lot of companies that prospered during the boom. They're going to look cheap all the way down, and their earnings are just going to disappear," he says.

Meanwhile, GMO chairman Jeremy Grantham is more upbeat -- though he does expect more pain to precede any recovery.

Looking back at historic bear markets, Grantham draws comparisons to 1974 and 1982, when the S&P 500 lost roughly half its value. Since he estimates the current S&P 500 fair value at 900, Grantham puts his worst-case bottom at a hair-raising 450.

"That's fairly scary, but on the one hand we look at the massive stimulus, and then on the other we try to work out the fact that the global economy is in worse shape than it was in '74 or '82," says Grantham. "I'd say there are three-to-one odds that we go to a material new low. We should count on [the S&P 500] hitting 600 for a little while, and we should hope like mad it doesn't get deep into the 500s."

Patience rules. Another looming threat is that the market may enter an extended period of drops and rebounds that flatten long-term returns and strand buy-and-hold investors for decades.

Japan's stalled stock market is one recent example, but the U.S. has had its shares of quagmires, too. Grantham likes to point out that investors who bought at market crests in 1929 and 1965 had to wait 19 years each time just to break even.

Still, Grantham says buy-and-hold still makes sense for long-term investors when stocks are trading below fair value. He especially favors U.S. blue chips, and his fund is on a strict, slow schedule to invest as valuations dip even lower.

"If you don't have a schedule for investing, you will not do it," he says. "When the market goes down, it reinforces the hoarding of cash. By the bottom, you suffer what we called in 1974 terminal paralysis -- you cannot pull the trigger. Almost everyone who avoids the great pain is very slow to get back."

Schwab's Mortimer says that dollar-cost averaging -- or regularly investing fixed amounts, regardless of share price -- can be also be a good strategy in a falling or stagnant stock market. "You'll still get volatility, and with dollar-cost averaging you'll benefit by buying more at the lows, less on the highs. You just won't know it yet," he says.

1/4 of the deposit in Switzerland banks were withdrawed last year!

瑞士银行业去年损失 四分之一存款
(2009-02-25)
(日内瓦美联电)瑞士各家银行的存户去年提取出了1万4100亿瑞士法郎(约1万8500亿新元)的存款,这超出了该国银行存款总数的25%。对原已面对严重财经危机、两家主要银行严重亏损,以及面对美国官司的瑞士银行业而言,简直是雪上加霜。
  瑞士国家银行一份月度报告显示,瑞士各家银行的存款额下跌27%,现在只有3万8200亿法郎,是自2005年8月以来的新低。

  据报道,外国存户去年所提取的款项,比他们存入户口的多出8820亿法郎,而瑞士存户的净提款额也高达5310亿法郎。

  现在,外国存户在瑞士的存款剩1万3860亿法郎,减少了23%;而瑞士存户剩下的存款数额为4170亿法郎,减少了28%。

  该份报告没有注明个别银行的提款额,但瑞士两家主要银行都表示,他们的存户去年提出了数千亿法郎。

  瑞士银行(UBS AG)透露,该银行去年的净提款达到2260亿法郎。本月初,瑞士银行公布业绩,全年亏损高达197亿法郎,是瑞士企业史上最巨额损失。

  与此同时,美国指控瑞士银行妨碍美国国内税务局办公的案件,也让瑞士银行的形象受损,并导致该银行的股价下跌9.1%至每股10法郎的新低。

  另外,瑞士信贷的提款额也多达数百法郎,该银行去年的全年净亏损为82亿法郎。

Economist Warns Switzerland Could Go Broke

By: Julie Crawshaw Article Font Size

Economist Artur Schmidt says Switzerland could go broke because Swiss banks extended billions in credit to Eastern European countries which now can't pay back the money.

“Switzerland, like Iceland, is threatened with a potential national bankruptcy,” Schmidt told the Swiss daily Tagesanzeige.

Loans made in Swiss francs stimulated rapid economic growth in many Eastern European countries, Schmidt says, making Swiss currency very important.

Swiss banks lent francs to local banks, which in turn lent them to their customers. Such loans were especially attractive because interest rates were much lower than required for loans in local currency.

The system worked as long as exchange rates between Swiss and Eastern European currencies remained reasonably stable.

Now Eastern European currencies are falling and more borrowers are having problems repaying their loans.

“Because of the devaluations of the national currencies, the debt to Switzerland has increased by more than one-third,” Schmidt notes.

“Many of the Eastern European countries have serious payment difficulties and are virtually bankrupt.”

Schmidt says the value of Switzerland’s currency could drop severely or its credit rating could be massively downgraded, creating economic trauma in a country traditionally regarded as a stronghold of financial stability.

“The franc could become an unstable, soft currency,” Schmidt says.

“Then Switzerland would perhaps be forced to abandon the franc and take on the euro.”

According to a report from the Bank for International Settlements, worldwide franc-denominated loans of about $675 billion are in circulation, with about $150 billion of that total from Switzerland.

ECB faces mutiny from national bank governors as recession deepens The European Central Bank is capitulating.

By Ambrose Evans-Pritchard
Last Updated: 8:04PM GMT 23 Feb 2009

For months the ECB held sternly to the high ground of orthodoxy as the US, Japanese, British, Canadian, Swiss and Swedish central banks slashed rates towards zero and embraced quantitative easing, but a confluence of fast-moving events is now forcing it to move.

The credit default swaps that measure bankruptcy risk on the debts of Ireland, Austria and a clutch of Latin Bloc states have vaulted to dangerous levels. In the case of Ireland, the slump is spilling on to the streets. Some 120,000 marched through Dublin over the weekend to protest austerity measures.

The slow fuse on Eastern Europe's banking crisis has detonated, leaving Austrian, Belgian, Italian and other West European banks with $1.5 trillion (£1 trillion) in exposure.
It is happening just as industrial output collapses in the eurozone's core states. Germany's economy contracted at 8.4pc annualised in the fourth quarter. ECB president Jean-Claude Trichet said on Monday that "a process of negative feedback" has set in where the banks and the real economy are pulling each other down in a self-reinforcing spiral. Eurozone credit is contracting. Banks are rationing credit as deleveraging gathers pace.

Rob Carnell, global strategist at ING, said the ECB has been painfully slow to acknowledge the global deflation tsunami sweeping across Europe.

"It seems divorced from reality. It is clearly nonsense to talk about inflation now: it has been negative on average for six months. The eurozone purchasing managers' index has fallen twice as fast as in the US, so the ECB should be acting even faster than the Fed," he said.

Mr Trichet said the ECB has increased its balance sheet by €600bn (£525bn) since the Lehman collapse in September. The bank is providing "unlimited liquidity" in exchange for a wide range of collateral, including mortgage bonds issued for the sole purpose of extracting ECB funds.

But the ECB's leading voices have adamantly refused to contemplate going to the next stage: buying bonds and other assets with "printed money". They see that as the Primrose path to hell. This week the tone has abruptly changed, suggesting that a majority of the 16 national bank governors on the ECB council are having second thoughts.

The apparent ring-leader is Cypriot member Anastasios Orphanides, a former Fed official and a world authority on deflation traps. He said on Monday that the ECB may have to go beyond "zero-bound" rates and revealed that an "internal discussion" was under way.

Italy's Mario Draghi is in the "activist-easing" camp. "The experience in the US in the 1930s and Japan in the 1990s suggests that it is necessary to fight, in the early phases of the crisis, the tendency for real interest rates to rise," he said.

Finland's Erkki Liikanen is of the same opinion. "We are facing the worst financial crisis in our time. It is important not to exclude, ex ante, any measures."

Julian Callow from Barclays Capital said 10 ECB governors are now doves.

This amounts to a mutiny against the Bundesbank-dominated executive in Frankurt. It is no great surprise. They have to answer to their democracies. The plot is thickening.

Another currency crisis that will lead to worldwide meltdown

Another currency crisis similar to 97 Asian currencies crisis is in the making..This time in Europe and potentially 100 times more explosive.


By Ambrose Evans-Pritchard
Last Updated: 2:05AM GMT 15 Feb 2009

Failure to save East Europe will lead to worldwide meltdown
The unfolding debt drama in Russia, Ukraine, and the EU states of Eastern Europe has reached acute danger point.

If mishandled by the world policy establishment, this debacle is big enough to shatter the fragile banking systems of Western Europe and set off round two of our financial Götterdämmerung.

Austria's finance minister Josef Pröll made frantic efforts last week to put together a €150bn rescue for the ex-Soviet bloc. Well he might. His banks have lent €230bn to the region, equal to 70pc of Austria's GDP.
"A failure rate of 10pc would lead to the collapse of the Austrian financial sector," reported Der Standard in Vienna. Unfortunately, that is about to happen.

The European Bank for Reconstruction and Development (EBRD) says bad debts will top 10pc and may reach 20pc. The Vienna press said Bank Austria and its Italian owner Unicredit face a "monetary Stalingrad" in the East.

Mr Pröll tried to drum up support for his rescue package from EU finance ministers in Brussels last week. The idea was scotched by Germany's Peer Steinbrück. Not our problem, he said. We'll see about that.

Stephen Jen, currency chief at Morgan Stanley, said Eastern Europe has borrowed $1.7 trillion abroad, much on short-term maturities. It must repay – or roll over – $400bn this year, equal to a third of the region's GDP. Good luck. The credit window has slammed shut.

Not even Russia can easily cover the $500bn dollar debts of its oligarchs while oil remains near $33 a barrel. The budget is based on Urals crude at $95. Russia has bled 36pc of its foreign reserves since August defending the rouble.

"This is the largest run on a currency in history," said Mr Jen.

In Poland, 60pc of mortgages are in Swiss francs. The zloty has just halved against the franc. Hungary, the Balkans, the Baltics, and Ukraine are all suffering variants of this story. As an act of collective folly – by lenders and borrowers – it matches America's sub-prime debacle. There is a crucial difference, however. European banks are on the hook for both. US banks are not.

Almost all East bloc debts are owed to West Europe, especially Austrian, Swedish, Greek, Italian, and Belgian banks. En plus, Europeans account for an astonishing 74pc of the entire $4.9 trillion portfolio of loans to emerging markets.

They are five times more exposed to this latest bust than American or Japanese banks, and they are 50pc more leveraged (IMF data).
Spain is up to its neck in Latin America, which has belatedly joined the slump (Mexico's car output fell 51pc in January, and Brazil lost 650,000 jobs in one month). Britain and Switzerland are up to their necks in Asia.

Whether it takes months, or just weeks, the world is going to discover that Europe's financial system is sunk, and that there is no EU Federal Reserve yet ready to act as a lender of last resort or to flood the markets with emergency stimulus.

Under a "Taylor Rule" analysis, the European Central Bank already needs to cut rates to zero and then purchase bonds and Pfandbriefe on a huge scale. It is constrained by geopolitics – a German-Dutch veto – and the Maastricht Treaty.

But I digress. It is East Europe that is blowing up right now. Erik Berglof, EBRD's chief economist, told me the region may need €400bn in help to cover loans and prop up the credit system.

Europe's governments are making matters worse. Some are pressuring their banks to pull back, undercutting subsidiaries in East Europe. Athens has ordered Greek banks to pull out of the Balkans.

The sums needed are beyond the limits of the IMF, which has already bailed out Hungary, Ukraine, Latvia, Belarus, Iceland, and Pakistan – and Turkey next – and is fast exhausting its own $200bn (€155bn) reserve. We are nearing the point where the IMF may have to print money for the world, using arcane powers to issue Special Drawing Rights.

Its $16bn rescue of Ukraine has unravelled. The country – facing a 12pc contraction in GDP after the collapse of steel prices – is hurtling towards default, leaving Unicredit, Raffeisen and ING in the lurch. Pakistan wants another $7.6bn. Latvia's central bank governor has declared his economy "clinically dead" after it shrank 10.5pc in the fourth quarter. Protesters have smashed the treasury and stormed parliament.

"This is much worse than the East Asia crisis in the 1990s," said Lars Christensen, at Danske Bank.
"There are accidents waiting to happen across the region, but the EU institutions don't have any framework for dealing with this. The day they decide not to save one of these one countries will be the trigger for a massive crisis with contagion spreading into the EU."

Europe is already in deeper trouble than the ECB or EU leaders ever expected. Germany contracted at an annual rate of 8.4pc in the fourth quarter.

If Deutsche Bank is correct, the economy will have shrunk by nearly 9pc before the end of this year. This is the sort of level that stokes popular revolt.

The implications are obvious. Berlin is not going to rescue Ireland, Spain, Greece and Portugal as the collapse of their credit bubbles leads to rising defaults, or rescue Italy by accepting plans for EU "union bonds" should the debt markets take fright at the rocketing trajectory of Italy's public debt (hitting 112pc of GDP next year, just revised up from 101pc – big change), or rescue Austria from its Habsburg adventurism.

So we watch and wait as the lethal brush fires move closer.

If one spark jumps across the eurozone line, we will have global systemic crisis within days. Are the firemen ready?

Not All Certificates of Deposit Are Plain Vanilla -- or Safe

by Ron Lieber

It was bad enough when big banks started going under. Then, money market funds became suspect. But now, even the humble certificate of deposit has become mired in scandal.

Last week, the Securities and Exchange Commission accused a Texas financier named Robert Allen Stanford of fraud. Investigators allege that the scheme revolved in large part around the sale of about $8 billion of suspiciously high-yielding C.D.’s through Stanford International Bank.

These C.D.’s were not insured by the Federal Deposit Insurance Corporation. So once again, we’re faced with images of forlorn people trying and failing to extract their life savings.

There’s some question as to whether Stanford ought to have been using the phrase “certificate of deposit.” Most investors who hear “C.D.” immediately assume that it’s safe.

Faulty terminology or not, it’s a bad time for C.D.’s to get a black eye, given that growing numbers of people are looking for secure investments as stocks approach their bear market lows. So now that C.D.’s have been sullied, it makes sense to take a step back and review the basic product as well as other, more exotic C.D.’s that are being offered at banks, brokerage firms and elsewhere.

BASIC C.D.’S When you buy a C.D. you hand over a pile of money to a bank and agree to keep it there for a certain period of time. In return for the certainty that it can use your funds for that long, the bank pays you interest, usually more interest than it would pay on a normal checking or savings account. Investments in C.D.’s are covered by the F.D.I.C., which currently offers insurance of up to $250,000 per person per bank. Additional coverage may be available depending on how you set up your accounts.

That $250,000 figure will fall to $100,000 for some types of accounts at the end of the year absent any new governmental action, so long-term C.D. investors need to keep that in mind.

There are plenty of places to shop for the best C.D. rates. Bankrate.com is one useful site, while MoneyAisle allows banks to compete for your business in an auction on the Web. Often, the banks offering the best rates are small banks you won’t have heard of or large banks that may be somewhat troubled.

As long as you don’t invest more than the F.D.I.C. limits, you don’t need to worry about losing your money. If the bank that issues your C.D. fails, however, another bank may end up with the failed bank’s deposits and has the right to lower your C.D. rate.

With any C.D., including the more complicated ones I outline below, there are a number of questions you should ask about the terms. Is the interest rate fixed? How long is the term? Is it callable, meaning the bank can give your money back to you before the term is up if it wants to? What sort of penalties exist if you need to take money out before the term is up? If the penalties are large enough, you could end up losing principal if you unexpectedly need the funds early.

You also want to check to see how the interest will be paid. Retirees may want a check, while others may want the money reinvested in the C.D. Also, how often does the bank pay out the interest? And will the bank try to automatically roll the money into a new C.D. when the term is up? Are there any commissions?

BROKERED C.D.’S These are C.D.’s sold by brokerage firms, both large investment firms like Charles Schwab and small operations that maintain Web sites or try to cold-call you. They generally pool money from investors and then invest it in C.D.’s from F.D.I.C.-insured banks that the brokers find on their own. Sometimes, the banks are willing to pay better rates on brokered C.D.’s if the brokerage firm can bring a large enough pile of money to the bank.

One advantage here, according to René Kim, a senior vice president of Charles Schwab, is that you can keep multiple C.D.’s of different maturities in one account. And if you have a lot of money to put to work, you can place it with different banks to stay under the F.D.I.C. limits. Just be sure that the broker doesn’t place it with a bank where you already have other accounts, if the new money would put you over the F.D.I.C. limits.

Brokerage firms may tell you that there are no fees for early withdrawal of a brokered C.D. The S.E.C. warns, however, that if you want to get your money out early, your broker may need to try to sell your portion of the C.D. on a secondary market. You may not be able to sell it for an amount that will allow you to get all of your principal back.

INDEXED C.D.’S These C.D.’s, also known as market-linked C.D.’s, generally guarantee that you’ll get your original investment back. They also let you share in the gain of a stock market index, like the Dow Jones industrial average or the Standard & Poor’s 500-stock index. If stocks are up during the term of your C.D., you’ll make some money. If not, you’ll still get your initial investment back, though inflation may have eroded its value.

While this downside protection and upside participation may be tempting at a time like this, these C.D.’s can be complicated. (They’re also a bit scarce at the moment, since stock market volatility makes it more expensive for banks to offer them.) Your return will depend on how the issuer of the C.D. calculates the average return on the index. So ask to see an example.

Also, the bank that offers the C.D. may not credit any of the money you earn until the end of the C.D.’s term, even though you still have to pay taxes each year on your interest.

Finally, while your initial investment may have F.D.I.C. protection, any gain during the term of the C.D. may not be covered if the bank goes under before the C.D.’s term is up, depending on how the interest is calculated and credited. Again, ask about this in advance. Also, don’t assume that your investment comes with F.D.I.C. insurance, because there are similar-sounding investments that may not.

FOREIGN CURRENCY C.D.’S Here, you’re using American dollars to make a bet. At EverBank, which offers many foreign currency C.D.’s, you earn interest in the currency that you choose and can earn even more money if it appreciates against the dollar. If it moves in the opposite direction, however, you can lose not just your interest but some of the principal, too.

While the F.D.I.C. does insure the principal here, EverBank notes that the coverage is only for failure of the institution, not for fluctuation in currency prices. “Please only invest with money that you can afford to risk, and as part of a broadly diversified investment strategy,” its disclosure says.

The bank might as well say that you should only invest what you can afford to lose, which is not how most people normally think about C.D.’s.

So if you’re trying to stay safe, consider a plain, old-fashioned C.D. instead. And don’t ever assume, as some of the Stanford investors may have done, that F.D.I.C. insurance is automatically part of the C.D. package.

Four Simple Steps to Resolve the Financial Crisis and Boost the Stock Market

President Obama, Fed Chairman Bernanke, Treasury Secretary Geithner, politicians, economists, strategists and pundits everywhere are doing back-flips trying to find a solution to the banking crisis and resulting stock market meltdown.

But Jon Najarian, president of OptionMonster.com, says there are some simple steps policymakers can take to at least alleviate the crisis and give the stock market a big boost:

* Cut taxes by 10% across the board for corporations and individuals alike: Najarian is a big believer in the healing power of tax cuts but admits it's highly unlikely any tax cuts will be enacted beyond what's in the stimulus bill.

* Raise the FDIC insurance limit to $1 million per account: FDIC insurance was temporarily raised to $250,000 per depositor in October. Najarian says raising it further will bring more capital into the banks - and out from under mattresses - both helping shore up the banks and providing them a base in which to lend. He also advocates for SIPC insurance on cash in security accounts to be raised above the current $100,000 limit.

* Suspend mark-to-market accounting: Critics say suspending mark-to-market accounting would reward banks for their bad behavior, and send a message that toxic assets are merely "temporarily" depressed vs. permanently damaged. Supporters say it will give the banks "breathing room" to sell those assets at something other than rock-bottom prices. Najarian does believe Secretary Geithner will announce an at least temporary suspension of mark-to-market sometime in 2009, spurring a huge rally in beleaguered bank stocks. (Personally, I think the government should put insolvent banks into receivership; but since it appears that's not in the cards, suspending mark-to-market makes sense in order to give banks some balance sheet relief and get more bang for out bailout bucks.)

* Reinstate the uptick rule: Because stocks trade in penny increments, reinstating the prohibition against shorting a stock on a downtick might not have much practical impact, Najarian says. But there was no good reason to get rid of the rule and reinstating it could do wonders to revive confidence in the market, which may be more than half the battle.

The 'buy and hold' strategy

Goh Eng Yeow on the wisdom of having your money professionally managed.

LIFE goes on as usual for fund managers even though the sky seems to be crashing down around them, as assets of all classes plunge in value.

Last night, they gathered at a posh hotel to celebrate the achievements of their peers and dished out awards to the outstanding performers.

But as my colleague, Gabriel Chen, pointed out in his article this morning, about $1.5 billion has walked out of Singapore unit trusts in the fourth quarter alone.

Indeed, these investors who have made their exit, might have been the smart ones. Stock prices have fallen further since the start of the year and there does not seem to be an end to the stock market carnage in sight.

For the "experts", it has been a trying time, even though some have put on a brave front, waxing lyrical about the need to stay invested.

But investors, who parked their money in unit trusts have discovered that they are doing as badly, if not worse, than those who choose to have fun making investments with their own money.

The super-rich, who get the dubious privilege of parking their money with hedge funds which supposedly have the inside track to even greater wealth, fare even worse. In some cases, they have lost the family silver, after placing their money with fraudsters like Bernie Madoff.

The cynical view is that it is impossible to beat fund managers at their own game. After all, they will continue to enjoy earning their keep, so long as investors are willing to park their nest-eggs with them.

But such cynicism aside, it is pertinent to ask why so few fund managers were able to forecast the current financial crisis and take steps to protect their investors’ interests, even though they were supposed to be spending much of their time looking at the market.

Indeed, many investors are now asking themselves if it is sensible for them to stick to the "Buy and Hold" strategy advocated by fund managers. Over the years, the mantra has been to behave like a sensible long-term investor - rather than a day-trader – because stocks outperform bonds and other assets if they are held long enough.

But as economist John Maynard Keynes once observed: In the long-term we will all be dead.

Anyone who followed the buy and hold advice given out by the fund managers will feel deceived.

Wall Street has fallen to an 11 year-low, wiping out any gains made in the past decade, while stock prices here have fallen to 2003 Sars crisis lows.

Since the global credit crisis erupted over a year ago, fund managers haven’t adjusted their portfolios from stock holdings to cash fast enough. Some of them have been buried by the avalanche of plunging stock prices.

For many investors, the best strategy is to hold on tight to your cash right now, after the vast destruction of wealth last year.

The biggest tragedy is to have to try to slowly accumulate your nesteggs once again, just when a huge financial storm is in full swing.

Wednesday, 25 February 2009

Commentary by Kathy Lien: Race to Zero Interest Rates

With no US economic data released this morning, we take this opportunity to discuss the Race to Zero Interest Rates. Of the eight major central banks, three have already taken interest rates as low as they can. These are the Federal Reserve, the Bank of Japan and the Swiss National Bank. Further interest rate cuts are expected from the other central banks but the question is who will win the race. In this competition, getting to the finish line quickly is not as important as getting there eventually. Not every central bank is expected to take interest rates to zero but at bare minimum it is interesting to talk about how many more rate cuts are expected.

The Federal Reserve – Onto Credit Easing


Growth: There is no question that from a growth perspective, the outlook is the US economy is bleak. More than 6.5 million Americans are claiming unemployment benefits and the unemployment rate is expected to rise to anywhere between 8.2 and 8.8 percent. Consumer spending has been weak and will continue to remain so as long as Americans are losing jobs or struggling to hang onto them. If interest rates did not already hit rock bottom, the central bank would be responding with aggressive rate cuts now. Any improvements that we have seen in the US economy is suspicious as every knows more trouble lies ahead. President Obama signed a $787 billion economic stimulus package. This will eventually help the US economy but it may be some time before the stimulus reaches the pocketbooks of Americans.


Inflation: In the month of January, both consumer and producer prices increased. However, despite the moment of optimism elicited by the monthly report, the annualized basis of CPI fell to 0%, the lowest price level in thirty years. Certainly, this fact is enough to declare that inflation is not a concern while and disinflation, a step above deflation is a very real possibility. Across America, we are already seeing price cuts in many different industries.


Central Bank Comments: In a recent speech given by the Federal Reserve Chairman, Ben Bernanke, cited the fact that inflation will remain low for some time, but resisted temptations to use the term deflation. In order to give the market some identifiable metric, Bernanke choose to set an inflation target of about 2.00 percent, far above the current plight in consumer prices. The Fed is currently embarking on Credit Easing which is very similar to Quantitative Easing which involves pumping money into the financial system by purchases assets like commercial paper and agency mortgage backed securities.


Outlook for Interest Rates: The Federal Reserve has run out of room to cut interest rates. With a target range of 0 to 0.25 percent, they are basically at zero. The only reasons why they didn’t take rates down to 0 officially is because it would be psychologically crippling and they did not want to threaten the viability of money market funds.



European Central Bank – Reluctantly Taking Rates to 1 Percent



Growth: Like the US, recession has hit the Eurozone. The difference however is that in addition to weaker growth, the Eurozone is vulnerable to further problems in their financial sector. Western European banks have extensive exposure to Eastern European nations. If borrowers from those nations default on their loans, there could be a domino effect on the Eurozone. Ireland is also at risk of default and if that occurs, it could an exodus out of Euros.


Inflation: Unlike the US, prices are falling and not rising in the Eurozone. The European Central Bank acknowledges that price pressures are easing, yet they are reluctant to aggressively cut interest rates and instead regularly warn about taking rates to ultra low levels.


Central Bank Comments: Jean-Claude Trichet has not been quiet about his desire to at least slow-down the magnitude of easing until the stimulus has time to filter through the system. Last month, he left interest rates unchanged at 2 percent. Most recently, Trichet is quoted as saying that he will provide an unlimited amount of cash for the euro-regions bank. It is possible that he will resort to using these liquidity measures rather than accelerated rate cuts to manage monetary policy. Trichet also holds that the threat of deflation is minimal.


Outlook for Interest Rates: The ECB will continue to cut interest but will probably stop at 1 percent. A 50bp rate cut is expected last month and Trichet has already confirmed that these are well placed expectations.


Bank of England – Rates Headed to US Levels, Adopting Quantitative Easing


Growth: The UK is in recession with growth currently running at minus 1.5%. The labor market is deteriorating, but consumer spending has been resilient. Problems in the housing market and the financial sector have hit the country hard and therefore the Bank of England expects weak growth to last for the next few years.


Inflation: Deflation concerns in the UK are probably the least prevalent out of the major central banks. Annualized CPI in January was 3 percent. The weakness of the British pound has driven Producer Prices higher but the BoE believes that inflation will undershoot their 3 percent target significantly this year. In their recent Quarterly Inflation report, they forecasted inflation to slow to 0.5 percent within the next 2 years. This will support their plans to keep monetary policy easy.


Central Bank Comments: Bank of England Governor King is very pessimistic about the outlook for the UK economy. Two weeks ago, he warned that the UK economy is in deep recession signaling that interest rates are headed lower. The minutes from the most recent monetary policy meeting revealed that central bank officials were reluctant to cut interest rates more aggressively even though their economic outlook was negative. They were not reluctant however to appeal to the Chancellor for the authority to embark on Quantitative Easing by starting to buy Gilts.


Outlook for Interest Rates: At their next monetary policy meeting in March, the BoE is expected to cut interest rates to 0.5 percent and officially begin Quantitative Easing. Their efforts to cut interest rates have been ineffective in stimulating the economy. King already had an initial meeting with Chancellor Darling and given the market’s expectation for QE, the Chancellor should oblige. The BoE could still take interest rates to zero. With US rates already at that level, the stigma of moving to ZIRP is not as significant.


Bank of Canada: Interest Rates Could be Headed to ZIRP

Growth: Canada is only beginning to feel the effects of the US recession. For the first time in 30 years, Canada reported a trade deficit. Weaker demand for auto exports and lower oil prices have dealt a double blow to the Canadian economy. In the month of January, the unemployment rate hit a 4-year high. Consumer spending is beginning to crumble and the recession is expected to deepen. The central bank expects growth to contract by 4.8 percent in the first quarter.


Inflation: Inflation is falling in Canada. Consumer Prices fell for the fourth consecutive month, putting the country at risk of deflation. The decline in oil prices is expected to drag the annualized pace of CPI growth below zero in the fourth and third quarter.


Central Bank Comments: Mark Carney, the Governor of the Bank of Canada shares our concern about inflation. After cutting interest rates in January, Carney said that he still has “considerable flexibility” to take further action. He believes that growth will not start until early 2010, but when it happens, it may be sharp.


Outlook for Interest Rates: Canada is probably the most likely central bank to take interest rates to zero. Another 50bp rate cut is expected in March. Their economy is just beginning to slow and the BoC will have to step up to the plate by cutting interest rates more aggressively.


Reserve Bank of Australia: Lucky Enough to Skirt Recession


Growth: Australia is one of the few countries lucky enough to not be in recession. Growth is currently lingering at very low levels, but has not since dipped into negative territory. The country has been showing varied levels of stabilization including a bounce in Retail Sales. Even though the Unemployment Rate rose to 4.8 percent, Australia is still reporting job growth, to the envy of their global counterparts.


Inflation: Despite the pleasing picture of Australian growth prospects, inflation is still retreating. Producer Prices have fallen to 1.3% while Consumer Prices were pushed down to -0.3%. The negative consumer price figure does create a certain disinflation concern and the decline in commodity prices could keep price pressures depressed.


Central Bank Comments: The members of the RBA have been expressing certain optimism about the prospects of their economy. Most recently, Deputy Governor Edey said that Australia would outperform because of the tremendous amounts of monetary and fiscal stimulus injected into the economy Combined, Edey belives that these forces should keep the country out of recessionary. Glenn Stevens, the central bank head, reiterated Edey’s comments by saying that the economy will recover as quickly as the end of 2009.


Outlook for Interest Rates: It may be true that the RBA continues their easing measures to some extent. However, since there is such a large buffer at 3.25%, there is little chance that conditions will worsen to the point where zero interest rates are warranted. In addition, the content attitudes of the RBA, signifies that the large cuts will no longer be the stable of policy decisions. For Australia zero or even 1 percent interest rates is out the question.


Reserve Bank of New Zealand: More Weakness, More Rate Cuts


Growth: Unlike Australia, New Zealand was one of the first countries to fall into recession. Despite aggressive rate cuts, they have not been able to engineer a recovery. The high beta country is still very sensitive to world developments. The only saving grace is that the weakness of the New Zealand dollar is boosting tourism. As for domestic demand, it remains weak with retail sales falling 1.0 percent. Employment on the other hand is mixed with a positive surprise in employment change but a big jump in the unemployment rate.


Inflation: Like other commodity currencies, New Zealand has faced an accelerated decline in prices. Producer prices have fallen an amazing 7% in three quarters, landing at about -2.2% in the most recent report. Consumer Prices have likewise faced pressures that have pushed inflation down to -0.5%. There is a very real threat that, as the result of the declines in commodity prices, New Zealand may experience deflationary conditions.


Central Bank Comments: Recent comments by Reserve Bank of New Zealand Governor indicated his concern over the lending conditions in the country, urging households and firms not to “pull down the shutter” and limit economic activity. He also adds that he feels that inflation remains under control despite the strong pull back in consumer prices. In late January, Bollard mentioned that the “toolbox” is by no means empty, indicating that further rate cuts can be implemented. Finance Minister English believes that there is more trouble ahead for the New Zealand Economy.


Outlook for Interest Rates: The RBNZ has way too much breathing room when it comes to cutting rates. With the highest interest rate among the 8 major countries, New Zealand has plenty of room to ease. Another 50bp of easing is expected but conditions would have to alter severely for the central bank to take interest rates to 1 percent, let alone zero.


Bank of Japan: Quantitative Easing Take 2


Growth: Growth concerns in Japan have hit the spotlight with annualized GDP showing a staggering drop of more than 12.0%, the largest contraction in more than three decades. This figure is enough to single-handedly describe the deterioration of the economy over the last year. Japan’s woes are very closely related to the unrelenting strength in the yen, which has posed a 15% gain against the dollar since its highs in August of 2008. As an exporting dependent economy, the combination of the weak international demand and strength in the currency has brought the region into recession. Their Trade Deficit has enlarged to -¥197.9B, a more than 100% increase over the prior month.


Inflation: Historically, Japan has held a very low inflation rate. This was one of the primary characteristics that followed them through a decade of stagnate growth. Currently, Tokyo Consumer Prices are on the move downward along with National Consumer Prices. The threat of deflation is a very real possibility for the region and could prove to further exaggerate the effects of their recession.


Central Bank Comments: In a report released by the central bank, current consensus indicates that “economic conditions have deteriorated significantly”. The BoJ Governor himself said that economic prospects are “extremely uncertain”. In response to these conditions, Masaaki Shirakawa announced a new extension to his asset purchase program that will now include corporate bonds. He concluded that despite these efforts, corporate lending will most likely remain depressed.


Outlook for Interest Rates: The BoJ’s target rate is too close to zero to pose the probability of further rate cuts. The 10bp buffer that they have left is merely a psychological amount as the central bank went to great lengths to stress that they are not returning to a zero interest or quantitative easing policy. In our opinion however, they will probably remain in the zero rate club for some time.


Swiss National Bank: Leaving Room to Cut Rates to Zero


Growth: Even though Switzerland has deployed recession-like monetary maneuvers, the region has not officially been sunk into the technical definition of a recession. Third quarter GDP fell to 0.0%; the next report is expected in early March. The KOF Economic Barometer has been retreating for a total of fifteen months. Retail Sales on the other hand made a comeback in the month of January, coming in at 3.6% versus -1.4% in the prior month.


Inflation: Deflationary concerns have been on the rise in Switzerland as well. Consumer Prices fell again to -0.8% from -0.5%. Producer Prices reflect similar levels. The fact that the price level has been negative for an extended period of time may mean that the region is currently experiencing some of the same symptoms.


Central Bank Comments: John-Pierre Roth, the head of the Swiss National Bank, seems confident that he we continue cutting rates, indicating that the target in 2003 was only 0.25%. At this level, it is pretty much a certainty that rates have reached the bottom. Others in the bank, like Thomas Jordan, have indicated interests in starting bond purchasing programs or even foreign exchange intervention. However, Roth has indicated that the effects of rate cuts will take time to push libor rates to the same level.


Outlook for Interest Rates: The SNB is definitely one of the few central banks that we suspect will actually make the move of taking interest rates to zero. The central bank has been very unhappy with the recent appreciation of the Swiss Franc and therefore cutting interest rates further could take some steam out of the currency.

99,000 jobs may go (Singapore)

Feb 25, 2009, The Straits Times Breaking News
Job losses in Singapore
99,000 jobs may go

SINGAPROE may lose 99,000 jobs amid the nation's worst economic slump, pushing the jobless rate to 5 per cent by mid-2010, said DBS Bank in a report on Wednesday. DBS also said the economy may contract 4.8 per cent this year, down from its earlier forecast of 3.3 per cent.

'Singapore is likely to experience its worst ever growth this year with a GDP contraction of 4.8 per cent. Labour markets are expected to deteriorate further, it said.

'The unemployment rate will likely hit 5 per cent with cumulative job losses expected to reach 99,000 by 2010. Policy measures that have been put forth so far will help to cushion the blows but the worst of the labour market cycle is yet to come.'

The Singapore economy shrank by 3.7 per cent in the fourth quarter of 2008, compared to a year ago. Singapore's non-oil domestic exports plunged by 17.7 per cent in the same quarter, down significantly from an average negatove 4.2 per cent for the first three quarters of last year.

Most recent NODX growth in January plummeted by 34.8 per cent - the sharpest single month decline ever and a clear reflection of the collapse in global demand

'On account of the sharp collapse in global demand and export sales, we have recently lowered our growth for 2009 to - 4.8 per cent, down from an already low forecast of - 3.3 per cent,' said the DBS report. 'This marks the worst recession in Singapore's history, surpassing the previous low of -3.8 per cent registered prior its independence in 1964.

'With growth this weak, labour market conditions are expected to deteriorate further. The unemployment rate will creep higher as job losses mount.'

Singapore's unemployment rate has risen in the previous two quarters as the labour market continued to feel the heat of the global recession.

About 73,100 Singapore residents were jobless in December last year, an increase of about 58 per cent over a year ago. Job growth also slowed significantly, with just 26,900 jobs created in the fourth quarter, which is less than half the total gain of 55,700 in the previous quarter.

'Against the backdrop of the dire economic conditions, this is probably just the initial stage of a protracted down-cycle in the employment market. Job losses and unemployment rate will continue to rise as companies struggle to cope with the impact of the global downturn,' said DBS.

It will be totally impossible for this crisis to end fast

The author of “The Black Swan,” Nassim Nicholas Taleb, predicts that the global financial crisis will be harder to end than the Great Depression and it may force the United States government to nationalize some banks.

The world has a much more complex financial system than in the 1930s, Mr. Taleb told Bloomberg Television, and that makes the current problems worse. Bonuses paid on Wall Street encouraged risk-taking with no regard for losses, he added.

Rare and unforeseen events are known as “black swans,” after Mr. Taleb’s 2007 book, “The Black Swan: The Impact of the Highly Improbable.” Mr. Taleb said the current financial crisis isn’t one.

“The black swan for me would be for us to emerge out of this unscathed and return to normalcy,” Mr. Taleb told Bloomberg. Compared to the Great Depression, he said, this crisis is “very different, and it requires much more drastic action.”

Taleb’s book was published in May 2007, about three months before the credit crisis exploded.

Mr. Taleb’s severe pessimism follows a similar warning by the billionaire investor George Soros last week that the world financial system had effectively disintegrated and that there was no prospect yet of a near-term resolution to the crisis. Mr. Soros said at Columbia University that the turmoil was actually more severe than during the Depression.

More missing debt payment

By Francis Chan

MORE consumers here are missing their credit card and personal loan payments but the numbers still fall below the highs recorded during the Sars outbreak in 2003.

According to the latest figures from Credit Bureau Singapore (CBS), the percentage of consumers, who missed at least one credit card payment rose slightly from 1.48 per cent in December 2007, to 1.67 per cent last December.

Similarly, the percentage of delinquent personal loans that were 30 or more days past due also increased from 3.73 per cent in December 2007 to 5.34 per cent in December last year.

The figures were compiled by CBS on a monthly basis from a data pool of over 1.1 million credit card accounts and more than 65,000 personal loan customers.

'The worsening economy, the rising unemployment level, and the need to ramp up their year-end spending have all taken a toll on consumers' ability to manage their credit card and personal loan payments in the fourth quarter of 2008,' said CBS executive director William Lim.

The latest statistics from CBS show that more consumers may be 'under stress from the impact of layoffs and the economic downturn, and are struggling to pay their bills on time,' he added.

CBS also found that over the last four months of last year, the percentage of consumers who missed at least one payment on one or more of their credit cards climbed steadily from 1.45 per cent in September to 1.51 per cent in October to 1.56 per cent in November before reaching 1.67 per cent in December.

The proportion of consumers who had delinquent personal loan accounts that were 30 or more days past also increased from 4.24 per cent in September last year to 5.34 per cent in December.

Missed payments for credit card bills and personal loans, however, remained below the levels registered during Sars.

In 2003, during the peak of the Sars outbreak, monthly average delinquency rates were 2.61 and 6.05 per cent for credit cards and personal loans respectively.

Laid Off? No New Job? How Bad Can It Get?

by Anna Prior

Yes, times are tough. The big banks are on life support. Home prices are in the pits. The stock market's tanked. Unemployment's way, way up.

And...uh-oh. How are you doing? What about your home? Your investments? Your job?

How safe is it? What's the worst that can happen to you?

We put that question to the expert -- Joshua Piven, author of the best-selling "Worst-Case Scenario Survival Handbook" series. His tongue-in-cheek answer is not pretty: "You lose your job, you run out of savings or a safety net, have to sell [your] home, it's a down market and you can't sell your house, you move, pull the kids out of school, it's not easy to get another job and your whole lifestyle has to change.

"Then there's homelessness, maybe spiraling alcoholism, and then living on the side of the train tracks."

Ugh. More people are facing an extended period of joblessness and the potential financial difficulties that go along with it.

Unemployment hit 7.6% last month, with 11.6 million people out of work, and the number of people experiencing joblessness for more than six months has continued to increase, growing to more than 2.6 million in January, according to the Bureau of Labor Statistics.

As jobless rates go up, duration usually follows, says Katharine Abraham, a University of Maryland economist.

With the Federal Reserve forecasting that the unemployment rate could hit 8.8% this year, the number of people unemployed for longer stretches of time is expected to increase as well.

Conventional wisdom has long called for you to stash away up to six months of living expenses to carry you through a financial emergency or job loss. But with more job hunts lasting longer than half a year, backup funds can dwindle, and you will have to make more and more tough financial choices.

"It may be painful to think about bad things happening, but you have to make sure you are budgeting appropriately and living below your means," says Liz Davidson, CEO of Financial Finesse, a financial-education firm.

Here are some things to keep in mind, starting now:

While You're Working

* Double that emergency fund. One way to do this is by making minimum payments on your credit cards. That runs counter to the usual advice, but for those worried about losing a job, these aren't usual times. Take the remaining money you would use to pay off the whole bill and stash it in a money-market or high-interest savings account, suggests June Walbert, a financial planner with USAA, which mainly serves military members and their families.
* Consider downsizing your living quarters. For example, after business began to slow at Saxon Anderson's teeth-whitening kiosk at a Los Angeles area mall, the 26-year-old downgraded from a nice single apartment to a house with five roommates.
* Since it's easier to get credit while you're employed, look into opening another credit card or a home-equity line of credit as a precaution in case money becomes hard to access if you are unemployed. But use this credit only as a last resort.

When the Word Comes Down

* File for unemployment benefits immediately, says Linda Robertson, a senior financial planner with Financial Finesse. A severance package from your employer could delay your eligibility, but "so many of the unemployment offices are overwhelmed right now and are behind," she says.
* Call your landlord or lender if your layoff results in immediate financial instability. Ask about deferred-payment plans for rent or find out if your lender offers programs to restructure any loans, says Ms. Robertson. If you're financially stable, you may still want to alert your landlord or lender to your employment situation in case you have trouble making future payments.
* Look into all your health-insurance options. The government made some modifications to the federal COBRA law, which allows people to extend their previous coverage, but know that this isn't always the most affordable plan. Young and healthy? A high-deductible plan might still be more affordable.

The First Six Months

* Develop a bare-bones budget -- and stick to it -- so your severance or emergency funds will last as long as possible.
* Prioritize your debts. When the bills come, pay the big ones -- such as rent or mortgage, utilities and car payments -- before making minimum payments on your credit cards, suggests Ms. Robertson.
* If money starts getting tight, consider further downsizing your home or selling any nonessential cars, electronics, jewelry or other valuables, says Dan Houston, president of retirement and investor services at Principal Financial Group.

Six Months and Beyond

* De-invest. Start by looking for securities you might liquidate in nonretirement accounts. Potential tax write-offs could help make the losses easier to stomach. "If they've got a capital loss, they can write that off against any gains," says Ms. Robertson. "Or they can write off up to $3,000 of a capital loss against any other income."
* Then tap your Roth IRA. Money grows tax-free in these retirement accounts, and you can usually withdraw contributions with no tax liability. "That should be one of your measures of last resort, because we want that money to remain in that tax shelter," says Ms. Walbert.
* Keep your hands off your traditional IRA or 401(k) until the very last moment. "You'll not only have to pay taxes on those withdrawals, but you'll also pay penalties," says Mr. Houston. "You'll lose all of the compounding interest and yield. Plus, the probability of you replacing those dollars down the road is pretty remote, since the tendency for most is to spend instead of replace."

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