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Thursday, 30 April 2009

coping with redundancy

Guy Day

Losing your job can be one of the most stressful events in your life, particularly if you are mid-career and have been with your employer for some time. It’s usually unexpected and its implications are often difficult to comprehend immediately. However, take heart and think positively because redundancy can also provide an excellent opportunity for you to break the mould and change direction towards a more successful career.

It's not just you

The media continues to report the decline in the world economy and the resulting job losses. Seemingly no country, no sector and no profession has been left untouched and around the world thousands of executives have been made redundant this year. Many organisations with revenue in decline have retreated to their core and profitable businesses. Rationalisations, restructurings and redundancies have resulted.

Quite often in this phase of the employment cycle, layoffs can be indiscriminate with regard to ability, length of service and value to the organisation. Back-office teams are often a target because they are non-revenue generating, and in the short term they are a less emotive cost saving.

So, the message must be - it's not just you. It's happening everywhere and you must use this fact as part of the healing process.

Drain away the pain

When you first hear of your redundancy, you may feel a range of emotions, especially anger, but also relief, uncertainty, betrayal, bitterness and sadness. All these are justifiable and normal. You should spend time coming to terms with the decision and getting the emotion out of your system as much as you can. You shouldn’t under any circumstances start to look for another job until you have calmed down and processed the news of your redundancy.

Your anger and bitterness will be evident during the selection process and will deter potential employers. If you cannot shake your loss after four to five weeks, then you may need to seek guidance from professional counsellors to help you through this stage.

Communicate with family and friends

Don’t try to hide your redundancy. It’s crucial that you explain what has happened and that there may be some changes ahead. Also tell your closest friends, although it’s probably best not to make this a general broadcast until you have a plan and can ask for specific help generating leads.

Make a financial plan

One of your immediate issues will be financial. Whether or not you have received severance pay or bonuses, you should undertake a thorough review of your budget for the year ahead. Make sure you have received all your entitlements from the organisation and that your pension payments are in order. Reduce all non-essential expenditure and assume that your new budget will need to last a full year until you are back on your feet again. Undergo the self-review process as well. Once you feel reconciled to what has happened, it’s time to move on and to think about the future.

Exit with dignity

However tempting it may be to express your real feelings during the exit process, try to harness your anger and exit professionally and with dignity. You will need the help of your former colleagues and managers in the coming months for references and contacts.

Explain your termination to potential employers

Discuss your termination and the reasons for it with your employer and your other referees. Regrettably, there is still a stigma attached to being out of work, so potential new employers may think your departure is performance related until you can convince them otherwise.

It’s important therefore that you understand the reasons for your termination so that you can communicate them with confidence to the market and so that your referees - including your former employer - can back you up verbally and in writing. You need to ensure that there is no doubt whatsoever surrounding the reasons for your departure, otherwise your job search could be damaged.

Finally, set yourself a realistic time frame for finding a new role. Be prepared that it could take several months to find the right job – more if you are seeking a specialist or senior position, or if you don’t have the requisite skills or experience. Be persistent and positive during your job search.

Wednesday, 29 April 2009

Swine flu risk to Singapore recovery: central bank

SINGAPORE (AFP) - - The global swine flu outbreak could set back a recovery for Singapore's recession-hit economy, the central bank said Wednesday.

"Depending on how the global outbreak of the swine influenza develops, there could be repercussions for the domestic economy," the Monetary Authority of Singapore (MAS) said.

"Nonetheless, the domestic economy is not expected to stage a decisive rebound this year," the MAS said in its twice-yearly report.

"Indeed, the path to recovery is uncertain and hinges on external developments including the recent outbreak of swine influenza in Mexico, which has added a new dimension to the risk outlook."

Singapore, an open economy largely dependent on external trade and tourism, has stepped up measures against swine flu, drawing lessons from its fight against the Severe Acute Respiratory Syndrome (SARS) in 2003.

SARS killed 33 people in Singapore that year.

Authorities have deployed thermal scanners at the airport and seaports and stepped up infectious disease control measures at hospitals.

Influential former prime minister Lee Kuan Yew also said any residents returning from Mexico, the epicentre of the current swine flu outbreak, will be quarantined.

As of Wednesday, authorities said 17 people had been referred to two hospitals for precautionary medical assessment and four of them had tested negative for influenza A, the virus type associated with swine flu.

Singapore's economy slipped into a recession last year and is tipped to contract as much as 9.0 percent this year as export demand dries up due to the global downturn.

Tuesday, 28 April 2009

Don't Believe in Buy and Hold

A. Gary Shilling

Even during rip-roaring bull markets, investors miss a good chunk of the gains. Buy and hold RIP.

The recent 57% collapse in the S&P 500 index to its most recent low on March 9 followed hard upon the 38% decline in the 2000-2002 bear market. And the five-year recovery from that swoon didn't exceed the 2000 peak by much. The Nasdaq index, which nosedived 78% in 2000-2002, recovered only 44% of that decline before falling another 55%. There are only two other global bear markets since 1900 in which stocks fell over 40%.

No wonder that investors' faith in stocks has been shattered, and both institutional and individual investors have been withdrawing. The buy and hold strategy, which was validated by the earlier long, steadily rising market, doesn't work in severe bear markets. Only one of 1,700 diversified U.S. stock funds showed a gain in 2008, and that was a mere 0.4%. The average of these funds dropped 39%, precisely in line with the S&P 500's decline.

The buy and hold devotees say you can't time the market, and if you aren't in all the time, you risk missing much of the gain. A Spanish research firm found that if you removed the 10 best days for the Dow Jones industrial average in the 1900-2008 years, two-thirds of the cumulative gains were lost. But if you missed the 10 worst days, it found, the actual gain on the Dow tripled. These results are in line with our earlier research and reflect the fact that stocks fall a lot faster than they rise.

We eschew the buy and hold strategy because of what's known in classical statistics as the gambler's ruin paradox. The odds may be in your favor in the long run--in this case, your stocks may provide great returns over, say, 10 years. But if you hit a streak of bad luck, your capital may be exhausted before that long run arrives.

Or more likely, a severe bear market will scare you out at the bottom. Many investors bail out then and don't reenter until the next bull market is well advanced. This explains why the returns of mutual fund investors lag well behind the performance of the funds in which they invest. A widespread retreat is what makes a good bottom, as we've noted in many past Insights. All those who can be shaken out are. They've reached the puke point at which they regurgitate their last equities and swear to never ingest any more.

We've never understood the U.S. individual investors' fascination with stocks, almost to the exclusion of all other investment vehicles. Stock backers point to long-run annual gains of about 10% but neglect to note that about half of that came from dividends, which were much bigger parts of the total return in earlier years, although they may be again in the future.

Also, stock indexes are revised over time, dropping weak and fading companies and replacing them with robust and growing firms. So the performance of the Dow or S&P 500 over time is much stronger than the performance of the companies that were in those indexes, say, 30 years ago. This is known as survivor-bias.

Even with this upward bias, stocks way underperformed Treasury bonds in the 1980s and 1990s in what was the longest and strongest stock bull market on record. The superiority of Treasuries has been even more so since then. One reason that few realize this is because they don't know much about bonds, despite the simplicity of Treasury obligations and, so, they ignore them. Furthermore, commissions on stocks are usually much bigger than on Treasuries, so brokers favor them.

Our all-time favorite graph shows the results from investing $100 in a 25-year zero-coupon Treasury bond at its yield high (and price low) in October 1981, and rolling it into another 25-year Treasury annually to maintain that 25-year maturity. On March 31, 2009, that $100 was worth $16,656 with a compound annual return of 20.4%. In contrast, $100 invested in the S&P 500 at its low in July 1982 was worth $1,502 last month for a 10.7% annual return including dividend reinvestment. So Treasuries outperformed stocks by 11.1 times!

Long-time Insight readers know we have been recommending long Treasury bonds since 1981. Back then, we forecast secular and huge declines in inflation and interest rates. So we declared that "we're entering the bond rally of a lifetime." Unfortunately, that rally is over. Our target of 3% yield on 30-year Treasuries, down from 14.7% in 1981, was exceeded at the end of 2008 when the yield fell to 2.6%. Nevertheless, it was a grand finale to "the bond rally of a lifetime." The yield drop from 4.5% at the end of 2007 provided a 37.5% appreciation. Add in the 4.5% interest and the total return was 42% last year.

In the long run, the stock market rises with GDP, after accounting for intermediate trends in profits' share of GDP and P/Es. In the next decade, we foresee much slower growth in GDP than in the 1980s and 1990s and deflation, with profits' share of the pie falling along with declining P/Es. In this secular bear market, stock market average gains will probably be much lower with cyclical bull markets shorter and weaker, while bear markets are more frequent and deeper.

Monday, 27 April 2009

Economy: Don't Look Now, But the Worst Is Over

From The Business Insider:

Paul Kasriel and Asha Bangalore of Northern Trust lay out the case that the economy is turning. For highlights of their report (and the full report) click here.

Importantly, Paul and Asha are NOT saying that the economy has "bottomed." Just that the rate of decline is now decelerating. One of the main causes of this is the tremendous fiscal and monetary stimulus the government is pumping into the system. Paul discussed this in this previous piece, where he noted that it worked in the 1930s (until the government screwed up).

Paul and Asha's assessment that we've past the quarter with the worst decline is consistent with what even bearish economists like Nouriel Roubini believe. Where Nouriel begs to differ is when growth will resume. Paul and Asha's view, which is in line with the consensus, is that the economy will begin growing again in Q4. Nouriel thinks the economy will shrink 2% in Q4 and struggle all through 2010 (I tend to think he's right, but the stimulus is a wildcard).

And then there are John Mauldin, Kyle Bass, and others who think that even if the economy stabilizes, it will just collapse again in 2010 and/or move sideways for years--like Japan's.

Leaving aside the future, here are Kasriel and Bangalore's key points on what has happened in the past three months that suggest the worst is over.

Saturday, 25 April 2009

G7 signals worst of world recession may be over

By Gernot Heller and Louise Egan

WASHINGTON - Finance chiefs from the G7 powers said on Friday the global economy may be past the worst phase of a recession although recovery was not yet assured, and they pledged to make sure that big financial firms are sound.

Group of Seven finance ministers and central bankers said after a meeting that economic activity should begin to recover later this year. However, they said the outlook remained weak and there was a risk that the global economy may still worsen.

"We are right to be somewhat encouraged, but we would be wrong to conclude that we are close to emerging from the darkness that descended on the global economy early last fall," U.S. Treasury Secretary Timothy Geithner said in a statement.

It was a less dire assessment than the G7 finance officials delivered at their last gathering in February, when they warned that the severe downturn would persist through most of 2009 and made no mention of promising signs of stability.

"Recent data suggest that the pace of decline in our economies has slowed and some signs of stabilization are emerging," the G7 said in a closing communique.

"We will continue to act, as needed, to restore lending, provide liquidity support, inject capital into financial institutions, protect savings and deposits and address impaired assets. We reaffirm our commitment to take all necessary actions to ensure the soundness of systemically important institutions," the statement said.

Japanese Finance Minister Kaoru Yosano said "signs of stabilization" was "an expression with a question mark."

"But we understand that the G7 statement has indirectly expressed the view that the worst may be possibly over for the world economy," he added.

The G7, which comprises the United States, Britain, Canada, France, Germany, Italy and Japan, met a day before the International Monetary Fund and World Bank begin their twice-yearly meetings. The larger G20 group, which includes emerging economies such as China and India, held a meeting after the G7 but issued no official statement.

Geithner said both groups had the same agenda.

"The agenda will be: What are we doing? Are we doing enough to help attenuate the risks in this recession, lay the foundation for an earlier recovery, lay the foundation for a more balanced, more sustainable recovery?" he said.

FIX THE BANKS

The G7 has been under growing pressure to speed up efforts to rid banks of bad assets that have constrained lending and plunged the global economy into its deepest recession since World War Two.

The International Monetary Fund, which has estimated that losses at financial institutions around the globe could exceed $4 trillion, urged rich nations to prioritize repairing the financial sector because the world economy cannot fully recover unless credit is flowing.

"The IMF is absolutely right when it asks countries to deal with toxic assets because transparency is crucial for recovery," said Mario Draghi, head of the Financial Stability Board, a newly fortified group designed to coordinate global regulatory reform.

But some European officials questioned how the IMF calculated the magnitude of bank losses. The Fund estimated that European banks may need to write down $750 billion in bad assets, while U.S. firms had $550 billion more to go.

"We are looking at it very carefully and we think there are methodological issues we have to clarify with the IMF," European Central Bank President Jean-Claude Trichet told a news conference after the G20 meeting. "I am not criticizing the IMF we have to look at it very carefully."

U.S. regulators have put 19 of the largest U.S. banks through stress tests to assess whether the government will have to pump more money into them. Geithner said the results of the stress tests were not discussed at the G7 meeting.

The Federal Reserve released a paper on Friday outlining the methodology of the tests, and said banks needed to hold substantially more capital than is usually required to weather a potential worsening of the recession.

Canadian Finance Minister Jim Flaherty, who has expressed frustration over the slow pace of progress in fixing the banks, said after the G7 meeting that he was pleased with U.S. and British efforts to implement their bank repair plans.

"We're going in the right direction," he said.

With attention firmly focused on the banking sector, the G7 made no changes to its closely watched statement on currency markets, repeating its February caution that excess volatility and disorderly movements in exchange rates were unwelcome.

How The Recession Can Spice Up Relationships

The economic crisis has a huge upside: an opportunity to improve your relationship.

Layoffs, furloughs and shrinking 401(k)s may not seem like natural aphrodisiacs, but according to experts in relationships and sex, the depressed financial picture is leading some couples--and singles--to better appreciate each other.

"The recession brings with it a re-evaluation of what's important in life," says Manhattan psychoanalyst Amy Joelson.

In Depth: Eight Ways The Recession Can Spice Up Relationships

It's too early for empirical studies evaluating the effect of the recession on the sex lives of Americans, notes Chicago psychiatrist Paul Dobranksy, author of The Secret Psychology of How We Fall In Love. He says it takes years to compile a meaningful picture of how the downturn has changed the intimate lives of Americans. "See me in five years," he says.

But anecdotal information exists. While many of Joelson's patients, for example, have expressed anxiety about spending money on frivolous items, they still feel good about engaging in physical intimacy. "People wrestle with guilt about indulging in all kinds of pleasures, like going shopping or eating at expensive restaurants; that's seen as politically incorrect," she says. "But you don't need a 401(k) to have sex."

Physical intimacy is also a great way to relieve anxiety, tension and stress, points out Wayne, N.J., psychologist and dating coach Victoria Zdrok, author of Anatomy of Pleasure: The Head to Toe Guide to Better Sex. "People are turning to sex to boost their endorphin levels," observes Zdrok. Tightening budgets means more time at home, says Zdrok. "That allows people more one-on-one time and more intimacy," she says, "which leads to more sex."

Because of all the bad news about plunging markets and escalating unemployment, says Zdrok, some couples may be turning off the television and turning to one another. "It's been shown that people who watch more TV have less sex," she notes. "In one Italian study, when television was removed from the bedroom, couples' sex lives improved."

Another upside of the down economy: With many Americans out of work or on furlough, people have more time to exercise.

"Exercise is one of the ways people deal with stress and anxiety," notes New York City relationship counselor Ian Kerner, author of Sex Recharge: A Rejuvenation Plan for Couples and Singles. "Exercise is also a great libido-booster and a great part of sexual health," adds Kerner. "Exercise increases blood flow and predisposes you to sexual arousal."

Layoffs and furloughs can also shake up the daily grind and introduce the concept of novelty, which can spur spontaneous sex. "Whenever you introduce novelty, it stimulates dopamine transmission in the brain," notes Kerner. "I advise couples to use the recession to break out of routines."

Experts agree that tough economic times can motivate couples, as well as singles, to turn to simple pleasures. For singles, that can mean greater use of dating Web sites followed by low-key in-person meetings that can lead to more intimate conversations and deeper relationships.

"To go out there and use the more traditional method of a night on the town--that's too costly," points out Manhattan psychotherapist and advice columnist Jonathan Alpert.

Couples, likewise, can forgo lavish vacations or dinners in upscale restaurants in favor of affordable pastimes that stimulate bonding, like cooking dinner at home, renting a movie, cuddling on the couch or taking a walk in the park and talking. "All of these activities," says Alpert, "encourage an intimacy and a closeness that improves the quality of a couple's sex life."

Dobranksy agrees. "Anybody who loses a job is going to take a hit to his dignity," he says. "That presents a couple with an opportunity to rediscover the non-material values in life, which are certainly the stuff of love and romance."

Meantime, notes psychoanalyst Joelson, couples should stay focused on the value of an active sex life. "Sex is a great expression of intimacy in a relationship," says Joelson. "It's a really optimistic thing, to have sex; there is hope built into the belief that together, you can create something better."

Friday, 24 April 2009

10 Countries in Deep Trouble

Matthew Bandyk

While the collapsing U.S. housing market may be at the root of the global economic recession, the downturn's effects are being felt hardest overseas. Take Iceland, for instance. Its biggest banks failed, its economy may shrink 10 percent this year, its government fell, its central banker was sacked, the country was bailed out with a $2.1 billion IMF loan, and 7,000 people (in a country of 300,000) took to the streets in protest.

Which countries have the greatest chances of being the next stories of failure? U.S.News looked at some countries that are currently facing severe economic disruption that endangers their standards of living, attractiveness to foreign investors, and political stability. First, we examined what Moody's Investors Service and Standard & Poor's had to say about them. These firms rate the risk of sovereign bonds, securities that finance the debt of a country. Many of the countries we identified have poor bond ratings or ratings under review for a downgrade, showing that these governments are perceived as being at greater risk of defaulting on their debt.

Second, we looked at what global markets think about a country's debt, based on data from Markit. The financial information company provides daily pricing on credit-default swaps, contracts between two parties that provide a kind of insurance on corporate and government debt. Analysis was also supplied by credit-rating organization AM Best. It ranks countries into five tiers based on the risk to insurers posed by the countries' economic, political, and financial systems. Using these analyses, here are five countries in deep trouble and five worth keeping an eye on.

Five Countries in Deep Trouble

Mexico. Thousands of would-be tourists from America and elsewhere had to cancel spring break trips to Mexico due to ongoing violence related to the drug trade. Mexico was the second country recently identified by the U.S. Joint Forces Command as possibly poised for a "rapid and sudden" collapse. Mexico's "politicians, police, and judicial infrastructure are all under sustained assault and pressure by criminal gangs and drug cartels," says the report.

The violence and tourism decline could not come at a worse time. Economists predict a 3.3 percent contraction of the Mexican economy this year. The poor economic growth means that the government is getting strapped for funds. In April, it asked the International Monetary Fund for a $47 billion loan. While credit-rating agencies don't expect Mexico's debt to grow riskier soon, and the risk of its sovereign derivatives has not skyrocketed like some other countries on this list, serious problems still remain for the Mexican economy. The country depends on the United States to consume its exports and pay Mexican immigrants who send money back home. If the U.S. recession deepens, Mexicans will feel the pain as much as Americans.

Pakistan. The country has already almost gone bankrupt once in the past six months. In October, only an emergency $10 billion in support from the World Bank, the Asian Development Bank, and others prevented Pakistan from defaulting on its debt. During that crisis, the cost of insurance on Pakistan's debt exploded. Even though the situation has calmed since then, investors are not getting comfortable with Pakistan. It still costs $2.2 million a year to insure $10 million of Pakistan's sovereign bonds.

The economic situation isn't all bad. The Asia Development Bank recently predicted that Pakistan's economy will grow 4 percent in the next fiscal year beginning in July, compared to 2.5 percent growth estimated this year. But the wild card that could change everything is the country's political situation. Pakistan is one of the most unstable countries in the world. On April 13, White House counterterrorism consultant David Kilcullen said that a political collapse in Pakistan could come within months. A 2008 report from the U.S. Joint Forces Command identified Pakistan as a country at risk of a "rapid and sudden collapse," one that would create a devastating security problem for the world. The report says that "the collapse of a state usually comes as a surprise." Anyone banking their money on Pakistan's economic growth might not know what hit them.

Ukraine. While Iceland may have suffered the worst financial collapse of the global recession, Ukraine has also received a dubious honor: It had the priciest sovereign credit-default swaps for the first quarter of the year. It currently costs about $3.9 million to insure $10 million of Ukrainian five-year sovereign bonds. A year ago it cost just under $3,000. S&P rates them CCC--the seventh-best (out of eleven) rating, indicating that Ukraine is vulnerable to nonpayment.

As the government tries to solve the crisis, Ukrainians are getting squeezed. Kiev, one of the oldest capitals in Europe, has had to shut down free clinics, schools, and increase public transportation costs in order to close a deficit. The Institute for Economic Research and Consulting is forecasting a GDP contraction of 12 percent. The Ukrainian stock market has fallen 25 percent so far this year. The Ukrainian currency, the hyrvnia, is also plummeting, falling 35 percent against the dollar in the last six months. The Ukrainian government's efforts to shore up the currency, including setting a floor for which the hryvnia can be traded, have so far been in vain.

Venezuela. Hugo Chavez has inextricably tied the Venezuelan economy to oil, and that didn't look so bad before the financial crisis. Oil profits helped deliver massive economic growth, so much that 4.8 percent growth in 2008 was seen as a disappointment. But with oil prices having plunged due to the global slowdown, the fortunes for Chavez's strategy have changed. Many economists are predicting negative growth for Venezuela this year, such as the 4 percent drop predicted by Morgan Stanley.

From June to September, the cost for an investor to buy insurance against Venezuela's debt almost doubled. Right now, to protect $10 million in Venezuelan sovereign bonds against default, an investor would need to spend $1.8 million each year. S&P gives Venezuela's sovereign bonds a BB rating, meaning Venezuela faces "major ongoing uncertainties" that could lead to "inadequate capacity" to meet its obligations. S&P also has a negative outlook for the bond rating, meaning it could decline in the next six months to two years.

Argentina. The Argentine economy is notorious for its boom and busts. The country last defaulted on its debt in 2002, but enjoyed economic improvements through most of this decade. During that last financial crisis, citizens staged protests known as cacerolazos, which means "banging of pots and pans," but the demonstrations resulted in broken windows and fires. Argentina has not seen that kind of violence stemming from the current financial crisis yet, but foreign investors are worried the economy is back to "bust" mode. CMS Datavision ranks Argentina as having the third most expensive credit derivatives in the world. Right now, Markit composite prices show an annual cost of $3.2 million for an investor to buy protection against $10 million of Argentina's sovereign debt. Moody's rates Argentina's sovereign bonds as B3, meaning a high, speculative credit risk, and S&P as B-, meaning that more bad economic news for Argentina could lead to default. The Organization for Economic Cooperation and Development gives Argentina a seven, its riskiest classification rating.

Five Countries to Keep An Eye On

Latvia. Iceland isn't the only country that's seen massive protests against economic hardship. In January, a 10,000-strong demonstration in Latvia's capital, Riga, turned into a riot. Tremendous economic growth since the end of the Cold War earned Latvia its place as one of the "Baltic Tigers." GDP growth was 11.2 percent in 2006, for instance. But Latvia's Ministry of Finance forecasts a 14.9 percent drop in GDP this year. Latvia is getting a $7.5 billion emergency loan from the IMF, but the organization is sitting on part of the money because of the Latvian government's failures thus far to reform its budget. The past two years have seen the cost of Latvia's credit default swaps increase over one-hundred fold. Moody's rates Latvia's bonds as Baa1, or "moderate" credit risks, and projects that they could become riskier bets in the medium term.

Croatia. The country's beaches on the Adriatic Sea draw so many visitors that tourism is almost 20 percent of the country's GDP. But since the recession is taking a bite out of travelers' pocketbooks, Croatia's economy is getting bitten as well. The government forecasts unemployment could rise as high as 12 percent this year. And a recent poll found that 78 percent of Croatians think the country is going in a bad direction, with unemployment cited as the primary reason. All this bad economic news might be one of the reasons S&P projects a possible rating decline for Croatia's BBB-rated bonds. The BBB rating means that Croatia does not have payment problems yet, but are in a position where their ability to pay for debt could be easily weakened.

Kazakhstan. While the Central Asian nation's GDP has grown in recent years, Kazakhstan has two problems that have created the potential for economic disaster: a reliance on foreign lending and a reliance on oil. Kazakhstan holds 3.2 percent of world's oil reserves. But the soaring oil prices that have boosted Kazakhstan's economy are no more, and investors have pulled money out of Kazakhstan in response. The cost of buying protection against Kazakhstan's debt has skyrocketed about 75 percent during the past year. The cost is back up to a peak reached in October, and it currently costs $875,000 a year to insure $10 million of Kazakhstan's debt. S&P has a negative outlook on Kazakhstan's BBB-rated sovereign bonds, meaning they could get riskier in the next six months to two years.

Vietnam. Unlike many of the other countries on this list, Vietnam has had some good news recently. The Asian Development Bank forecasted Vietnam's economic growth at 4.5 percent for the next year, the highest in Southeast Asia. Yet the country just registered its slowest economic growth in a decade. A survey found that 46 percent of Vietnamese were afraid of unemployment in January, up from 9 percent in September. Both Moody's and S&P have a negative outlook for Vietnam's sovereign bonds. The price of its sovereign derivatives has almost doubled in the past year. Vietnam falls into the riskiest of the five tiers as rated by AM Best. In particular, the firm identifies Vietnam's financial system, plagued by "relatively poor infrastructure and cumbersome bureaucracy," as "very high" risk.

Belarus. Minsk, the capital of Belarus, was mostly destroyed during World War II and much of the city was rebuilt in the form of hulking, utilitarian, Soviet-style buildings. Belarus also retains a heavy Soviet influence in its financial system--all but one of the country's 31 banks is controlled by the state, according to AM Best. Because of Belarus's failure to reform its financial system, the firm gives the country its highest score for financial risk. Even though Belarus scores relatively well for political stability, that economic rating is enough to push it into the riskiest of the report's classifications.

Belarus's problems aren't just speculative. Although its economy is still growing, the IMF expects it will expand 1.4 percent this year, compared to 10 percent last year.The country's government has also been approved for a $2.46 billion IMF loan. But the IMF now forecasts that the country will need a further $10.7 billion in 2009. Still, other experts disagree about just how fragile Belarus's economy is. Its bonds are rated as B1 from Moody's, meaning high credit risk but also at the top of the pack of the high-risk countries.

Long Odds? Three Scenarios for the Economy's Path

by David Wessel

There is no doubt where the economy is now. "By any measure, this downturn represents by far the deepest global recession since the Great Depression," the International Monetary Fund declared Wednesday.

But there's more than the usual uncertainty about where it is going. The key is the U.S. Even though its slice of the world economy is smaller than it once was, it's still huge. The U.S. led the world into the abyss, and it will lead the world economy out of it.

But how fast and when?

The alphabet can help to imagine the possibilities and the path of the economy. There's the letter V: the kind of quick rebound that usually follows a deep recession. Or U: a longer recession and slow recovery. There is L: years of painfully slow growth. And W: a temporary upturn as the economy feels the jolt of fiscal stimulus that quickly wears off. Finally, there's the big D, not the shape but another Great Depression.

With history a guide, consider three starkly different scenarios.

The V

The late Victor Zarnowitz, a student of the business cycle, had a rule: "Deep recessions are almost always followed by steep recoveries." The mild recession of the early 1990s and early 2000s were followed by mild recoveries. But the U.S. economy grew faster than a 6% pace in the four quarters after the deep 1973-75 recession and faster than a 7.75% pace after the even deeper 1980-82 downturn.

"In deep recessions," says Michael Mussa of the Peterson Institute for International Economics, "there is usually a growing sense of gloom as the recession deepens." Then the forces that triggered recession -- say, plunging home prices -- abate. The adrenaline of tax cuts and government spending kicks in. With inventories so lean, the slightest uptick in demand prompts a sharp increase in production, and the natural dynamism of capitalism reasserts itself.

"Experience suggests all of this should work, and I believe it will," Mr. Mussa predicts. Governments have administered huge doses of fiscal and monetary stimulus. Home-building and car-buying are so low they can't fall much further. Many consumers shy away from buying because they're frightened, not broke, and that state of mind can change quickly and liberate pent-up demand.

But the Federal Reserve caused the deep recessions of the 1970s and 1980s when it put its foot on the brake to stop inflation; it ended them when it let up. This time, Fed has its foot to the floor and the economy is still slowing. And so much stock-market and housing wealth has evaporated that a quick turn in consumer spirits seems unlikely. Plus, the repair of the banks remains far from complete, restraining lending.

The odds of the V: 15%.

The Big D

If one asked a roomful of economists two years ago to put odds on a repeat of the Great Depression, nearly all would have said zero. In early March, The Wall Street Journal posed the question to about 50 forecasters -- defining depression as a decline in output per person of more than 10%, four times worse than the decline the IMF anticipates. On average, they put odds at one in seven; several put them above one in four.

"This is a Depression-sized event," says economic historian Barry Eichengreen of the University of California at Berkeley, citing the global decline in industrial production and world trade. The big difference: In 1929, governments dithered, or worse. In 2009, they've rushed to the rescue.

To go from today's deep recession to a depression something would have to go wrong. It could be a financial catastrophe on the scale of last fall's bankruptcy by Lehman Brothers or another panic-inducing event. Or a crash in the dollar, one that forces interest rates up at just the wrong moment. Or it could be political gridlock that stops governments in the U.S. or Europe from spending enough to fix the banks before a big one fails, or keeps them for doing more on the fiscal or monetary fronts as the economy deteriorates.

Or it could be virulent deflation that pulls down prices and incomes, making debts, which don't fall when prices do, a heavier burden. The textbook remedy is easy money and big government deficits. But so much of that has been tried it's easy to question its efficacy or to imagine resistance around the world to doing.

The odds of the big D: 20%.

The L

For a decade after its stock market and real-estate bubble burst in 1990, Japan bumped along at an annual growth of just 0.5%. It was dubbed the Lost Decade, and it could happen here. The recession ends but the economy plods along, growing too slowly to bring down unemployment for years.

As the IMF observed this week, recoveries following recession caused by financial crises are "typically slower." Those following recessions that occur simultaneously across the globe "have typically been weak." Back in the 1990s, as U.S. banks struggled, the Fed talked a lot about "financial headwinds." Those were zephyrs compared to the gale-force winds that the economy confronts today.

If financial markets stabilize but don't improve steadily, or if housing prices continue to drift down, or if confidence remains shaky, the U.S. economy could languish for a time. American consumers, once known for spending in the face of prosperity or adversity, could finally decide to prepare for retirement by saving more, having just learned that neither 401(k) retirement accounts nor home values rise inexorably. And the U.S. can't count on increasing exports, the solution when emerging-market economies run into financial trouble and the reason Japan didn't do even worse in the 1990s. The rest of the world is in no shape to buy.

An unfolding depression could scare Congress to act boldly, but the L is less ominous -- and perhaps more likely as a result. There would be months when the economy appeared to be strengthening so the temptation to wait-and-see would be strong.

Put the odds of the L at 55%. That adds to 90%. So put 10% odds on the U, less pleasant than the euphoric V but far less painful than a Lost Decade. That's the rough consensus of economic forecasters; it means U.S. unemployment grows for another year and a half.

Bottom line: The odds favor a long slog.

Thursday, 23 April 2009

Home prices to fall more

BUYERS snapping up homes in recent weeks may be jumping into the market way before it has reached the bottom, says new research.

Real estate consultancy DTZ is tipping a gradual property market recovery only from the middle of next year so people buying now could be spending more than they need to.

The firm bases its view on a new report from its Asia Forecasting unit. This shows how a slump - or recovery - in the stock market is always mirrored in the property market, but only after one or more quarters.

Or to put it more bluntly: the housing market will not recover until at least one quarter or even a year after the stock market recovers.

And as any stock market investor knows, the Straits Times Index is well down on its 2007 peak, even though it has gone up slightly recently.

'The STI reflects people's view of the economy so its recovery will really depend on clear signs of an economic recovery,' said DTZ's senior director, consulting & research, Ms Chua Chor Hoon.

Experts have long noted that a recovery in the stock market typically precedes an economic recovery, with a recovery in the property market after that.

'It's all corelated in one way or another. The stock market is usually the earliest indicator but it's not hard and fast... its timing might be off,' said Daiwa Institute of Research analyst David Lum.

DTZ's study also underlined the high levels of unsold stock held by developers, another drag on prices and an eventual recovery.

DMG & Partners Securities investment analyst Brandon Lee sees the property market bottoming out only in the first half of next year.

Wednesday, 22 April 2009

Geithner says crisis unprecedented in modern times

Martin Crutsinger, AP Economics Writer

WASHINGTON (AP) -- Treasury Secretary Timothy Geithner said Wednesday the United States bears a substantial share of responsibility for a global economic crisis that could cost the world up to $4 trillion in lost output this year alone.

While the crisis started in the U.S., Geithner said its damage has spread widely with serious challenges facing much of the globe.

"Never before in modern times has so much of the world been simultaneously hit by a confluence of economic and financial turmoil such as we are now living through," Geithner said in remarks to the Economic Club of Washington.

Geithner cited the International Monetary Fund's new economic forecast Wednesday that projected global economic output will fall 1.3 percent this year, the first decline in more than six decades. Compared with a normal global growth rate of 4 percent, the lost output could amount to as much as $3 trillion to $4 trillion, he said.

Still, there are tentative signs the severity of the downturn was beginning to moderate. Some measures of consumer spending and industrial output had started to stabilize and financial conditions had improved "modestly," Geithner said.

It also was encouraging that the U.S. and other countries had responded with unprecedented speed and force to deal with the crisis, but going forward it will be critical for countries not to relent in their efforts to boost economic growth and stabilize their financial systems, he said.

"The actions now in place and in the pipeline offer the strongest basis for confidence that we will begin to lay the foundation for global recovery," Geithner said.

The plan put forward by the Group of 20 major industrial countries and developing nations in London on April 2 offered a solid basis for support, and finance ministers meeting this weekend would be seeking to build on those commitments, he said.

Following his speech, Geithner avoided directly answering a question about the chances the government will be able to recoup the $182 billion in support it has provided to troubled insurance giant American International Group Inc.

Geithner called AIG an "extraordinary challenge," but said that the government-installed managers were working hard to "help improve the odds that the taxpayer is repaid."

Global economy is expected to shrink this year

WASHINGTON (AP) -- The world economy is likely to shrink this year for the first time in six decades.

The International Monetary Fund projected the 1.3 percent drop in a dour forecast released Wednesday. That could leave at least 10 million more people around the world jobless, some private economists said.

"By any measure, this downturn represents by far the deepest global recession since the Great Depression," the IMF said in its latest World Economic Outlook. "All corners of the globe are being affected."

The new forecast of a decline in global economic activity for 2009 is much weaker than the 0.5 percent growth the IMF had estimated in January.

Big factors in the gloomier outlook: It's expected to take longer than previously thought to stabilize world financial markets and get credit flowing freely again to consumers and businesses. Doing so will be necessary to lift the U.S., and the global economy, out of recession.

The report comes in advance of Friday's meetings between the United States and other major economic powers, and weekend sessions of the IMF and World Bank. The talks will seek to flesh out the commitments made at a G-20 leaders summit in London last month, when President Barack Obama and the others pledged to boost financial support for the IMF and other international lending institutions by $1.1 trillion.

The IMF's outlook for the U.S. is bleaker than for the world as a whole: It predicts the U.S. economy will shrink 2.8 percent this year. That would mark the biggest such decline since 1946.

Among the major industrialized nations studied, Japan is expected to suffer the sharpest contraction this year: 6.2 percent. Russia's economy would shrink 6 percent, Germany 5.6 percent and Britain 4.1 percent. Mexico's economic activity would contract 3.7 percent and Canada's 2.5 percent.

Global powerhouse China, meanwhile, is expected to see its growth slow to 6.5 percent this year. India's growth is likely to slow to 4.5 percent.

All told, the lost output could be as high as $4 trillion this year alone, U.S. Treasury Secretary Timothy Geithner estimated.

Besides trillions in lost business, a sinking world economy means fewer trade opportunities and higher unemployment. It raises the odds more people will fall into poverty, go hungry or lose their homes. And while keeping a lid on interest rates and consumer prices, the global recession increases the risk of deflation, which would drag down prices and wages, making it harder for people to make payments on their debt.

The jobless rate in the United States is expected to average 8.9 percent this year and climb to 10.1 percent next year, the IMF said.

In Germany, the jobless rate is expected to average 9 percent this year and 10.8 percent next year. Britain's unemployment rate is projected to rise to 7.4 percent this year and to 9.2 percent next year.

Brian Bethune, economist at IHS Global Insight, estimates that at least 10 million jobs could be lost this year, mostly in the United States and Europe, because of sinking global economic activity.

He and other economists said the 1.3 percent projected decline would be the first in roughly 60 years. In a report issued in mid-March, the IMF predicted global activity would contract this year "for the first time in 60 years," though it didn't offer a precise estimate then.

Next year, the IMF predicts the world economy will grow again -- but just 1.9 percent. It said this would be consistent with its findings that economic recoveries after financial crises "are significantly slower" than ordinary recoveries typically are.

All those factors tend to weigh against prospects "for a speedy turnaround," the IMF said.

In 2010, the IMF predicts the U.S. economy will be flat, neither shrinking nor growing. Germany's and Britain's economies, meanwhile, will shrink less -- by 1 percent and 0.4 percent respectively -- it estimates.

Others countries, such as Japan, Russia, Canada and Mexico are projected to grow again. And China and India should pick up speed.

The financial crisis erupted in the United States in August 2007 and spread around the globe. The crisis entered a tumultuous new phase last fall, shaking confidence in global financial institutions and markets. Total worldwide losses from the financial crisis from 2007 to 2010 could reach nearly $4.1 trillion, the IMF estimated in a separate report Tuesday.

The crisis has led to bank failures, wiped out Lehman Brothers and forced other big institutions, like insurance giant American International Group, to be bailed out by U.S. taxpayers.

And it's triggered radical government interventions -- such as the United States' $700 billion financial bailout program and the Federal Reserve's $1.2 trillion effort to lower interest rates and spur spending.

Actions by the United States and government in other countries have helped ease the crisis in some ways. But markets are still not operating normally.

The 185-nation IMF, headquartered in Washington, is the globe's economic rescue squad, providing emergency loans to countries facing financial troubles. It has urged countries to take bolder actions to bolster banks.

The IMF also has pushed countries to work more closely together. It favors coordinating fiscal stimulus efforts through tax reductions or greater government spending to stimulate the appetites of consumers and businesses. And it warned countries to resist the temptation of enacting protectionist trade measures.

"Fiscal policies had made a gigantic difference," said IMF Chief Economist Olivier Blanchard. Without them, the hit to the global economy would have been much greater and pushed it perilously close to "a depression," he added.

Because the world economy won't be back to normal next year or perhaps even in 2011, Blanchard urged countries to spend money on big public works projects -- something the Obama administration is doing -- to bolster activity.

Bold policy actions could set off a mutually reinforcing "relief rally" in financial markets and a revival in consumer and business confidence, the IMF said in its report. But it remains concerned that these policies won't be enough to break the vicious cycle whereby deteriorating financial institutions feed, in turn, weaker economic conditions.

"The problem is that the longer the downturn continues to deepen, the slimmer the chances that such a strong rebound will occur, as pessimism about the outlook becomes entrenched and balance sheets are damaged further," the IMF said in the report Wednesday.

With the global economy stuck in a recession, the risks of a dangerous bout of deflation -- a prolonged decline in prices that can worsen the economy -- has risen. The IMF cited a "moderate" risk of deflation in the United States and in the 16 countries that use the euro. It saw a "significant likelihood of deeper price deflation" in Japan.

Smart Money Moves for Young Investors

By Ben Levisohn

At a conference on financial literacy on Apr. 20 in Chicago, Federal Reserve Chairman Ben Bernanke said it was time for Americans to learn to manage their money. Ramit Sethi couldn't agree more. The 26-year old personal finance guru has made it his mission to help Americans do just that and he tries to make it as simple as possible. In his new book, I Will Teach You to Be Rich, and on his blog of the same name, Sethi shows twentysomethings how they can automate their financial decision-making and learn how not to overanalyze. This is especially true when it comes to investing. He says money should be automatically diverted to investment accounts, then automatically invested and rebalanced, according to a set calendar. Sethi met with BusinessWeek's Ben Levisohn on Apr. 17 to discuss how fearful investors can get started in this vexing environment.

You're only 26. How did you start investing?

When I was in high school, I applied for a number of scholarships because my parents told me we had to. The first scholarship, for $2,000, was written to me and I invested it in the stock market. This was back in 2000. I lost a lot of money. I still have some of those stocks. One is worth 90% in total. I probably lost 99% of that money. That was a great eye-opener. It made me realize that just because you see a stock on TV that does not mean you should invest in it. Just because you're wearing clothes from Gap (NYSE:GAP - News) doesn't mean it's a good investment. That's when my eyes started to open. But if you ask most people, "hey, what investments do you have," they say, "you mean stocks?" Which causes me to throw my hands up in the air.

So you're not a big believer in buying individual stocks. How should people invest?

I want to reduce choice and encourage people to invest. For most, a target date fund is perfect. That's the 85% solution. It's not perfect, but it's good enough. There's no need for people to rebalance by themselves. The fact that we have 60- to 70-year olds losing 50% of their money speaks volumes that just because you should rebalance your investments, it doesn't mean you will. Just like you should practice safe sex does not mean you will.

But what if investors want a little more control?

If you really want to tweak it, if you're a type-A nerd and you're reading about all different asset allocations, then let me show you how to do this. Here's a recommendation: the Swensen model, by Yale's Chief Investment Officer David Swenson. Take this and tweak it as needed. (The Swensen Model allocates 30% to domestic equities, 15% to developed world international equities, 5% to emerging-market equities, 20% to real estate funds, 15% to government bonds, and 15% to TIPs.)

But we need to build systems around automating rebalancing so people are not depending on more will power. Investing and personal finance -- we've shown that it's not about more will power. It's about creating systems that do this by default for us.

So you wouldn't recommend trying to time the market?

There are people now who pulled their money out. And when the market comes up, they will be some of the last that get in. It drives me crazy. They think this is binary. You either put money in the market or pull it out. That's not how investing works. There are so many gradations and nuances. You can change asset allocation, you can diversify differently, you can change your time horizon. There are a million things you can do. If you try to time the market, then you are a fool. I'm trying to focus on the long term. I really believe in investing for the long term.

Have you changed your outlook because of the bear market?

I was given the opportunity to completely revamp the book in light of the crisis, but the material stands on its merits. What I tell people is that what's in the newspaper today and what President Obama decided to do today has very little to do with your personal finances. Personal finances are personal. You can turn off your TV, close down all the Web sites for the next six weeks, and your finances, if you optimize them, would get much better regardless of what happens.

Young investors have watched their parents lose a good chunk of their retirement savings. What do you say to them to coax them into the market when they may feel like socking away their cash in a mattress?

Although it seems catastrophic, we're in our twenties and thirties and essentially the market is on sale. If I told you one year ago that the market would be 50% off for the same equities you're buying now, what would you have said? The answer, of course, is I would have been ecstatic. Now there's a lot of psychology and uncertainty involved and that's changing things.

How have your investments done in this environment?

I'm roughly indexed, so I was basically in line with the market.

Did you expect these kinds of losses?

I was surprised. The models don't predict this loss typically. We know there are a lot of problems with models. But as a young person, I'm comfortable knowing I can afford that kind of risk. I was consciously invested and am still consciously invested in a risk seeking way. My readers in their twenties and thirties who are invested are interested in the same. They understand this is a long-term play. They understand there are trade-offs. I'm comfortable knowing that not only do I have a long-term perspective, I'm comfortable managing money, earning more, so it can flow back into my infrastructure.

They're Hiring!

by Christopher Tkaczyk and Julianne Pepitone

As many big companies are announcing mass layoffs, these Fortune 100 employers have at least 150 openings as of mid-April.

It's no secret that many big companies are announcing mass layoffs and pay cuts in the recession. With 5.1 million jobs lost nationwide since 2008, and the current unemployment rate at the 25-year high of 8.5%, it's easy to feel down about the battered labor market.

But the job prospects aren't entirely bleak. We looked at the top 100 of this year's Fortune 500 list and found 28 with at least 150 job openings as of mid-April. Some, like Wal-Mart, say they're hiring thousands of people to staff new locations. Others, like Motorola, have hundreds of positions open in a variety of fields: engineering, sales, finance, marketing and project management.

Brush up the résumé and iron the suit. Your next job could be a click away.

1. Wal-Mart Stores

2009 Fortune 500 rank: 2

Headquarters: Bentonville, AR

Number of job openings: Thousands

What they're looking for: To staff new locations, Wal-Mart is hiring store managers, human resource managers, pharmacists, customer service associates and cashiers, among others.

2. Hewlett-Packard

2009 Fortune 500 rank: 9

Headquarters: Palo Alto, CA

Number of job openings: 150*

What they're looking for: HP is hiring in several areas of its businesses, including information technology, human resources, research and development, marketing, finance and administrative.

3. Bank of America Corp.

2009 Fortune 500 rank: 11

Headquarters: Charlotte, NC

Number of job openings: 1,860

What they're looking for: Positions are available in several areas including consumer banking, small business banking, credit cards, home loans, global banking, wealth management, technology, human resources, finance, communications, marketing and administration.

4. State Farm Insurance Cos.

2009 Fortune 500 rank: 31

Headquarters: Bloomington, IL

Number of job openings: 800+

What they're looking for: State Farm Insurance is hiring new insurance agents. There are positions in a variety of areas including claims and underwriting, finance, accounting and legal. The company aims to add 800 to 1000 new agent positions across the country, specifically in the Northeast, Texas and California.

5. WellPoint

2009 Fortune 500 rank: 32

Headquarters: Indianapolis, IN

Number of job openings: 1,225

What they're looking for: WellPoint is hiring health outreach specialists, nurse case managers, accountants, actuaries, claims representatives, customer care representatives, enrollment and billing representatives, account managers, marketing managers, business analysts and sales assistants.

6. Boeing

2009 Fortune 500 rank: 34

Headquarters: Chicago, IL

Number of job openings: 2,400

What they're looking for: Positions are available in various areas such as engineering, finance, communications, contracts, intellectual property, information systems, program and project management, operations, quality, marketing, supplier management and supplier quality, legal, business development and some administrative and support positions.

7. Microsoft

2009 Fortune 500 rank: 35

Headquarters: Redmond, WA

Number of job openings: 630*

What they're looking for: Positions are available in marketing, software development, customer service, information technology, operations, program management, small and medium business sales, software testing, administrative services, operations, user assistance and education, game design, content publishing, marketing communications, legal and finance.

8. MetLife

2009 Fortune 500 rank: 39

Headquarters: New York, NY

Number of job openings: 1,000+

What they're looking for: MetLife is hiring in the areas of information technology, human resources, finance, operations, call center, administration and sales (including individual policies, group, home loans - mortgage and reverse mortgages).

9. United Parcel Service

2009 Fortune 500 rank: 43

Headquarters: Atlanta, GA

Number of job openings: 3,070

What they're looking for: UPS is hiring part-time package handlers, mechanics, warehouse personnel, sales representatives and information technology professionals.

10. Medco Health Solutions

2009 Fortune 500 rank: 45

Headquarters: Franklin Lakes, NJ

Number of job openings: 300+

What they're looking for: There is selective hiring companywide. One division in particular, Liberty Medical, which serves the needs of patients with diabetes, is hiring for a number of customer service positions.

Copyrighted, CNNMoney. All Rights Reserved.

Worst-Case Scenario Survival Guide

by Amanda Gengler, Donna Rosato, and Penelope Wang

A grinding depression. Wild inflation. Endless unemployment ... How to deal with what could go very wrong.

So is this just a really, really bad year? Or the end of capitalism as we know it? These days it's all too easy to imagine almost anything happening to the economy. And to you.

You've probably already run the movie in your mind about the day you get the ax. Maybe you've even wondered if there's a point at which you'd just mail your house keys to the bank.

And then there's your portfolio. The words "great" and "depression" seem to be popping up together a lot more often. Is there something you should be doing? Like selling your stocks and burying cash and gold bars in the backyard?

Time to get a grip — not by ignoring the worst possibilities but by facing them head-on. Here, then, are answers to six ridiculously scary (but certainly not ridiculous) questions posed by today's economy.

Should I Prepare My Portfolio for a New Depression?

First, let's explain our terms. Economists broadly define a depression as a 10% drop in output and consumption. In the Great Depression our gross domestic product fell 25%. There are some frightening parallels between then and now: Banks are weak, and the economy is loaded up with debt. (See the graphic on the left.)

But historian Eric Rauchway of the University of California at Davis points to big differences too. Strange as it sounds, our financial system is vastly better regulated than it was then. Bank deposits are insured, and the Federal Reserve has taken an active role in trying to stem the crisis. Policymakers have in fact been trying to do everything their predecessors didn't — they're spending like mad, saving banks and loosening up money. (No guarantee that this will work, but it beats doing what clearly didn't work before.) Meanwhile, a social safety net adds stability to the economy that wasn't there in 1930.

That doesn't mean we're in the clear. Market crashes can increase the likelihood of a depression, says Harvard economist Robert Barro. Recently he and colleague Jose Ursua examined crashes and depressions in 34 countries. Based on that record, Barro puts the odds that the U.S. will slip into a depression at one in three, and the chances of another Great one at 6%.

Before you get out that shovel, remember that fear of a deep recession or depression has already pushed stocks down. Could they drop even further as the economy deteriorates? You bet. The stock market fell 25% in 1930 — and collapsed another 43% in 1931.

Then again, investors who bought stocks at the start of 1933 — with eight years of the Depression to go — earned an average of 9.4% a year over the next decade. It's hard to predict when the market will rebound, and it may happen well before the economic recovery is obvious. Try to time the turn, and you could miss a good chunk of the comeback gains.

But what if you just want all the risk out of your life now? You can switch to cash and high-quality bonds. Yields on Treasuries are low, but if consumer prices start to fall, as they did in the '30s, the real value of that income will be higher.

How much do you have to save to meet your retirement goals with bonds? Lots. Say you are a 45-year-old earning $100,000 with $250,000 stashed away. According to T. Rowe Price simulations, you'd need to save more than 40% of your annual income. If you can handle more risk than just bonds, Lou Stanasolovich of Legend Financial Advisers also recommends equity funds that can bet short — that is, make investments that rise in value when stocks fall.

What if High Inflation Makes a Comeback?

You've probably heard some scary talk about inflation lately. Sometimes the double-digit inflation of the 1970s is invoked; occasionally it's visions of Weimar Germany and people pushing wheelbarrows full of bills. The case for some future inflation isn't paranoid, but here again, it's tricky to position your investments for doomsday. For one thing, you'll have to decide which apocalypse to bet on.

If we actually get a depression (or a recession that comes close), the immediate to mid-range problem is likely to be deflation, which may be far worse than some inflation. Falling prices and falling wages can put the economy into what economic forecaster Gary Shilling calls a "self-defeating spiral." Consumers become reluctant to buy something today that will be cheaper tomorrow, and debts (like home mortgages) become tougher to pay off, further depressing demand. And some classic investments used to hedge against inflation — such as commodities — could lose you money during a depression/deflation cycle.

People warning of a return to '70s inflation or worse are often hawking gold investments. Gold is relatively easy to buy now (no vaults required), because you can use exchange-traded funds like SPDR Gold Trust. Except for run-ups during brief periods of high inflation or financial panic, however, gold has delivered lousy returns — on an inflation-adjusted basis, it's still trading far below its 1980 peak. "Gold is a purely speculative play, which offers no income and no guarantees," says Marilyn Capelli Dimitroff, a financial adviser in Bloomfield Hills, Mich.

All that said, for long-term investors inflation is a legitimate concern. Washington's spending and the Fed's easy money have Tom Atteberry, co-manager of FPA New Income fund, predicting that inflation will heat up in three to five years.

A diversified fund that invests in commodity-producing companies, such as T. Rowe Price New Era, could give you a hedge against rising prices without the extreme volatility of gold.

Treasury Inflation-Protected Securities, or TIPS, are an even easier call. Their principal is adjusted to keep pace with consumer prices, and they're cheap now because the market is still worried more about deflation. Unlike gold, the only way TIPS won't keep pace with inflation is if the U.S. defaults — and if that happens, you may be better off buying canned food and armor-plated doors.

Is it Ever a Good Idea to "Walk Away" From a Mortgage?

For all too many Americans this isn't even a question — they simply can't come up with their payment this month. But others face a complex tradeoff. Perhaps you can squeak out the monthly payment but have to turn down a better job in another town because your mortgage is too far underwater for you to sell your home. Maybe you're so far away from ever breaking even on the house (see chart above, right) that you just can't stand to keep throwing money at it. "Some people will find walking makes sense," says Dean Baker of the Center for Economic and Policy Research.

We'll leave the ethical implications of not paying a debt up to you. Here are the purely economic costs you'll have to weigh. First, there's your credit score. If you have a good score, it most likely will drop more than 100 points, according to credit scorer FICO, and the mark stays on your report for seven years. You'll be hard-pressed to buy again anytime soon.

And you should remember that potential employers and landlords may see your credit record, although some of the stigma of losing a house may be wearing off now that we're Foreclosure Nation. Compared with foreclosure, a short sale — where the lender lets you sell the house for less than you owe — might make it a bit easier to get a future mortgage. But it is likely to do just as much damage to your numerical credit score, according to FICO.

Then there are taxes. In the past, if a lender forgave a mortgage, you typically had to pay tax on that amount. A new law offers relief from most of those federal taxes. But it's only for a primary residence, and if you borrowed against the house for anything besides home improvement, you'll still owe tax on that part, says Mark Luscombe of tax publisher CCH.

Also, depending on your state's law and your type of mortgage, your lender may be able to go after you for the money. It is uncommon, but as the crisis grinds on, banks may get tougher. Consult an attorney and tax professional before making a decision.

And check the rental market in your area. You may not save as much as you'd think, especially after figuring in taxes and the burden of poor credit.

I Don't Have Much of an Emergency Fund if I Lose My Job. What Do I Do Now?

You need backup cash like never before. It's taking people longer to find work — a middle-aged worker now can expect an average of six months to rebound from a layoff, according to Moody's Economy.com. And if you have a very senior position it could take longer. So ideally you would have a year's worth of expenses saved, says Chicago-area financial planner Donald Duncan.

Whoa. A year? Even if you're halfway there, the recession will (we hope) be over before you can get all that money together. But don't let that paralyze you. You can get further along faster by halting contributions to your 401(k), IRAs, and college savings, and funneling that money into a high-yield savings account. "You can always turn those back on," says Duncan.

You also want to take a hard look at your 401(k) and IRA investment mix. Tapping retirement accounts for living expenses should be your very last resort, but if you have little or no other savings, you should face the possibility that things could come to that if you are laid off.

Before an emergency strikes, figure out what a year's worth of expenses will be. Subtract what you already have saved and what you might get from unemployment, severance, and possibly family. Whatever is left over might have to come from your retirement accounts. Remember, unless you borrow from a working spouse's 401(k), you'll have to pay federal and state taxes and a 10% penalty on anything you take out of a 401(k) or traditional IRA early. (Like we said, last resort.)

Figure out how much you need to protect, and shift it into money markets or bonds. Perhaps the only thing worse than drawing down your retirement fund early is needing to do so and finding out there's no longer enough there.

I'm Sure I'll Get Laid Off. How Do I Fight for My Severance?

First, resist the inevitable urge to slack. This is not the time to back off from a big project — if you can embed yourself in that one last critical task, you may be able to stick around longer. (Ask an AIG trader how this works.) When the hook does come, don't resign yourself to taking whatever they give you, and don't sign anything until you've figured out your strategy.

Start by collecting office scuttlebutt. Find out what other employees got in their packages and what your manager's goals for this layoff are. If he's been ordered to reduce headcount rather than hit cost numbers, for example, you may have a better chance of sweetening the deal.

Haggle as much as possible with your boss, not the HR guy whose job is to gently push people out the door. To be blunt, guilt works better on your manager. "The only way to get more is to negotiate with someone who knows you and is willing to go to bat for you," says Lee E. Miller, an employment lawyer and author of Get More Money on Your Next Job ... in Any Economy.

You will probably have more leverage if you are part of a legally protected group, which includes being over age 40. Be subtle — you aren't threatening a lawsuit, just signaling that you know your rights and you aren't a pushover, says Miller. Start with these five magic words: "I just want what's fair."

Banks, Insurers, and Investment Firms Are All in Trouble. How Safe Are My Assets?

You have money stashed in lots of different accounts, so there's a good chance that a company you do business with will end up in the headlines for its financial woes. But you have some key protections.

Copyrighted, CNNMoney. All Rights Reserved.

Robust profits mask problems in bank sector

WASHINGTON (AFP) - - A string of surprisingly strong earnings reports suggests US banks are emerging from a near-death experience, but some analysts say the troubled sector faces more pain.

Bank of America on Monday joined the parade of financial firms reporting robust results -- a profit of 4.2 billion dollars in the first quarter, beating its performance for all of 2008.

Last week, Citigroup, JPMorgan Chase and Goldman Sachs all topped expectations with strong profits, a hopeful sign for an industry critical to recovery from the severe recession. Wells Fargo said its results would show "record" profits in the January-March quarter.

The apparent renewed health of banking sector comes in part from record-low interest rates from the Federal Reserve, which has cut its base rate to near zero as part of an effort to stimulate lending and growth.

"The banks are benefitting from a jump in mortgage refinancing as well as the fact that with interest rates so low, they are able to borrow cheaply and therefore profit more from lending," said John Wilson at Morgan Keegan.

"It ought to be difficult for a bank not to make money in this environment."

But banks are also setting aside large chunks of cash for bad loans, suggesting they anticipate more mortgages and credit card debt may sour.

Bank of America for example added a hefty 6.4 billion dollars to its loan loss reserve. Citigroup charged off some 4.6 percent of its loans.

Although Citi managed to show a profit of 1.6 billion dollars in the first quarter after losses of more than 18 billion in 2008, some analysts were unimpressed.

Citi's results included "several one-time items which muddied the waters in assessing the franchises underlying performance," said Goldman Sachs analyst Richard Ramsden.

Some analysts say that below the surface, banks are still fragile and may face another round of deep problems ahead, especially if the economy remains weak.

Martin Weiss at Weiss Research called the surge in earnings "bogus," and a result of tricks including an easing of mark-to-market accounting rules.

"Regulators have now agreed to let banks cover up their toxic assets by booking them at fluffy-high values, bearing little resemblance to actual market prices," he said. "Like magic, the bad assets are suddenly worth more."

Leahey said most banks have written off troubled mortgage securities but now face issues with rising defaults on other loans and credit cards.

"Banks are making money in traditional business lines but that could be swamped by a second tidal wave of losses tied to the economy," Leahey added.

Skewing bank results, say analysts, has been payments from bailed-out insurer American International Group (AIG), which shelled out tens of billions of dollars to banks to cover soured investments or so-called credit default swaps.

Goldman Sachs, for example, received nearly 13 billion dollars from AIG before it posted a quarterly profit of 1.8 billion dollars.

"In the case of Goldman, the AIG payments dwarfed the positive earnings," said Bob Eisenbeis, economist at Cumberland Advisors. "That's the reason that people are justifiably skeptical about these earnings."

Eisenbeis said banks "have every incentive to squeeze a lot of positives into this quarter" to end the vicious cycle of falling asset and stock prices that has led to a death spiral for some institutions.

Some skeptics say AIG, which has gotten a US government bailout worth some 180 billion dollars, is being used to "funnel" cash into the banking system.

"Anybody owed money by AIG got bailed out 100 cents on the dollar, and some people don't thing that is fair," Leahey said. "But you cannot not avoid paying 100 cents on the dollar without going to bankruptcy court."

Robert Brusca of FAO Economics said AIG is indeed a funnel but possibly the only way to avert a calamity in the banking sector that would deal a further blow to the economy.

"If you didn't help AIG, then AIG would not be able to pay off the banks, and we would be stuck with a collapsing banking system," he said.

Brusca said it remains unclear how much AIG has helped the bottom line of the banks because earnings reports lack such details.

"We know the banks are very impaired, they have a lot of problems," he said. "And we know they will get worse as long as the housing problems get worse."

Tuesday, 21 April 2009

Roubini: 'Suckers Rally' to Fade Amid Economy Woes

Well-known economist Nouriel Roubini, one of the few experts to foresee the current global crisis, said Tuesday a recent "suckers rally" in stock markets would fade as the U.S. economy continues to wither and the financial system suffers unexpected shocks.

Hopes the world economy will stage a faster recovery this year have fueled a six-week rise in global markets, with major benchmarks on Wall Street and in Asia up more than 20 percent over just six weeks.

But Roubini, a professor at New York University's business school and former adviser at the U.S Treasury Department, was doubtful and predicted markets would test the lows seen in March.

"For people who say there are green shoots, I seen only yellow weeds frankly," Roubini said at a conference in Hong Kong. "It's not a true recovery. It's just a bear-market rally, it's a suckers rally."

That's because the U.S. economy won't grow again until 2010 after contracting by 2 percent this year, he said. Unemployment will hit 11 percent next year and corporate earnings will come in worse-than-expected, he predicted.

Troubles in the financial sector, meanwhile, are far from over and will be worse than many expect. The results of the government's "stress tests" will show even the biggest 19 American banks don't have enough capital to cope with the huge losses they'll inevitably suffer on souring loans.

"The losses are much more than people are predicting and (the banks) have not reserved enough," Roubini said.

"It looks ugly for every one of those 19 banks, let alone the smaller ones," he added. "So it's going to be ugly for the financial system."

What we will miss about the prophets of doom

By David Marsh

For two years now, we have collectively gorged on tales of tears and deeds of downfall. If the bulls really are back and the economic and financial misery is about to end, here are 16 reasons why we will miss the gloomy times.

1. Role-play will be a lot less pleasurable. We have split the world into two pantomimic parts: the evil (the bankers) and the good (everyone else). In future, sorting out villains and victims will require more imagination.

2. The crisis has favoured inexpensive, socially constructive pastimes such as bird-watching, book-reading and communal needlework. More aggressive activities will soon be on the rise again.

3. The prophets of doom have had a field day. Yet we feel strangely comfortable with the Cassandras. We have enjoyed being told that the light at the end of the tunnel signals an approaching train. Now we will have to get re-acquainted with the optimists – a much more dangerous and unsettling bunch of people.

4. During the recession we profited from empty planes, hotels, restaurants and buses. When recovery comes we will have excess demand again. The good life, when it returns, will be a lot more crowded.

5. Prices have been falling. Is that not what everyone always wanted? Now everything – from apples to yachts – will be going up again. And won’t we now all start suffering from the Great Inflation? What would you rather have: Austerity Britain or Weimar Germany?

6. The central banks have become the people’s friends, with even the European Central Bank cutting interest rates. Not long from now, rates will be rising again. Goodbye to bargain-basement banks, dirt-cheap consumer credit and rock-bottom mortgages.

7. Many high street stores selling goods that no one wanted to buy have closed, prompting art galleries and other edifying enterprises to move in to the vacant sites. Alas, all these shops peddling tawdry knick-knacks will be back with us again.

8. People have started to eat less. Obesity has been on the decline. There has been a boom in home-grown vegetables. Once the economy starts to grow again, the nation’s health will plummet.

9. Dinner party talk of house price rises will return. People will no longer be ashamed of being estate agents. Sons and daughters will again want to go into investment banking rather than eco-farming.

10. We will have to get used to a new, painful jargon. “Quantitative easing” was bad enough. The vocabulary of recovery is still less elegant. Prepare for the central banks selling their enormous holdings of government bonds to drive up interest rates. Practise saying “quantitative firming”.

11. Service blossoms in a downturn. Waiters wait, usherettes usher, doormen open doors. GDP growth = general grumpiness.

12. It is good to have scapegoats. We have been delighted to blame the mess on George W. Bush, the former US president, and Gordon Brown, the UK prime minister. Now President Barack Obama will take all the credit for the upswing. He may become slightly smug. The upshot: anti-Americanism will surge.

13. Energy use will rise again. With a good strong depression under way, we thought we had global warming licked. Not so! We will have to endure a new and mighty role for Opec and the sprouting up everywhere of new nuclear power stations.

14. Reining in the Russians will be more difficult when the oil price starts to push through $100 a barrel. So it will be scowls, not smiles, from President Dmitry Medvedev. And let’s not even think of how the Iranians will start to behave.

15. The bane of the 21st century – current account imbalances – has been coming nicely under control. Now all this will be out of control again. The dollar will plummet. Worse news, the foreign exchange dealers will run out of other currencies to sell it against.

16. China will really start to throw its weight around when its export motor goes back into overdrive. Mandarin will be the new official language of the European Union. Forget the SDR. The central bankers’ new official currency: the renminbi.

Once everything gets back to normal, we will soon begin to discern the green shoots of a new crisis. And it will be a lot worse than the 2007-09 version. Happy times!

The writer is chairman of London & Oxford Capital Markets. He is the author of The Euro: The Politics of the New Global Currency

Australia recession inevitable

MELBOURNE, AUSTRALIA - Prime Minister Kevin Rudd conceded for the first time Monday that Australia was heading for a recession, saying it was inevitable in the current global downturn.

"The worst global economic recession in 75 years means it's inevitable that Australia will be dragged into recession," Rudd told a jobs forum in Adelaide.

The prime minister has previously couched his language carefully when discussing how the downturn will hit Australia, refusing to use the word recession in the face of repeated questioning.

Instead, he had said it would be "virtually impossible" for Australia's economy to record positive growth amid the global financial crisis.

But he spelled out the challenge facing the economy unequivocally Monday, saying seven of Australia's top 10 trading partners were in recession and the country could not avoid the same fate.

"The severity of the global recession has made it impossible for Australia to avoid a further period of negative economic growth," he said.

Australia's last recession was in the early 1990s but the economy posted its first negative growth figures for eight years in the final quarter of 2008, and is expected to do the same in the first three months of 2009.

That would officially tip Australia into recession, usually defined as two consecutive quarters of negative growth.

Rudd said the government was addressing the issue through economic stimulus packages worth more than 50 billion Australian dollars (31 billion US).

"The challenge for government is to cushion the impact of recession on business and jobs, through the actions we take, through economic stimulus strategy," he said.

The stimulus includes one-off cash payments of up to 900 dollars to more than seven million taxpayers, as Rudd's centre-left Labor government's attempts to kickstart spending.

It also includes spending 28.8 billion Australian dollars on schools, housing and roads over four years and tax breaks for small businesses.

Rudd said expansionist stimulus policies were a better way of dealing with the global recession than protectionism.

"If there's one core lesson to learn from the events of the 1930s, it's this - when you are faced with a synchronised global economic recession, don"t make it worse by erecting protectionist barriers against one another, because you take what is already a bad situation and make it much, much worse," he said.

"You shrink the global economy even more. You shrink jobs even more. You shrink those businesses which here depend on exports for their survival."

Rudd also defended the government's decision to guarantee bank deposits and inter-bank loans, saying it ensured Australian banks retained lines of credit in global markets.

"If I look at the comparisons between the stability of our financial system in the months since then against what has occurred in so many economies around the world, this was the right thing to do," he said.

Rudd's comments coincided with the release of official data showing the producer price index - the wholesale prices paid by business - fell for the first time in six years.

The index fell 0.4 percent in the March quarter after rising 1.3 percent in the previous three months, the Australian Bureau of Statistics said, upsetting economist predictions of an 0.6 percent rise.

Analysts said the figures indicated that March quarter inflation data due out Wednesday would show prices were under control, giving the Reserve Bank of Australia room to cut interest rates further.

The central bank has slashed rates from 7.25 percent to a 49-year low of 3.0 percent since last September in a bid to stimulate demand.

U.S. recession seen likely to go through summer

WASHINGTON (Reuters) - A key gauge of future economic activity fell for the third month in a row in March, showing the recession may persist through the summer, a nonprofit research group said on Monday.

The Conference Board's Leading Economic Index declined 0.3 percent last month, steeper than the 0.2 percent analysts polled by Reuters were expecting. It also fell 0.2 percent in February, which was originally reported as a 0.4 percent drop.

"The recession may continue through the summer, but the intensity will ease," said Ken Goldstein, an economist at the Conference Board, in a statement.

The index has not risen in the last nine months. In September and December it was unchanged and it experienced the largest drop during that period in October, when it fell 1 percent.

Real money supply and the yield spread both showed strength in March, but not enough to counterbalance the drag of building permits, stock prices and supplier deliveries.

Over the last six months, the index has fallen 2.5 percent, compared to the smaller 1.4 percent drop for the previous six months.

The Coincident Index, a measure of current conditions, fell for the third month in a row, by 0.4 percent, primarily due to declines in employment and industrial production.

The Lagging Index, which provides a glimpse backward, has been on a downward trend since July 2007, the Conference Board said. Its 0.4 percent decline in March was caused by weakness across all of its components, which include duration of unemployment, inventory levels, and outstanding loans.

"There have been some intermittent signs of improvement in the economy in April, but the leading economic index and most of its components are still pointing down," Goldstein said.

(Reporting by Lisa Lambert; Editing by Neil Stempleman)

Analyst: Bank Hurricane Not Over -- We're in Eye of Storm

With several big banks reporting profits this quarter, pundits are saying the bank crisis is over. The DOW is up nearly 30% from its low, Goldman and other firms are rushing to pay back the TARP, and financial stocks have soared.

Keep dreaming, says Josh Rosner, Managing Director at Graham Fisher, an independent financial-services research firm.

Josh thinks the quarter the banks have just reported may be their best of the year. There's bad news looming just over the horizon, he says--when the loan loss cycle begins in earnest.

The deterioration of construction and development loans, the bread and butter of regional and community banks, will soon spread.

Says Rosner:

* “We’re about to see the loss cycle really start in earnest. I think that’s actually where the bank crisis spreads from the 19 or so of the largest banks into the 8500 banks in our country….”

* “I think that second half story hasn’t been accounted for in provisions heretofore very acceptably. And I think the loss rates are going to be staggering. And I think that’s where we going to realize that the crisis is redoubling upon itself.”

In order to put the banking crisis behind us, Josh says, the government will have to recognize that it can't save every bank. It will then have to draw a line in the sand--helping the strong firms and winding down the weak ones. At best, this process will take another two years.

Why Contrarians Make Money And Trend Chasers Lose Money

Simon Maierhofer

Don't you hate being left out? Going against the grain is usually the unpopular direction to go. Nobody likes to be the oddball out. For the sake of popularity, humans tend to conform to the general trend eventually, especially if the trend continues to persist.

As it turns out, when it comes to investing, being the oddball is much more profitable. Oddballs in the investment community are considered contrarians and contrarian investors have been one of the few to actually book profits over the past year or so.

If you are willing to exchange some of your trend conforming popularity in return for profitability (don't worry, making money will once again increase your popularity score), this article is for you.

Trend chasing - a losing proposition

Most investors - novices and pros alike - rely on news and news- based forecasts to make their buy/sell decisions. News is always good at the top and bad at the bottom. Excessively bullish news will trick you into the market before it falls, excessively bad news will squeeze you out of the market before it bounces.

Here are a few examples to illustrate what I mean: Equity mutual fund cash reserves reached an all-time low of only 3.5% just before the market topped in October 2007. This means that 96.5% of mutual fund managed assets got to participate in the decline that followed.

Broad index funds such as the Dow Jones (NYSEArca: DIA - News), S&P 500 (NYSEArca: SPY - News) and Russell 1000 (NYSEArca: IWB - News) lost over 50% from top to bottom. Most actively managed mutual funds did even worse. Why? Because fund managers based their decisions on positive news.

In the fall of 2008, the Federal Pension Benefit Guaranty Corporation shifted most of its $65 billion in assets from bonds to stocks and real estate. This move came just before the bear's attack intensified.

In 2007, companies belonging to the S&P 500 index spent a record $590 billion repurchasing their own shares. On average, this buy-back decision resulted in a 50% loss. Index components like General Electric (NYSE: GE - News) and JP Morgan (NYSE: JPM - News) did much worse than the broader market.

General Properties (NYSE: GGP - News), one of the largest mall operators in the states, had to file for Chapter 11 bankruptcy protection due to its aggressive and overleveraged expansion at the height of the real estate boom.

Yes, as the example of General Properties and once highflying homebuilders (NYSEArca: XHB - News) shows, trend chasing is actually the root cause for the financial and economic meltdown. The fear of losing out on profits caused even the most prudent investors and business men to throw caution to the wind.

As Ben Stein commented in the New York Times, nearly all of us are part of creating the prevailing trend, which inevitably turns against its creators. Ben noted that 'almost all economic pundits and soothsayers - whether on television, in newspapers, or at brokerage firms - are asked to tell the future. Some of them are stunningly well paid for their efforts, even though they are wrong decade after decade. Yet, we cry out for someone to tell us the future, like children who want to hear the end of the story.'

If you are looking for a crystal ball of what the future holds - as long as it relates to equities and economics - resisting your urges and swimming against the current is your best bet.

Easier said than done

As so often, this is easier said than done. Certain people, perhaps even prior contrarians with a stellar reputation and brilliant mind, may abandon their out of the box views and conform to the general trend tempting you to do the same.

Crispin Odey, a London hedge-fund manager who gained fame and money by shorting U.K. banks, has switched teams and is now cheering for the bulls. After being short for most of 2008, Mr. Odey started to accumulate bank stocks again earlier in 2009. The SPDR KBW Bank ETF (NYSEArca: KBE - News) is the U.S. cousin to U.K. bank stocks.

On a larger scale, even Mr. Roubini, one of the few economists who predicted the real estate meltdown and Mr. Soros, the billionaire investor who came out of retirement to steer his Quantum fund to an 8% gain in 2008, believe that the worst is over. Albeit slow, they expect an economic recovery to begin over the next year or two.

Like sand on the beach

Look around and you'll see that economic forecasts are as abundant as sand on the beach, and they are worth just as much. It is tough to find a precious gem (an accurate forecast) amidst worthless sand.

To further illustrate the folly of news and news based forecasts, consider this: On March 9th, the day the market bottomed, the Wall Street Journal featured an article called 'Dow 5,000 - There's a Case For It.'

True, there might be a case for it eventually (more about that below), but as it turned out, the market decided that March 9th was not the time and place in history.

In fact, just a few days earlier, on March 2nd, the ETF Profit Strategy Newsletter sent out a Trend Change Alert recommending ETFs that benefit from a rising market. Such ETFs included traditional broad market index ETFs, dividend ETFs, sector ETFs like the Financial Select Sector SPDRs (NYSEArca: XLF - News) and leveraged ETFs such as the Ultra Dow Jones ProShares (NYSEArca: DDM - News) and Direxion Large Cap Bull (NYSEArca: BGU - News).

Back to the folly of a news-driven market; Wells Fargo's (NYSE: WFC - News) positive earnings report sent stocks soaring last week while Goldman Sachs' (NYSE: GS - News) earnings surprise this week was greeted with indifference. If news drives the market, why does the market react differently to essentially the same piece of news?

The profit prophet

The ETF Profit Strategy Newsletter has often referred to the inverse effect investor sentiment tends to have on the market's performance. On December 15th for example, it noted the following: 'Optimistic sentiment, which should be more visible above Dow 9,000, will give way to further declines. At this point, the best target for a temporary low is 6,700 for the Dow and 700 for the S&P 500. Extreme pessimistic sentiment may drive the indexes even towards Dow 6,000 and S&P 600.'

The beginning of January, right about when investors started to feel comfortable with the market's future prospects again, proved to be the time to load up on short ETFs such as the UltraShort Dow Jones ProShares (NYSEArca: DXD - News), UltraShort MidCap ProShares (NYSEArca: MZZ - News), Direxion Large Cap Bear (NYSEArca: BGZ - News) and many more.

Economists and market analysts often use projected growth and earnings numbers as foundation for their forecasts. We have found that using projected numbers does not deliver accurate results. 'Projected' implies the possibility and often probability of change. Who wants to hear after the fact, 'sorry, we had to adjust our forecast because things got worse than expected?'

The market's built-in indicators

Most people don't know this, but the stock market has several built in indicators visible to the naked eye. Just like a fever is the body's way to let you know something's wrong, the stock market's internal indicators are telling investors whether its current valuations are 'healthy or sick.'

While it does take some common sense to interpret the market's symptoms, you don't need to be a Doctor or rocket scientist to figure them out.

Dividend yields, P/E ratios and investor sentiment are the market's way of letting us know what's going on. An analysis of the above three indicators reveals that the stock market does not bottom until dividend yields, P/E ratios and investor sentiment reach certain levels, just like your body is telling you that you won't be fine until your temperature calibrates back to about 98.6 degrees.

An in-depth analysis of the above three indicators along with the Dow Jones measured in the only true currency, gold is available in the March issue of the ETF Profit Strategy Newsletter. The results show that contrarians will continue to be the ones raking in profits.

Goldman Sachs Information, Comments, Opinions and Facts