Showing posts from June, 2009

The Great Recession is Over!

Dennis Kneale | CNBC Media & Technology Editor

I said it on our 8 o’clock show on Thursday and Friday and now I’ll put it in writing: This horrible Great Recession is over, right here and right now.

A spate of economic metrics supports this daunting prediction. We'll update this information and topspin it on CNBC Reports tonight at 8 p.m. I'll get to those numbers in a moment.

The more important factor, though, is how we FEEL.

I've said it before, let's put it on T-shirts: Capitalism is optimism monetized. As I put it in my "Parting Shot" on CNBC Reports on Friday night, hope is the magical elixir of capitalism.

And even here, the latest consumer sentiment numbers, out on Friday from the vaunted University of Michigan monthly survey, show that hope is on the rise.

Once we start to feel the risk of layoffs has passed, we will start spending more—consumers and companies alike. I reject the doomsday proclamations that the consumer psyche has been altered per…

Why Low Earners Relax More

By Rick Newman

If extra schooling seems like a lot of effort, get used to it--the smarter you are, the more hours you're likely to work.

It's obvious that there's a big pay gap between people who have more education and people who have less: Doctors and engineers with advanced degrees earn a lot more than high-school grads working blue-collar jobs. It turns out there's also a growing "leisure gap" between more- and less-educated Americans: The more schooling, the less time devoted to leisure.

In a new study published by the American Enterprise Institute, economists Mark Aguiar and Erik Hurst reveal some fascinating facts about how Americans of different educational levels spend their time. The average American adult spent about 32 hours a week working in 2005, the latest year for which data is available, and about 106 hours a week on "leisure," which includes sleeping, eating, watching TV, and most activities you'd think of as forms of relaxing. M…

Mountains of Debt: America's Economic Realities

Charles Wheelan, Ph.D.

Ben Franklin supposedly said that it's better to skip supper and go to bed hungry than it is to wake up in debt. Ben would be quite disappointed in us. We Americans didn't skip dinner; instead, we opted over the past decade to gorge at the buffet and then charge it.

We woke up as the world's largest debtor -- so deeply in debt that our global creditors are getting nervous, and rightfully so.

Here are some economic realities associated with our deepening fiscal hole.

It's bad. As in, $11 trillion bad. That number alone doesn't mean much, at least without context. So here is some context. First, that's roughly $40,000 for every man, woman, and child in the country. Second, our debt is projected to grow to roughly 100 percent of GDP by 2010, meaning that, if we were to devote everything we produce as a nation to paying down debt, it would take us an entire year to pay off what we owe.

Eating Up the Global Capital Pool

Other countries have become m…

Were the March Lows the Ultimate Market Bottom?

By Simon Maierhofer

As investors, we like to receive affirmation for our decisions. If you buy a certain stock or fund, it sure feels good to find out Warren Buffett did the same thing.

When it comes to owning stocks right now, there's certainly plenty of affirmation. Warren Buffett doubled down on his bet on America, the Fed sees the recession nearing a bottom, and Jeff Mortimer, CIO of Charles Schwab, says that the March lows are a text book bottom.

The ultimate judge however, is the market itself. The market does what the market wants to do, not what the Fed, Mr. Buffett, or anyone else thinks it should do (more about that later).

In an effort to find out where the market is headed, and whether the March lows will hold, we will examine the opinions of some of Wall Street's brightest minds and match those up against long-term indicators with a historic track record of accuracy.

Redemption for Warren Buffett

The 30% spike off the March lows must feel like redemption for Mr. Buffet…

The New Way to Crunch Your Numbers

by David Adler

Using liability-driven investing to better meet your retirement goals.

It works for the big dogs, and it might just work for you. "Liability-driven investing," a strategy that has been sweeping the world of pension-fund management, could be the next big trend in retirement planning for wealthy individuals.

LDI, as it's known, calls for matching or at least explicitly considering your future expenses when designing a portfolio, rather than focusing on asset growth alone. The idea is to assemble investments that will generate enough gains, and at the right times, to cover everything from greens fees to a bequest to your alma mater. So far, it's mostly being used for portfolios of the super-rich, but experts say it can work just as well for the merely well-off.

LDI certainly has taken hold among large U.S. pension funds, about half of which now use it or are considering doing so. The big liabilities of these funds -- future payments to retirees -- resemble lo…





The US could benefit from inflation as long as it doesn't push the government into default

Andy Xie

Updated on Jun 16, 2009

A tide of inflation fear is sweeping financial markets: the oil price has doubled in three months, the US Treasury yield has surged by a third in one month, gold is nearing its record high again and agricultural commodities are all soaring. The rising prices are taking place amid weak demand. Inflation fears are driving the surge.

The market is getting it right this time. The US is targeting a 5 per cent-plus inflation rate for the foreseeable future. It is the only way to speed up relief for indebted American households. Inflation works well when debts are locked into long-term fixed rates and don't need new financing. The recent wave of mortgage refinancing, for example, has put many American households in an excellent position to benefit from inflation. If inflation surges, American household income will rise with it, but the debt will remain locked into the previous low rates. Of course, the people who lent to American households will be robbed…

The tide recedes for Asian equities

Goh Eng Yeow examines the stock market's outlook going forward

INVESTING one’s hard-earned nesteggs is serious business.

Still, I must say that I am pleasantly surprised to get so many responses, thanking me for my Sunday Times column "Lessons from the financial crisis" two weeks ago.

Quite a number of readers have also noted that I am an avid tracker of the flow of funds in and out of the various Asian markets. They want to know where they can also find the data to do likewise.

I replied to all the queries by referring to a blog which I wrote last month. I get my report on fund flows from Citigroup every Monday and it has turned out to be one of my most important reading materials for the week.

And readers are reaping the benefit of getting privileged information which only big-time fund managers have access to, when I subsequently reproduce the report as an article.

Today, I wrote another fund flow piece in The Straits Times to report that there had been a net flow of money…

Rich lost 20% of wealth

NEW YORK - THE world's rich lost a fifth of their wealth in 2008 and the number of people with fortunes of more than US$1 million (S$1.46 million) fell 15 per cent as the financial crisis wiped out two years of growth, a study showed on Wednesday.

The total value of the world's wealthy - people with net assets of more than US$1 million excluding their main home and everyday possessions - dropped below 2005 levels to US$32.8 trillion, the 13th annual Merrill Lynch/Capgemini World Wealth Report found.

Nearly 35 per cent of that wealth belongs to so-called ultra rich people with fortunes of more than US$30 million, who account for 0.9 per cent of the rich population. In 2008 the number of ultra-rich people and their value dropped by nearly a quarter.

'There was really nowhere to hide as an investor in 2008,' Dan Sontag, Merrill Lynch Global Wealth Management president, told a news conference. 'No region ended the year unscathed.'

The United States, Japan and Germa…

Recession is easing: Fed

WASHINGTON - THE Federal Reserve on Wednesday said the recession is easing, but that the economy likely will remain weak and keep a lid on inflation.

Against this backdrop, the Fed held a key bank lending rate at a record low of between zero and 0.25 per cent, and pledged again to keep it there for 'an extended period' to help brace activity going forward.

Even though energy and other commodity prices have risen recently, the Fed said inflation will remain 'subdued for some time.'

This new language sought to ease Wall Street's concerns the Fed's aggressive actions to revive the economy will spur inflation later on.

The Fed also decided to stay the course on existing programs intended to drive down rates on mortgages and other consumer debt.

Instead, the central bank again kept the door wide open to making changes if economic conditions warrant.

The Fed in March launched a US$1.2 trillion (S$1.8 trillion) effort to drive down interest rates to try to revive lend…

'No bounce' says Buffett

NEW YORK - WARREN Buffett said on Wednesday that the US economy has 'no bounce' and will take time to recover, but there is no risk of deflation to push it further into despair.

Speaking on CNBC television, the world's second-richest person also praised efforts by the Obama administration and Federal Reserve to jump-start economic activity.

He lamented that the slowdown has hurt his insurance and investment company Berkshire Hathaway, which runs close to 80 businesses and in the January-to-March period had its first quarterly loss since 2001.

'We have had no bounce' in the economy, Mr Buffett said on CNBC television.

Asked whether the economy was still in a 'shambles,' as he had said in February, Mr Buffett said: 'I'm afraid that's true.' But he added: 'I don't worry about deflation at all.'

US gross domestic product fell at a 5.7 per cent annualised rate in the first quarter.

Government efforts to stimulate business activity remain a …

Two Proofs That Global Economy Is Not on the Upswing

Below are two seemingly unrelated articles that tell a similar story: talk that the global economy is on the upswing seems to be premature, to say the least.

In the first report (hat tip to Calculated Risk), the Vice Chairman of General Electric (GE), a company with 14 major lines of business -- appliances, aviation, consumer electronics, electrical distribution, energy, business finance, consumer finance, healthcare, lighting, commercial and industrial markets, media & entertainment, oil & gas, rail, and security -- and a presence in more than 100 countries, states point-blank that they are not seeing evidence of the turnaround that policymakers (e.g., Fed Chairman Ben Bernanke), clueless Wall Street types (see: "The Wall Street Clown Show"), and TV pundits keep referring to.

1. "GE Vice Chair Rice Sees No ‘Green Shoots’ in Orders" (Bloomberg):

General Electric Co. Vice Chairman John Rice said he isn’t seeing an increase in orders even as U.S. economic statis…

The worst is yet to come: Financial Crisis Part II

European banks: $283B more in writedownsFRANKFURT (Reuters) -- Euro-zone banks will probably need to write down another $283 billion this year and next on bad loans and securities, the European Central Bank said on Monday. The ECB estimated bank writedowns due to securities -- or toxic assets -- would total around $218 billion from the start of the financial turmoil to the end of 2010, while bad loans would account for another $431 billion -- a total of $649 billion, with an estimated $366 billion already announced. The figures were published in the ECB's latest Financial Stability Review, which concluded that risks to the financial sector had increased in the last six months amidst a deterioration in the economic environment which is putting pressure on the bottom line of companies and households.

"The contraction of economic activity and the diminished growth prospects have resulted in a further erosion of the market values of a broad range of assets," the report said. …

Bubble of Belief’ in China Economy Seen Bursting

By David Wilson

June 17 (Bloomberg) -- Rallies in commodity prices and mining-company shares stem from a “bubble of belief” in China’s economy that is likely to burst, according to Albert Edwards, a strategist at Societe Generale.

“I believe we will look back on the Chinese economic miracle as the sickest joke yet played on investors,” Edwards wrote yesterday in a report. To support his argument, he cited falling earnings at the country’s industrial companies.

The CHART OF THE DAY shows year-over-year percentage changes in profits, as compiled by China’s National Bureau of Statistics. The chart combines monthly data from 2005 and 2006 with a quarterly index, started in 2007, that tracks companies in 22 provinces. This quarter’s report is set for June 26.

Commodity prices climbed 21 percent this year through yesterday, according to the UBS Bloomberg Constant Maturity Commodity Index. Mining stocks paced a 23 percent gain in the MSCI World Materials Index, the year’s top performer among 10 …

Andy Xie: Markets are trading on Imagination

A combination of growth optimism and inflation fear has catapulted asset markets in the past few weeks. These two concerns should drive markets in different directions: Inflation fear, for example, should limit room for stimulus and prompt stock markets to retreat. But the investment camps expressing these opposite concerns go separate ways, each pumping up what seems believable. As a result, stock and commodity markets are mirroring the behavior seen during the giddy days of 2007.

Regardless of what investors or speculators say to justify their punting, the real driving force is the return of animal spirit. After living in fear for more than a year, they just couldn't sit around any longer. So they decided to inch back. The resulting market appreciation emboldened more people. All sorts of theories began to surface to justify the market trend. Now that the rising trend has been around for three months globally and seven months in China, even the most timid have been unable to res…

5 Reasons to Start a Business in a Recession

Kimberly Palmer

Does becoming your own boss sound especially tempting now, with jobs less secure and benefits being cut? If it does, you're hardly the only one: Research by Federal Reserve economist Ellen Rissman finds that men are almost twice as likely to become self-employed when they are already unemployed. Working for themselves is temporary, however: Within one year, about 2 in 10 workers return to paid employment.

That doesn't mean the recession is leading to huge upticks in those who call themselves self-employed. Overall, the self-employment rate has dipped a bit during the current recession, although it still remains close to 11 percent, where it has hovered for most of the past decade. Steven Hipple, economist at the Bureau of Labor Statistics, says that while some people are drawn to self-employment as a way to avoid unemployment, there are also many self-employed businesses, for example in retail or construction, that are going under during the recession. That's…

How Do I Know You're Not Bernie Madoff?

by Paul Sullivan

Tony Guernsey has been in the wealth management business for four decades. But clients have started asking him a question that at first caught him off guard: How do I know I own what you tell me I own?

This is the existential crisis rippling through wealth management right now, in the wake of the unraveling of Bernard L. Madoff’s long-running Ponzi scheme. Mr. Guernsey, the head of national wealth management at Wilmington Trust, says he understands why investors are asking the question, but it still unnerves him. “They got their statements from Madoff, and now they get their statement from XYZ Corporation. And they say, ‘How do I know they exist?’ ”

When he is asked this, Mr. Guernsey says he walks clients through the checks and balances that a 106-year-old firm like Wilmington has. Still, this is the ultimate reverberation from the Madoff scandal: trust, the foundation between wealth manager and client, has been called into question, if not destroyed.

“It used to be that…

Bankers group sees U.S. recession ending in third quarter

WASHINGTON (Reuters) - The U.S. recession will end in the third quarter, but lingering high unemployment and large federal deficits may pose a longer-term threat, economists advising the American Bankers Association said on Tuesday.

The economists expect the U.S. Federal Reserve would keep interest rates near zero percent until the third quarter of 2010 because a sluggish recovery would keep inflation in check.

They forecast that 2009 real gross domestic product would fall 1.3 percent, with 2010 growth rebounding to 3 percent.

However, they thought unemployment would not peak until the first quarter of 2010, and it may be several years before the economy returns to full employment, which they pegged at 5 percent.

"The economy will return to growth but not to health," said Bruce Kasman, chairman of the economic advisory committee and chief economist for JPMorgan Chase in New York. "Growth in the coming quarters is likely to gather momentum but will not prove sufficiently rob…