THE BLOG'S THREE MAIN OBJECTIVES:
~*Revealing and Getting Rid of Scams | Creating Honest Sustainable Wealth | Offering Happiness, Safety and Legitimacy*~

Wednesday, 31 March 2010

Is It Too Late to Get Back Into Stocks?

Christine Benz

Question: I moved part of my portfolio out of the market in late 2008 when I was concerned that the economy and the stock market were in a downward spiral. But now that stocks have rallied, how can I get back in without getting burned?

Answer: It's small consolation, but you're far from alone in this conundrum.

I'd recommend that you start by establishing your target position in stocks. Then plan to slowly build your position during the next six to 12 months, adding a set amount each month until you hit your target.

As to your broader concern that it might be too late to invest in stocks, Morningstar's various valuation tools can help shed some light on that topic. They can also help you focus on parts of the stock market that still have upside potential left while avoiding overheated areas.

As of early this week, the universe of 1,683 companies that our stock analysts cover was, in aggregate fairly valued to slightly overvalued, with a fair value rating of 1.04 on this Market Fair Value graph. To arrive at a fair value estimate for the market as a whole, our equity analysts first assign a fair value estimate to each of the companies that they cover. So if one of our analysts thinks a company is worth $100 but it's currently trading at $75, that company would have a price/fair value ratio of 0.75. We then arrive at a price/fair value ratio for the whole stock universe by looking at the median price/fair value ratio for companies under coverage.

The current price/fair value ratio for our entire coverage universe is very close to its 52-week high, and is a far cry from where it was a year ago, when stocks under coverage, in aggregate, traded at a 24% discount to our analysts' fair value estimates.

High Quality, Reasonable Price
But the fact that our stock universe is trading right around its fair value shouldn't deter you from investing in stocks. On the left-hand side of the Market Fair Value page, you can drill into various segments of the coverage universe to identify market segments with upside potential remaining. For example, while our stock universe is, on the whole, fairly valued, the wide-moat companies in our coverage universe are currently trading at a small discount to fair value estimate. (A wide moat means that a company has a sustainable competitive advantage versus its peers, in our analysts' view.) Narrow-moat companies are fairly valued, on average, whereas no-moat companies are now substantially overvalued following a tremendous runup in 2009. Under normal circumstances, wide-moat firms should command higher prices than narrow- and no-moat firms, not lower. So it looks like a good time to pick up quality on the (relative) cheap.

So how does that translate into investment ideas? If you're an individual-stock investor and a Premium user, you can screen our stock universe for wide-moat companies that are trading well below our analysts' fair value estimates. As of March 29, 18 wide-moat companies sported price/fair value ratios of 0.75 or less, including Eli Lilly (NYSE:LLY - News), General Electric (NYSE:GE - News), Paychex (NasdaqGS:PAYX - News), and Weight Watchers International (NYSE:WTW - News).

Mutual fund investors might also concentrate their energies on funds with a big share of wide-moat firms. Although moats aren't yet a screenable data point, Jensen Portfolio (NASDAQ:JENSX - News), Bridgeway Blue Chip 35 Index (NASDAQ:BRLIX - News), Dreyfus Appreciation (NASDAQ:DGAGX - News), Vanguard Dividend Growth (NASDAQ:VDIGX - News), and Vanguard Dividend Appreciation. (That last fund comes in the form of a mutual fund (NASDAQ:VDAIX - News) and an exchange-traded fund (NYSEArca:VIG - News).)

Advantage Large Cap Value
Morningstar's ETF Valuation Quickrank offers yet another tool for identifying potential investment ideas and avoiding land mines. Like the aforementioned tools, the Valuation Quickrank provides a price/fair value ratio for an entire exchange-traded fund based on the price/fair value ratings for all of that ETF's constituent holdings.

The Valuation Quickrank shows that broad-market ETFs, such as Vanguard Total Stock Market ETF (NYSEArca:VTI - News), are currently trading at a slight discount to fair value, with a price/fair value ratio of 0.94 as of March 29. (In case you're wondering, that's a more attractive price/fair value ratio than our entire stock coverage universe because the ETF is cap-weighted and skews toward very large companies, which appear to be more cheap than smaller firms do right now.)

Generally speaking, the large-cap ETF categories offer a far larger share of ETFs trading below their fair values than do the mid-cap ETF groupings. (We don't currently have enough small-cap stocks under coverage to formulate price/fair value ratios for entire small-cap ETFs.) Ditto for value stocks versus growth. Every large-cap value ETF in the Quickrank is trading below our analysts' fair value estimates, whereas most large-cap growth ETFs are trading right around or above fair value.

You can also use the ETF Valuation Quickrank to help identify whether sectors are looking cheap or dear based on the ETFs' constituent holdings. (Just recognize that some ETFs skew heavily toward a handful of stocks, so the price/fair value ratio that you see may not be particularly representative of the valuation of an entire sector but rather just a few holdings.) Right now, for example, most real estate and technology ETFs are trading substantially above the fair values of their constituent holdings, indicating that many stocks in those sectors are fully priced or overvalued. The health-care sector, meanwhile, still sports a number of ETFs whose holdings are trading well below our analysts' fair value estimates.

Summing Up
If you find yourself, as this reader did, with a portfolio that's dramatically light on a given asset class, plan to dribble the money in slowly during a period of several months until your allocation reaches your target. As you do so, you can use Morningstar's various valuation lenses to help guide you toward those parts of the market that offer the greatest upside potential. Right now, high-quality large-cap stocks and funds appear to be reasonably priced relative to lower-quality (that is, no-moat) firms in the small- and mid-cap space. So although there may not be as many screaming buys as there were a year ago, it does appear to be a good time to upgrade the quality of your portfolio without breaking the bank.

Tuesday, 30 March 2010

7 Things Never to Say to Your Boss

Karen Burns

Everyone has a boss. Even if you "work for yourself," you're still an employee to your client.

A big part of maintaining the boss-employee relationship is to never allow a boss to think you dislike your work, are incapable of doing it, or--worse--consider it beneath you.

These sound like no-brainers, but many statements heard commonly around the workplace violate these basic rules. Looking for an example? Here are seven heard in workplaces all the time. They may seem ordinary, even harmless. But try reading these from your boss's point of view. You'll see right away why it's smart to never allow these seven sentences to pass your lips:

"That's not my job." You know what? A lot of bosses are simple souls who think your job is to do what's asked of you. So even if you're assigned a task that is, indeed, not your job, refrain from saying so. Instead, try to find out why your boss is assigning you this task--there may be a valid reason. If you believe that doing the task is a bad idea (as in, bad for the company) you can try explaining why and suggesting how it could be better done by someone else. This may work, depending on the boss. In any case, remember that doing what's asked of you, even tasks outside your job description, is good karma.

"It's not my problem." When people say something is not their problem it makes them look like they don't care. This does not endear them to anybody, especially the boss. If a problem is brewing and you have nothing constructive to say, it's better to say nothing at all. Even better is to pitch in and try to help. Because, ultimately, a problem in the workplace is everyone's problem. We're all in it together.

"It's not my fault." Yet another four words to be avoided. Human nature is weird. Claiming that something is not our fault often has the result of making people suspect it is. Besides, what's the real issue here? It's that something went wrong and needs to be fixed. That's what people should be thinking about--not who is to blame.

"I can only do one thing at a time." News flash: Complaining you are overworked will not make your boss feel sorry for you or go easier on you. Instead, a boss will think: (1) you resent your job, and/or (2) you aren't up to your job. Everybody, especially nowadays, feels pressured and overworked. If you're trying to be funny, please note that some sarcasm is funny and lightens the mood. Some just ticks people off.

"I am way overqualified for this job." Hey, maybe you are. But the fact is, this is the job you have. You agreed to take it on and, while you may now regret that decision, it's still your job. Complaining that it's beneath you only makes you look bad. Plus, coworkers doing similar jobs may resent and dislike you. And guess what? Bosses will not think, "Oh, this is a superior person whom I need to promote." Nope, they'll think, "What a jerk."

"This job is easy! Anyone could do it!" Maybe what you're trying to convey here is that you're so brilliant your work is easy. Unfortunately, it comes off sounding more like, "This work is stupid." Bosses don't like hearing that any work is stupid. Nor do they really like hearing that a job is easy peasy. It belittles the whole enterprise. If a task is simple, be glad and do it as quickly as you can. Even "stupid" work needs to get done.

"It can't be done." Saying something can't be done is like waving a red flag in a boss's eyes. Even if the thing being suggested truly is impossible, saying it is can make you look ineffectual or incapable. Better to play detective. Why is the boss asking you to do whatever it is? What's the problem that needs to be solved? What's the goal? Search for doable ways of solving that problem or reaching that goal. That's what bosses really want. Most of them do not expect the impossible.

Last words: When in doubt, remember that silence really is golden.

7 Things Your Boss Should Never Say to You

Karen Burns

Here are seven things you, as a boss, should never say to your employees:

1. "I pay your salary. You have to do what I say." Have you not heard? It's the 21st century. Threats and power plays just do not cut it anymore (and they were always a terrible way to manage). Yes, you pay people's salaries but that doesn't mean you're their lord and master. You are their leader, however. Leaders lead by inspiring, teaching, encouraging, and, yes, serving their employees. Good leaders never need to threaten. So keep your word, set a good example, praise in public, criticize in private, respect your employees' capabilities, give credit where credit is due, learn to delegate, and when you ask for feedback don't forget to respond to it. (Another sentence to be avoided: "Do what I say, not what I do.")

2. "I don't want to listen to your complaints." Hey, boss, you have this backwards. You do want to listen to employees' complaints. That's part of your job. You should be actively seeking feedback, even negative feedback. It may be annoying, even painful, but that's why you get the big bucks. Complaints point to where your processes and practices need improvement. And even if a problem absolutely can't be helped, allowing your employees to vent can go a long way toward restoring morale and building loyalty.

3. "I was here on Saturday afternoon. Where were you?" This kind of "subtle" pressure to work 24/7 is a good way to burn out your employees. You won't get that much more productivity out of them, and you will destroy morale. You may choose to work seven days a week. That's your call. But your employees shouldn't have to. If you observe that they are working way more than their job descriptions call for, consider that maybe it's because you're overloading them. Look for ways to fix this problem.

4. "Isn't your performance review coming up soon?" Maybe you're trying to motivate an employee to do a better job. Maybe this is just a ham-handed way to remind underlings of who has the power. Who knows. Either way, a statement like this is not only tacky and passive-aggressive, it's ineffective. If you really want to motivate people, consider giving them a stake in the success of your enterprise. Show employees you value them. Let them know what they have to gain by doing a good job. The results may surprise you.

5. "We've always done it this way." Want to crush your employees' initiative? This is a good way. News flash: Your employees may actually have a pretty good idea of how to do their jobs. Maybe they know even more than you. Your job as boss is to encourage them to have the energy and motivation to be innovative. In fact, employees who come up with better ways to do things should be celebrated and rewarded. (Hint: Cash is nice.)

6. "We need to cut costs" (at the same time you are, say, redecorating your office). Nothing breeds resentment more than asking employees to tighten their belts while you, to their eyes, are living it up. Even if the office redecoration can be totally justified in business terms, or the budget for it was a gift from your uncle, it still looks hypocritical and is demoralizing. Being sensitive to other people's feelings is good karma. Leading by example is the best way to lead.

7. "You should work better." Managers need to communication expectations clearly, to give employees the tools they need to do a good job, to set reasonable deadlines, and to offer help if needed. When giving instructions, ask if they understand your instructions. Don't assume. You may not be the stellar communicator you think you are. If your employees are making mistakes, or not performing up to par, consider that maybe it's because you're giving them vague instructions like "you should work better."

The bottom line is that in the workplace respect, a little tact, and a good attitude go both ways.

Karen Burns is the author of the illustrated career advice book The Amazing Adventures of Working Girl: Real-Life Career Advice You Can Actually Use, recently released by Running Press. She blogs at www.karenburnsworkinggirl.com.

More "Boom and Bust" Cycles Coming: The Real Reason Buy and Hold Is Dead

With major averages flat or slightly negative for the past 10 years, many investors have given up on the "buy and hold" strategy that became a mantra in the 1990s. That, of course, has prompted some contrarians to declare that now is the best time to be a buy and hold investor.

In this case, the conventional wisdom is right, says Lakshman Achuthan, managing director of the Economic Cycle Research Institute (ECRI).

"I'm not saying 'buy and hold' is a bad thing, unless you're having more frequent recessions," he says. And that is precisely what ECRI expects in the coming decade because of two big patterns that Achuthan says are irreversible:

* One, sucessive recoveries from post WWII recessions have become weaker and weaker "on every count," including growth, sales, employment and production.
* Two, there's more volatility in the economy, with the big swoon in late 2008-early 2009 and surge in more recent months being a glaring example.

Achuthan predicts we have entered a period of "more ‘boom and bust'-type cycles," similar to what occurred in the 1970s. "The Great Moderation is history," he says, referring to the period starting in the mid-1990s when many economists (and policymakers like Ben Bernanke) believed the business cycle had been smoothed out, if not eradicated.

"You don't have to be a mad scientist," he says; just "back off your risk in the stock market and buy bonds" if a recession appears imminent. "And if we see a recovery take more exposure and get out of bonds because the recovery is going to give you a little inflation."

If recessions are more likely - and more intense in scope - then investors will demand higher risk premiums for owning equities, Achuthan explains in the accompanying clip.

Of course, the trick is predicting when those recessions and recoveries have begun -- or are about to begin -- something ECRI believes it has mastered. As noted here, the ECRI does have a good track record when it comes to predicting economic cycles. They correctly predicted last year's strong recovery after having correctly called the 2001 and 1990 recessions. However, ECRI waited until March 2008 to officially diagnose the last recession that they now agree began in December 2007.

"I'm not suggesting we'll get it right all the time but we'll do a lot better than ‘buy and hold,'" Achuthan says.

Stocks Soar, but Many Analysts Ask Why

by Javier C. Hernandez

The unemployment rate remains locked in a range that recalls the economic doldrums of the early 1980s. Housing is stuck in a ditch, with foreclosures rising. And consumers are still reluctant to part with the little cash they do have.

Yet the stock markets are partying like it's 2003, when hiring was brisk, real estate was booming, wallets were fat -- and the major stock indexes started a four-year rally that would double their value and push them to new heights just before the financial crisis hit.

Judging from stock prices alone, one would think the economy was poised for a roaring comeback. But the federal government plans to unplug the economic life-support programs that stimulated production, kept interest rates low and placed a thick cushion under the real estate market.

Some analysts see ample reason for caution in equities, with many economists, including those at the Federal Reserve, forecasting tepid growth in the near term.

"The market is as overvalued now as it was undervalued a year ago," said David A. Rosenberg, chief economist and strategist for Gluskin Sheff, an investment firm. "There's a very high degree of complacency."

The incongruity of it all can be seen clearly in an analysis of price-to-earnings ratios, a gauge of how expensive stocks are relative to their performance.

Ratios in the Standard & Poor's 500-stock index are hovering about 13 percent above the average since 2005; a year ago, they were about 40 percent below the average. That suggests that investors are betting on robust earnings through the end of the year, a view that many economists do not embrace.

"The stock market has priced in a bit more than what we've got so far," said Jeffrey A. Hirsch, editor of The Stock Trader's Almanac. "We're due for a pause."

Recent rallies have been narrow, with a modest number of stocks reaching 52-week highs even when the broader market surged. There is a sense in some corners that stock prices will decline: investors are betting more on stocks' falling now than they have since July.

Mr. Hirsch, citing historical patterns, predicts a 20 to 30 percent dip in the markets before they can climb again. The Dow Jones industrial average is more than 60 percent above its lows a year ago, flirting with 11,000 for the first time since the onset of the financial crisis, though it remains more than 3,000 off its prerecession peak.

The S.& P. 500 is up nearly 75 percent from a year ago, and the Nasdaq is up nearly 90 percent.

The first part of this year had glittering reports on fourth-quarter earnings and mildly upbeat news on economic indicators like retail sales and orders for durable goods.

In response, the broad-based S.& P. 500 has climbed 4.6 percent this year. Autos, consumer electronics, regional banks and home builders -- all losers in 2009 -- have led the way. Banking stocks, which drove much of last year's rally, continue to surge, with many regional banks up more than 40 percent.

Even during some of the stock markets' better weeks, jitters have seemed to lurk just beneath the surface. The Dow rode a rare eight-day winning streak this month, but trading was light and day-to-day gains were small, casting doubt on the significance of the uptick.

During much of the financial crisis, traders clung to bond funds for safety. But as the appetite for risk has returned, investors have begun snapping up stocks: over the last several weeks, new cash has poured into American equity funds at a brisk pace, and mutual funds have shown particular strength.

Many market participants expect the momentum to continue, with stocks ending the year 10 to 20 percent higher. While few expect strong economic growth this year, investors believe that the recovery is intact and that earnings will continue to grow.

"A lot of people believe the government will just keep pumping money into this," said Doug Roberts, chief investment strategist for Channel Capital Research.

There are signs that some of investors' optimism may be excessive.

Interest rates, kept at historical lows by the Fed during the financial crisis, are starting to rise because of the flight from bonds and concern over rising debt, particularly that of the United States.

Standard mortgage rates hovered near 5 percent last week after auctions of seven-year Treasury notes were met with weak demand, sending yields higher. A sustained rise in interest rates would crimp growth by making borrowing more expensive for consumers, businesses and governments. It could also attract some investors away from equities and into bonds.

Another concern is the nation's intractable unemployment rate, which has hampered consumer spending and worsened a foreclosure crisis in the housing market. Employers are still not adding jobs, though the rate of job losses has declined in recent months, raising hopes that a turning point is at hand.

Consumer confidence has improved modestly from its low a year ago, but spending is still weak.

Some clarity may come to the market on Friday, when the government releases its monthly snapshot of the labor market. Forecasters expect the data to show 200,000 new jobs, with the unemployment rate holding steady at 9.7 percent.

When first-quarter earnings results begin trickling in next month, investors will be looking for signs that companies have put cost-cutting behind them and strengthened revenue.

"We've managed to at least temporarily suspend the financial crisis," Mr. Roberts said. "The question now is, 'You've gotten past the first act; what's the encore?'"

How to Make Smarter Choices

by Laura Rowley

Human beings crave control. Studies have found that when we enjoy the freedom and power to make our own choices, we're healthier and happier.

"The ability to choose well is arguably the most powerful tool for controlling our environment," writes Sheena Iyengar, author of the new book "The Art of Choosing." The problem is some people are sorely lacking that ability, especially when it comes to money. (See nearly everyone who chose an interest-only mortgage in the last few years.)

Iyengar, 40, a business professor at Columbia University, tackles the age-old dilemma of how to make smarter choices, and avoid the plethora of issues that trip us up. She established herself as the doyenne of choice psychology with a novel experiment in the mid-1990s, set in a California grocery. Her research team manned a tasting booth offering different jams near the store's entrance -- sometimes displaying 24 varieties, and other times, just six. While the table loaded with 24 options attracted more shoppers, only 3 percent actually purchased jam -- compared with 30 percent of those who visited the table with six varieties.

Bottom line: Too much choice can be paralyzing. Besieged by options and the cacophony of marketers, we shut down, and give as much attention to the investments in our 401(k) plans as we do to the kind of coffee we order at Starbucks.

Iyengar says the key to good choice is to focus on four or five critical domains, invest maximum energy and effort in making those choices, and then don't look back. For example, she describes a study of new college graduates. One group plunged into their job search, speaking with career counselors, parents and friends more often, taking advantage of expert rankings of companies, and applying for more jobs. A second group of their peers took a more casual approach.

After six months, people who had analyzed their decisions more thoroughly had been invited to more interviews, received more job offers, and ultimately landed positions with average annual salaries of $44,500. Their less thorough counterparts were earning an average of only $37,100.

The downside? The group that did more research second-guessed their decisions. They were "less certain that they had made the right choice and less satisfied with their jobs overall," Iyengar writes. "Though they had taken the initiative and weighed the pros and cons of many options, their final choices didn't lead to greater happiness."

Understanding the Tools

Still, that's short-term happiness versus long-term, and surely starting one's career with a 20 percent boost in income will pay off handsomely in the long-term. (In any case, the extra income will give you more options.)

"Finding the right job, making sure you have enough to live and saving for retirement -- for most people those decisions ought to be high up there in things pay attention to," says Iyengar. "For the things that you really care about, you basically have three tools in helping make that choice, and you need to use all three."

First, gut instinct -- it will tell you what you're feeling at the moment, but it's unreliable. "It doesn't tell you whether what you think you're feeling is what you're really feeling," Iyengar says.

For example, the brain can confuse fear with lust. Researchers did an experiment in which male sightseers crossing two bridges in British Columbia -- one wide and sturdy, the other a rickety, swaying structure. The sightseers were stopped in the middle by an attractive female interviewer. She asked if they would take part in a study about the natural scenery's effect on creativity by writing a short story. She then offered her phone number in case participants wanted to "talk further about the purpose of the study."

Half of those crossing the scarier bridge called back, versus an eighth of those on the sturdy bridge. (Callback rates were equally low when the study was repeated with a male interviewer.)

Second, do a pro-and-con analysis -- something Benjamin Franklin recommended to a friend: "I have found great advantage from this kind of equation, in what may be called moral or prudent algebra," he wrote. This sort of examination will emphasize the more quantitative measures in a decision, Iyengar notes.

The third step in decision-making is looking at what has made other people happy. "This is one people refuse to use, particularly in American individualist culture," says Iyengar, who was born in Canada of Indian parents. People assume their personality and situation are utterly unique, and they ignore the guidance of other people's experiences -- particularly those who are older.

"Whatever is making them happy now, there's a good probability that's what's going to make you happy 10 years from now," she notes. Observation, conversation and seeking advice are all tools to take seriously in making big decisions.

Time-Tested Advice

After you decide, invest in the choice. "I was born blind; I didn't know what choices I would have," says Iyengar, who was diagnosed with the genetic condition retinitis pigmentosa in childhood and lost her sight completely by high school.

"Some people said to become a musician or a lawyer -- apparently those are popular careers for blind people, but I didn't have the talent for either. I ran an experiment when I was an undergrad and it seemed interesting. Little by little I did more and more, and invested in doing good experiments. The goal was to make sure I did experiments that people would find helpful or useful in some way."

Just as artists or musicians create within the boundaries of forms and rules, people should take a structured approach to choosing, and then "hold fast," Iyengar writes. But what should lie at the heart of choice? What should motivate our best decisions?

"I think for the things that really matter to you it should be quality," says Iyengar. "Do the best at that thing, make it effortful, put in the hard work."

It's advice that might have come from Aristotle, I suggest, who wrote that all beings have a telos -- a noble end or goal to which they must give expression. Happiness -- or more accurately, flourishing -- is giving highest expression to our nature and calling -- pursuing our telos with excellence.

"I'm a big admirer of Aristotle," Iyengar says.

Saturday, 27 March 2010

A $1.2 trillion timebomb ticks in China

Venkatesan Vembu / DNA
Saturday, March 27, 2010 2:53

Hong Kong: A major fiscal shock looms over China, arising from local governments’ shadowy finances and banks’ reckless lending to them as part of the frantic rush to boost GDP growth in China following the global economic slowdown in 2008.

The fiscal crisis represents “the biggest risk to China’s economic and financial stability over the next two years” and has the potential to more than completely wipe out Chinese banks’ equity base, and trigger an equity market panic when it bursts, says Credit Suisse chief regional economist Dong Tao.

At the heart of the crisis are about 8,800 investment vehicles set up at the local government level to take up massive infrastructure projects to prop up GDP growth to make up for the export slowdown owing to the global economic recession.

These vehicles —- called urban development investment corporations (UDICs) —- were set up “in part to circumvent rules prohibiting local governments from borrowing,” notes Louis Kuijs, senior economist in the World Bank’s China office. Local governments injected land and cash into these UDICs as equity, and the land was used as collateral to get bank loans for infrastructure projects.

“UDICs share many common characteristics with the investment vehicles that caused the financial crisis in the US,” adds Tao. “They lack transparency, are high on leverage, rely on short-term funding and land-based valuation, and their assets are illiquid.”

And although it’s very hard to determine how much bank lending has been channelled to the UDICs, Tao estimates outstanding loans to be about 8 trillion yuan (about $1.2 trillion), which is about 24% of China’s GDP, 83% of overall new lending in 2009, and a whopping 180% of the equity base of all Chinese banks.

Estimates by other economists paint a grimmer picture.

Victor Shih of Northwestern University, who has studied local governments’ debt, estimates total bank lending to UDICs (including further lendings) to balloon to 24.2 trillion yuan ($3.5 trillion).

“If large portions of the debt end up being taken over by the central government, that will add significantly to the official government debt,” says Kuijs. In Tao’s estimation, if the central government absorbed 8 trillion yuan of UDICs’ liabilities, China’s debt-to-GDP ratio would explode from an estimated 19.1 in 2010 to an estimated 50.3 in 2010.

The key problem with the UDIC financing model is its use of land as collateral, points out Tao. “If there is a change in the assessment of the value of the land that UDICs pledge to banks as collateral, we may have a serious problem.”

In particular, when property prices in China fall —- as Tao expects them to in the second half of this year, owing to an oversupply of finished apartments and expected interest rate hikes to fight inflation —- “banks will review the value of the land they have as collateral, become risk-averse, and initiate a loan call-back.”
If even one or two UDICs fail as a result, Tao reckons, “it will trigger a wider loan call-back and trigger an equity market panic.”

Flagging the risk of policy errors, he adds that Beijing is “too complacent about how a property market correction could aggravate the UDIC problem.”

Zhu Min, deputy governor of China’s central bank, the People’s Bank of China, however, dismisses concerns about the stability of Chinese banks arising from local governments’ debt as exaggerated. Greater economic activity from China’s enhanced infrastructure would offer sufficient payback on loans for these projects, he observed in a speech at the 13th Credit Suisse Investment Conference in Hong Kong on Thursday. “In 1998, following the Asian financial crisis, China unveiled a 400 billion yuan stimulus package, almost all of which went into building highways,” he recalled.

And although the highways remained empty for a while, the roads catalysed economic activity, and today they are packed, he added. “So long as China keeps growing and these loans have gone into real infrastructure projects, things will be okay.”

The problem with UDICs can be solved right away if the central government cracks the whip and asks the central finance ministry, the local governments and the banks to absorb the losses, Tao believes. But Beijing perhaps lacks a sense of urgency, and it may be difficult for the three parties to agree on who should bear how much of the losses.

The UDICs’ financial problems would affect future local government investment spending and could lead to a rise in banks’ non-performing loans, points out Kuijs. “Problems would emerge if the infrastructure projects do not generate enough growth and revenues to pay the operating and interest costs and repay the loans.”

The time duration of the crisis, when it blows up, could determine the severity of the crisis, reasons Tao. “If the crisis lasts just two weeks, there will only be short-lived market panic. If it lasts two months, fixed asset investments could be affected. And if it lasts two years, China may go down the path of Japan in the 1990s —- but without a property safety net.” However, he expects any crisis to be an “abrupt but short one” —- for three reasons.

In China, the government owns all banks, “and once Beijing realises the magnitude of the risks, it will order banks to keep lending.” Of course, banks’ shareholders would lose out.

Secondly, although local governments are low on cash, the central government is cash-rich, and “we could see another 4 trillion yuan or even 8 trillion yuan fiscal spending program to boost growth and stabilise the banking sector.” And thirdly, China is, in the global context, “too big to fail” —- and in any case it has a roadmap in the form of the US bailout of banks.

“You have a Western recipe —- and you have lots of fresh materials (in the form of China’s fiscal strengths)... Even a mediocre chef can cook a reasonably good meal,” says Tao.
But even as he sounds the alarm over local governments’ debt, Tao puts it in perspective. “What’s happening in China is not very different from what’s happening elsewhere: the government leveraging up during a global financial crisis to stimulate the economy.” The critical difference is that China’s starts with a low debt-to-GDP ratio, about 19% currently.

“It’s a hiccup, and a big hiccup at that,” he acknowledges. “But nevertheless, this is not something that will derail my fundamental view of China over the next decade... We remain bullish on China’s long-term outlook.”

Thursday, 25 March 2010

10 reasons why this is not a bull market

by Todd Harrison

Kevin Cassidy, a senior credit analyst at Moody's, recently referenced the $700 billion in risky high-yield corporate debt on the horizon and offered, "An avalanche is brewing in 2012 and beyond if companies don't get out in front of this."

Minyanville offered a similar assessment entering September 2008 as $871 billion of corporate debt was set to mature into year-end. We opined there were two plausible scenarios; a credit cancer that would chew through the financial body, or a car crash that would crack the system under the weight of an indebted world.

I agree that another avalanche is building atop Credit Mountain; while risk transferred from corporate coffers to sovereign strongboxes, the magnitude is cumulative in cause and effect. And despite scary parallels between the 2008 financial crisis and our modern day sequel, savvy investors continue to monitor corporate credit as a timing mechanism for an equity downturn.

As stocks grind to fresh 18-month highs, we're left to wonder if the upside window of opportunity will remain open until corporations are again forced to pay their bar tab. Credit markets are exhibiting surreal strength and through that lens and that lens alone, the equity market has plenty of room to run.

The question is therefore begged-- will this singular proxy again ring the bell when a crimson tide is about to turn?

Raptors Await

There's no denying the bulls have captured the year-over-year crown. While you can agree or disagree with the synthetic catalysts, price is the ultimate arbiter of variant financial views. The market is never wrong; we should never let an opinion get in the way of making money.

As investors key on corporate credit, there is a litany of causal risks waiting in the wings. With a conscious nod that these could conceivably create building blocks in a wall of worry, I humbly submit 10 reasons why we're witnessing a cyclical bull market in the context of a prolonged and painful secular bear stretch.

• Questions remain on a Greek aid package in front of 20 billion euros in debt that comes due in April and May. This dynamic is not bound by borders; should an accord be reached, as expected, the approach will be tested when the next "lifeguard" begins to drown.

• New health care legislation could add hundreds of billions of dollars to already yawning budget deficits. That chasm can only close through upward taxation or austerity initiatives; neither is pro-growth and both drain consumption. This, of course, comes at a time when the "interconnectedness" of governments and markets has never been higher.

• State budgets are cracking and a recent report from the Pew Center estimates unfunded pension liabilities are an eye-popping $452 billion. While I expect a Federal bailout package, as discussed in January, it's akin to moving money from one pocket to the other.

• Social mood is tenuous at best and deteriorating at worst. As the great divide continues to evolve -- red states vs. blue states, Main Street vs. Wall Street, haves vs. have nots -- societal acrimony has evolved into social unrest in some parts of the world, and economic hardship is pointing an unfortunate needle towards geopolitical conflict.

• Complacency abounds, as measured by traditional volatility measures such as the Volatility Index. While we've witnessed prolonged periods of subdued volatility (2004-2006) and healthy debates rage regarding the indicative validity of this measure, risk premiums are at levels last seen in June 2008 -- a few short months before the financial crisis arrived.

• From Google Inc.-China to USA-Toyota Motor Corp. to EU-Greece, the seeds of protectionism continue to sow. That posturing is on the opposite end of "globalization" on the prosperity spectrum.

• While the stated unemployment rate hovers just below 10%, almost one-in-five Americans is underemployed; that means they're not working, stopped looking, working below their abilities or working part-time because they can't find full-time employment.

• Economic perspective. Interest rates have one way to go, price-to-earnings multiples never troughed, and debt-to-GDP ratios will approach or exceed 100% in all G7 countries by 2014, with the exception of Germany and Canada, according to John Lipsky at the IMF.

• The Congressional Oversight Panel warns that commercial real estate losses at banks alone could reach $300 billion starting in 2011. Almost half of those loans are concentrated at smaller institutions with total assets under $10 billion, and those are the same banks that account for almost half of all small business loans.

• It's easy to forget about the housing crisis; in terms of "what matters now," this concern almost feels passe. We must remember that massive amounts of residential mortgage backed securities are mis-marked at best and toxic at worst, sitting on the balance sheets of private and public institutions and by extension, in bank accounts across America. This is in addition to the manifestation of under-water mortgages (negative equity) and foreclosure trends throughout the land.

Total Recall

Do I think the system is broken beyond repair? No; I believe there will be massive opportunities once we've taken the medicine of debt destruction so long as calmer heads prevail.

That could take another five to seven years but it's difficult to foretell; a lot depends on how we navigate a multi-linear dynamic that includes currency readjustments, the evolution of credit, $500 trillion of global derivatives, two-sided regulatory reform, the shifting social mood, geopolitical fragility and trade relations.

Is it possible we "echo" higher before that comeuppance arrives? Sure; these aren't natural markets anymore and we must respect both sides of the financial equation. Given the path we take trumps the destination we arrive at, there's only one way we can reconcile these seemingly disparate data points: carefully, and one step at a time.

With quarter-end bearing down and performance anxiety picking up, market psychology is emerging as the most important of our four primary metrics. The last round of fundamental data points (earnings) beat expectations on the aggregate, the bulls have the technical baton above S&P 1150 and the bank index 50 (resistance comes into play at S&P 1200) and while stateside structural dynamics are currently steady, we haven't heard the last of sovereign situations on the other side of the pond.

If you asked me for my near-term opinion, I would offer that the tape tops out before quarter-end under S&P 1200, consistent with the path of maximum frustration as fund managers reach for performance. Remember, when S&P 1150 was surmounted, a lot of shorts covered, removing a natural layer of forward demand. From there, we'll monitor the second quarter flows, which should help shape the tape into the beginning of April.

We each have unique time horizons and risk profiles, which is why blanket advice is so very dangerous. I don't believe in punditry; I believe in proactive preparedness and individual responsibility for our financial choices. It's my hope that by painting the big picture landscape -- and adding color by numbers in the near-term -- I've added some value as we together find our way.

Todd Harrison is the founder and chief executive officer of Minyanville. Harrison has a position in the S&P.

Copyrighted, MarketWatch. All rights reserved. Republication or redistribution of MarketWatch content is expressly prohibited without the prior written consent of MarketWatch. MarketWatch shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon.

How to Gauge Your Middle-Class Status

by Rick Newman

Assessing Your Middle-Class Status

Despite the so-called recovery, many families continue to struggle, with income and other living standards slipping below thresholds that typically represent middle-class quality of life. We've assembled a variety of metrics to help determine whether you're getting ahead, holding steady, or slipping further than most.

Income

For the 50 percent of families in the middle of the scale, household income ranges from $51,000 to $123,000 for a typical four-person, two-parent family. The median is about $81,000. Those numbers are from 2008, and have probably fallen 5 to 7 percent since then, on account of the recession. Median income for a single-parent, two-child family is about $25,000.

Housing Costs

For two-parent families, the typical home is worth about $231,000, accounting for $17,600 in mortgage payments and other costs per year. Housing costs have risen by more than twice as much as income since 1990, a trend that may finally be reversing thanks to the housing bust.

Home Size

The housing bubble was one factor that boosted housing costs, but the typical family also lives in a much bigger home. The median size of a new, single-family home jumped by 40 percent between 1979 and 2007, to about 2,300 square feet. That may now be declining, as families downsize and some get booted from homes they can't afford.

Medical Expenses

You've probably heard — healthcare costs are going through the roof. A study by the middle-class task force headed by Vice President Joe Biden says the median two-parent family spends $5,100 per year on health insurance and non-covered expenses—assuming an employer provides health insurance. Healthcare costs have risen far more than any other aspect of the family budget since 1990, with no end in sight.

Cars

They provide mobility and represent freedom, one reason the typical family spends about $12,400 per year on two medium-sized sedans or the equivalent, with a new-car value of $45,000. The recession may have dampened our love of the road, however: Americans are driving less and car sales are off about 40 percent.

College Savings

The typical family puts aside $4,100 for college expenses for two kids, estimated to cover about 75 percent of expenses at a state university. Financial aid helps with the rest. But if possible, toss more into the college fund: As states face budget crunches, tuition and fees are going up.

Vacations

One week at the beach or another destination is standard, at a cost of $3,000 or so for four. More affluent families can afford two weeks, at a typical cost of $6,100.

Retirement Savings

A median-income family that saved 3.2 percent of its income—roughly equivalent to the national saving rate—would sock away nearly $2,600 per year for retirement. Of course many families don't hit even that modest goal, and stock-market losses over the last several years have further shrunk the national nest egg.

Everyday Spending

Clothes, food, utilities, entertainment and other living expenses amount to $14,200 a year for a median-income family. Not surprisingly, this is one set expenses many families are trying to reduce, by buying more discount brands, using less or doing without.

Number of Earners

In 76 percent of two-parent families, both parents work. The higher the household income, the more likely it is that both parents are contributing.

Hours Worked

Few parents will be surprised to hear that Moms and Dads are working more than they used to. The total number of hours worked in a two-parent family is 3,747 per year, up 5 percent since 1990. The increased hours add up to more than four 40-hour weeks of additional work per family.

Education

The typical household head has a high school degree plus about two years of college education, up by more than a full year of college since 1990. Good thing—education is a key factor in lifetime earnings, and high school dropouts face a dim future by nearly every measure.

Free Time

What's your top priority? In a 2008 poll by the Pew Research Center, it wasn't healthy kids, a strong marriage or a great career; 68 percent of respondents said it was free time. (And just 12 percent said it was being wealthy.)

Household Net Worth

The typical household has a net worth of about $84,000, according to the Federal Reserve. That's down 30 percent since 2007, thanks to losses in stock portfolios and home values.

Debt

About 18 percent of disposable income, on average, goes toward mortgage payments, auto loans, credit cards and other forms of household debt. That's a bit higher than it was in the '70s and '80s. But since debt payments peaked at the beginning of 2008, at 18.9 percent of income, they've been steadily falling.

Copyrighted, U.S.News & World Report, L.P. All rights reserved.

Tuesday, 23 March 2010

2 Major Barriers to Your Retirement Plans

by Robert Powell

Alzheimer's, inability to increase savings are two steep obstacles to golden years

When it comes to retirement, there are lots of things to consider: tax rates, earthquakes, and drug interactions to name a few. But experts say there are two big elephants in the room with which many of us will have to deal, sooner or later.

One is trying to make up for lost time on the savings front by assuming you can work later in life. The other is a diagnosis of Alzheimer's disease, either for oneself or a close family member.

Let's tackle the tougher one first.

Some 5.3 million people now have Alzheimer's, according to a recent report issued by the Alzheimer's Association. That's roughly the population of Colorado. The disease is the seventh leading cause of death in the U.S. There are some 10 million unpaid caregivers.

What's worse still, there's no end in sight: The prevalence of Alzheimer's is expected to grow by more than 80% from 2000 to 2025 in at least nine states, including Colorado. By 2050, some 19 million Americans will have Alzheimer's.

You don't have go far in your family tree or on your Facebook page to realize that you're just one degree of separation away from this disease. In my extended family, for instance, I know of at least three people with Alzheimer's or symptoms of dementia, all of whom are, by the way, women, the gender most affected by the disease.

So how should you tackle or at least think about this elephant in the room?

"Alzheimer's disease is the largest thief of retirement" said Chris Cooper, president of Chris Cooper & Company, Inc. and ElderCare Advocates, Inc. "It is a slowly progressing disease, leaving the person oftentimes with good physical health and less mental faculties to use this good physical health."

Americans are often diagnosed with Alzheimer's in their late 60s and 70s, but it can and does occur earlier. And, Cooper said, many Americans fail to plan for the disease. "When confronted with the diagnosis, families often scramble for information and begin to engage in different forms of 'quackery,'" said Cooper, who is a former president of the Ohio Council of the Alzheimer's Association and whose maternal grandmother had Alzheimer's disease.

To Cooper, the quackery usually takes three forms: medical, financial and legal. People might pursue medical treatments that have not been proven to work, and many times are harmful, he said. And they might try to do things with legal and financial instruments, he said, "all in the name of 'fear of running out of money' and 'the only way to get the government to pay for my parent's nursing-home care.'"

In some cases, Cooper said caregivers could be accused of stealing when they set up gifting schemes.

Because there's a long three-to-20-year life span from diagnosis to death with Alzheimer's disease, Cooper said retirement planning can be difficult. "You have to plan for a possible 20-year period of dependency on others to manage your resources, to make decisions for you, and see to your care and comfort as your fiduciary," he said.

But just because it's difficult doesn't mean that you should avoid it. Instead, you have to confront it head on. "It is happening to more and more of us now, as our life expectancies increase," he said.

Working in Retirement

The Employee Benefit Research Institute's recent report about retirement confidence found that many Americans plan to keep working as a way to make up for not having saved enough or invested wisely enough for retirement, or as a way to keep health insurance.

But, as many have written before, working is not a fail-safe plan. Or is it?

Two new reports seem to indicate this elephant might be smaller than we think, unless of course you develop Alzheimer's.

According to a recent Urban Institute report, unemployment rates for men and women age 55 and older did hit record highs in 2009. And older African Americans, Hispanics, and adults with limited education were especially likely to find themselves unemployed. Plus, the report noted that older adults who lost their jobs spent more time out of work than their younger counterparts.

But there were some encouraging developments. For instance, employment rates for adults age 62 and older did not fall, because many older workers stayed in the labor force, and earnings for full-time workers age 65 and older grew substantially, the report stated.

A separate EBRI report confirmed the Urban Institute's findings. The percentage of those aged 55 or older in the labor force increased to 39.4% in 2008, from 29.4% in 1993. For those aged 65 to 69, the percentage increased to 30.7% in 2006 from 18.4% in 1985. Yet, while older workers working full time increased steadily from 1993 to 2007, that trend ended with the recession in 2008.

Still, working in retirement does seem viable for some. "My recommendation to workers is to delay retiring as long as possible -- another three to five years, or even longer where feasible," said Olivia S. Mitchell, associate director of the Financial Literacy Center. "Working longer preserves assets, yields higher eventual Social Security benefits, and probably results in people staying healthier, as compared to retiring early."

Robert Powell has been a journalist covering personal-finance issues for more than 20 years, writing and editing for publications such as The Wall Street Journal, the Financial Times, and Mutual Fund Market News. Powell is the editor of Retirement Weekly.

Copyrighted, MarketWatch. All rights reserved. Republication or redistribution of MarketWatch content is expressly prohibited without the prior written consent of MarketWatch. MarketWatch shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon.

Monday, 22 March 2010

Recession left "walking wounded" workers

(Reuters) - Many workers around the world have given up hopes of advancing in their jobs, but the bad economy is keeping them from finding new ones.

Such "walking wounded" workers are increasingly exchanging ambition for job stability, which now even trumps pay as a consideration, according to a biennial survey by the human resources consultancy Towers Watson Co.

People are becoming "nesters," who prefer to stay in one career or with one employer for their entire career.

The report highlights a disconnect between what such "nesters" want and the growing trends that are shaping the global workforce: an increasing emphasis on flexible staff and short-term employment, more offshoring and part-time work.

"People are increasingly wanting things that are harder to get," said Max Caldwell, a leader of Towers Watson's talent and reward business. "They'd like to settle into one or two companies for life. What people want is security, stability and a long-term employment relationship, (which are) increasingly out of reach."

Globally, a third of workers prefer to work for one organization their whole life, according to the study, while another third want to work for just two or three employers.

That preference for "nesting" reflects anxiety about jobs prospects and about factors like healthcare costs and retirement planning, expenses that are increasingly being shifted onto workers rather than carried by employers.

In the United States, almost twice as many workers expect continued deterioration in the jobs picture as those who expect improvement. A majority -- 51 percent -- say there are no career advancement opportunities at their jobs, but nonetheless 81 percent are not actively looking for a new position.

Among the study's other findings:

* 30 percent of U.S. workers plan to work past age 70.

* About half of U.S. workers feel unprepared for planning or managing their retirement.

* 56 percent of U.S. workers expect little change in the job market this year.

* Workers in developing economies like India and China are far more willing to jump from job to job than their counterparts in countries like Germany and the United States.

The study adds to recent data that indicates a high level of uncertainty about the shape and duration of the economic recovery. Global staffing services firm Manpower Incsaid last week its quarterly measure of hiring intentions dipped slightly, suggesting U.S. employees are less willing to hire in the second quarter than in the first.

'WALKING WOUNDED'

Workers are more risk-averse because the recession has shown them how quickly jobs can disappear, and have become discouraged since a tentative economic recovery has not yet produced significant jobs gains.

"This notion of a jobless recovery is a very relevant trend, creating an environment with greater risk of disengagement. In some organizations, you have a walking wounded syndrome," Caldwell said.

Employers are still focused on managing compensation costs and they are cautious about staffing back up as demand increases, he said.

That may leave more room for companies to hold down compensation costs. The study, based on a survey of 20,000 workers in 22 countries, hints wage growth for the next few years may be flat or at least less robust than in previous recoveries.

For employers, the key challenges of managing through the next year or two include motivating workers, by creating an appealing work environment with room to advance or develop new skills, according to the study. Employees, meanwhile, may need to reset expectations lower.

Still, the recession's effect on workers was not as profound as that of the Great Depression in the 1930s, Caldwell said. But it was the first deep downturn for an entire generation and is likely to leave a lasting impression, likely making people take on less risk and become less ambitious about their careers.

(Reporting by Nick Zieminksi, editing by Dave Zimmerman)

Saturday, 20 March 2010

Ignore the Market's Low Volume at Your Peril

by Michael Kahn

Weak trading levels have thus far not undermined the stock market's recent rally. But that doesn't mean that they couldn't.

Many in the financial media have latched on to the argument that the low-volume nature of the recent stock rally doesn't necessarily undermine it. After watching the stock market grind higher over the past two months, I must agree that basing investment decisions on volume has left many looking silly in the face of a strong bull advance.

Still, one of the most dangerous phrases in investing is "this time it's different." While there are periods when basic concepts of trading and market psychology seem to be out of line with reality, eventually they do make their way back. Think back to the end of the Internet bubble when price/earnings ratios were discarded in favor of "new economy" metrics. It only worked for a short few months.

For this reason, I must caution investors that volume does indeed still matter. And when volume does start to increase, it might be a sign of a turn in the market and not the signal that it is time to buy.

The bible of technical analysis, Edwards and Magee's Technical Analysis of Stock Trends, says this, "Volume is of the utmost importance in all technical phenomena." Although price action is the most critical of factors in charting, volume tells us the conviction of the marketplace.

Right now, the trend is up so we must say that stocks are bullish. However, low volume tells us that the conviction of the public to own stocks is lacking. Indeed, Carl Swenlin, of DecisionPoint.com, says, "it means that more people than usual are sitting in cash because of the global financial crisis." The small investor is not convinced that owning stocks is a good idea, even after a 70% rally.

Many might say that all of this cash is bullish for stocks as potential fuel. That may have been true in a market dominated by small investors, but today's market is dominated by institutions. And according to Alan Newman in his Crosscurrents newsletter, mutual- fund cash levels are at their lowest levels since 2004. In other words, institutions representing investors are not sitting on that much cash.

But is a lack of conviction really a bad thing? Should it matter how the market goes up if we are watching our portfolios grow?

The lack of participation by many different types of investors means that stocks are in the hands of fewer owners. There is no buffer against adverse news, and it would not take much to get that group crowding the exit doors.

A buffer, in the form of a relative balance of buyers and sellers with different time frames and risk tolerances, slows down reactions. In a well-diversified marketplace, a small selling event does not turn into a stampede.

Richard Wyckoff, master technician of nearly a century ago, referred to volume as the "cause" and price as the "effect," indicating that volume leads price. Changes in volume lead to changes in trend. Of course, this was not pinned down to a time frame nor did it take into account the anomalies of today's market. Near-zero interest rates and government stimulus programs certainly change the balance of buyers and sellers.

But the principles at the core of market analysis remain.

Look upon volume as a risk measure and not a trend measure. The more volume, the more widespread the bullish mood and the more orderly the market will be, both as it rises and as it turns. Low volume does not prevent rallies. It does make them riskier.

Copyrighted, Dow Jones & Company, Inc. All Rights Reserved.

Friday, 19 March 2010

Our tax system

Suppose that every day; ten men go out for beer and the bill for all ten
comes to $100. If they paid their bill the way we pay our taxes, it
would go something like this:

The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh would pay $7.
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.

So, that's what they decided to do. The ten men drank in the bar every
day and seemed quite happy with the arrangement, until one day, the owner
threw them a curve. He said, "Since you are all such good customers, I'm
going to reduce the cost of your daily beer by $20. Drinks for the ten
now cost just $80."

The group still wanted to pay their bill the way we pay our taxes, so the
first four men were unaffected. They would still drink for free. But
what about the other six men -- the paying customers?
How could they divide the $20 windfall so that everyone would get his
"fair share"? They realized that $20 divided by six is $3.33. But if
they subtracted that from everybody's share, then the fifth man and the
sixth man would each end up being paid to drink his beer. So the bar
owner suggested that it would be fair to reduce each man's bill by
roughly the same amount, and he proceeded to work out the amounts each
should pay!

And so:

The fifth man, like the first four, now paid nothing (100% savings).
The sixth now paid $2 instead of $3 (33%savings).
The seventh now pay $5 instead of $7 (28%savings).
The eighth now paid $9 instead of $12 (25% savings).
The ninth now paid $14 instead of $18 (22% savings).
The tenth now paid $49 instead of $59 (16% savings).

Each of the six was better off than before. And the first four
continued to drink for free. But once outside the restaurant, the men
began to compare their savings.

"I only got a dollar out of the $20," declared the sixth man. He
pointed to the tenth man, "but he got $10!"

"Yeah, that's right,' exclaimed the fifth man. "I only saved a dollar,
too. It's unfair that he got ten times more than I!"

"That's true!!"shouted the seventh man. "Why should he get $10 back when
I got only $2 ? The wealthy get all the breaks!"

"Wait a minute," yelled the first four men in unison. "We didn't get
anything at all. The system exploits the poor!"

The nine men surrounded the tenth and beat him up.

The next night the tenth man didn't show up for drinks, so the nine sat
down and had beers without him. But when it came time to pay the bill,
they discovered something important. They didn't have enough money
between all of them for even half of the bill!

And that, boys and girls, journalists and college professors, is how our
tax system works. The people who pay the highest taxes get the most
benefit from a tax reduction. Tax them too much, attack them for being
wealthy, and they just may not show up any more. In fact, they might
start drinking overseas where the atmosphere is somewhat friendlier.

Author unknown

For those who understand, no explanation is needed.
For those who do not understand, no explanation is possible.

Thursday, 11 March 2010

How to get a job when you’ve been unemployed for a whole year

Simon Mortlock

Banks made a lot of their layoffs way back in Q4 2008 and Q1 2009, but the job market only really picked up late last year. This means there are people, quite a few people, who have now been looking for work for a whole year (or more).

In many cases, the stigma of a year’s unemployment could be stifling their job searches, and leaving them with much explaining to do during interviews, especially in a sector as unforgiving as financial services.

If you are among the many approaching this unhappy anniversary, here are a few tips that might help you turn the tide.

Prepare well for the “why were you retrenched?” question

Interviewers will hammer you on why you were laid off. Don’t give them an inch. Hit back calmly and confidently. Show a positive attitude, as opposed to dwelling on the negatives.

“It’s essential to articulate the reasons why you were retrenched or found it difficult to secure a new role in 2009, clearly showing an understanding of global markets, economics and organisational change,” says Sara Gibb, manager of finance and banking contract, Robert Walters.

Let your CV do the talking

You can minimise some of your interview agony by careful crafting the way your CV describes your previous role (and thus your redundancy). “Make sure your resume highlights accomplishments and achievements, not just responsibilities,” advises Lee Thomas from Manpower Professional.

An achievements-focused CV, says Jane McNeill, senior regional director of Hays banking, “will help to overcome any assumption that you were let go for underperformance, and it will also help an employer clearly see how you could add value to their organisation.”

Don’t ever, ever lose touch with the financial markets

Browsing the AFR might not be your idea of summer fun, but it has to be done. “Keep on top of local and international market changes and developments through reading relevant publications, studying websites and networking within your industry and field of expertise. This shows you have a proactive approach and will provide you with up to date information to discuss at interviews,” says Gibb.

Develop a routine to maintain your motivation

Maintaining your motivation while unemployed (and minimising the emotional toll) can be helped by approaching your job hunt as you would a job.

“For example: start your search at the same time each day; have set objectives you need to work towards (such as researching and proactively contacting a certain number of organisations daily); take breaks at set times; and reflect positively on what you have achieved,” says McNeill.


Sharpen up your skills

Your skills base is always your key selling point in the job market, so make sure you continue to develop it via short-term courses. “Time away from full-time employment could be a good time to study or improve your skill set. There are a lot of very inexpensive or free online courses, which will increase your opportunity to be employed, and show people that you’re keen to develop and use the downturn wisely,” comments Thomas.

Get some career coaching

Confidence is key to securing interviews. “The market is always on the lookout for quality people and it's important to not let bad experiences be disheartening. Seek counsel or career coaching to help instil confidence. The best way to get an interview is to pick up the phone and simply ask for one. Don't wait to be contacted,” says Thomas.

Don’t give contracting the cold shoulder

It might be your best (only?) way back into the world of work. “Temporary assignments provide you with recent experience you can then discuss in job interviews. They are also often preferred options for employers at the moment, and they can provide you with a broader depth of experience and skills development,” says McNeill.

Are your references really where you think they are?

You’ve aced an interview, so don’t fall at the last hurdle. Ensure your references are pre-prepared and up to date, particularly at the start of a new year. Your referees may have moved jobs themselves in 2009, so their contact details and/or availability may have changed. “It's also essential that you gain a previous employer’s permission before providing their details as a reference contact,” says Gibb.

And finally….do you really need to be a banker?

If you’re a banker, your skills are transferable, especially now that the real economy is recovering in Asia. “People from a banking background could, for example, apply their skills and experience in the housing market, other financial institutions, or finance teams,” says Thomas.

Five reasons why the foreign banks pay more than the locals

The author is a senior banker based in Singapore, with three decades in commercial and investment banking at major international firms.

My nephew, who works for a major foreign bank in Singapore, laments endlessly about the tremendous working pressure and stress which he faces daily. He talks about aggressive and unrealistic revenue targets, unfair head office politics and unreasonable expat bosses.

He remembers his early years with a local bank when he had more time for his family, friends and leisure activities. And he always says that one day soon, his wish is to “retire” in a local bank.

Despite the above, I understand that my nephew has declined numerous opportunities to be interviewed for senior positions in the local banks. His predicament is understandable. His compensation from his years with a foreign bank has enabled ownership of an upmarket condominium and a new BMW, and has allowed him to play golf on weekends and dine at the finest restaurants in Singapore.

The pay and lifestyle in a foreign bank are just too hard to give up. Deep down, I think he realises that there is no such thing as a free lunch and he has to deliver what his employers pay him for.

In the last few years, however, the compensation gap has narrowed because of the growing sophistication of the local banks and their moves to retain/hire top talent from foreign firms at quite senior levels. But it still exists and here are five reasons why:

1. Obsession with lower FTEs/headcount

Almost every foreign bank I know appears obsessed with keeping FTEs ("full time employees") to a minimum where possible. They prefer to hire more qualified senior staff who are productive immediately. Administrative tasks are usually subcontracted outside the bank.

Many managers have a larger number of direct reports and are required to continue to generate revenue. Head office charges are also levied on a per-FTE basis, as are most performance measures. Staff are required to multi-task and hiring takes place only when absolutely necessary.

Local banks, however, seem to thrive on having large numbers of staff at many levels. These employees are given very well defined boundaries and work responsibilities. There are also many long-serving middle managers (who are basically just managing other managers or checking up on other people's work).

2. Customer segmentation versus volume

Foreign firms focus on specific market segments, higher quality earnings and bigger tickets items, and as such their staff are actually more productive revenue-cost wise.

Local banks tend to cater to almost every customer segment and will need to hire employees at all levels (i.e. fresh trainees all the way to department heads). Smaller customers and smaller deals are handled by more junior staff, regardless of productivity and unit-processing costs.

3. Geographic span/regional coverage

Foreign bankers are normally regionally focused because the domestic market in Singapore may not offer enough big deals to justify having highly paid and qualified specialists. This means more regional coverage and exposure, and perhaps more training stints at head office. And of course it means that foreign banks have to pay premiums for retaining and hiring talent with regional experience.

4. New business acquisition

I recall one VP of a local bank telling me that his firm does not need to hire and pay for top deal makers and revenue generators because every calendar year there will be a significant amount of banking business which will simply walk into the bank's doors. With their dominant market share and many affiliates and associates, new business acquisition is almost automatic.

5. Job insecurity

Foreign banks must also pay a premium for the job insecurity and career uncertainty which they offer. Every couple of years, there will be changes in top management, or in strategic business direction.

Redundancies and job losses occur regardless of individual performance. Positions are continuously restructured and/or redeployed geographically. In addition, expats from head office are normally better thought of and rank more favourably than most local staff.

Collapse of the American Empire: Swift, Silent, Certain

by Paul B. Farrell

Commentary: Historians Warning of a Sudden 'Thief at Night,' an 'Accelerating Car Crash'

"One of the disturbing facts of history is that so many civilizations collapse," warns anthropologist Jared Diamond in Collapse: How Societies Choose to Fail or Succeed. Many "civilizations share a sharp curve of decline. Indeed, a society's demise may begin only a decade or two after it reaches its peak population, wealth and power."

Now, Harvard's Niall Ferguson, one of the world's leading financial historians, echoes Diamond's warning: "Imperial collapse may come much more suddenly than many historians imagine. A combination of fiscal deficits and military overstretch suggests that the United States may be the next empire on the precipice." Yes, America is on the edge.

Dismiss his warning at your peril. Everything you learned, everything you believe and everything driving our political leaders is based on a misleading, outdated theory of history. The American Empire is at the edge of a dangerous precipice, at risk of a sudden, rapid collapse.

Ferguson is brilliant, prolific and contrarian. His works include the recent Ascent of Money: A Financial History of the World; The Cash Nexus: Money and Power in the Modern World; Colossus: The Rise and Fall of The American Empire; and The War of the World, a survey of the "savagery of the 20th century" where he highlights a profound "paradox that, though the 20th century was 'so bloody,' it was also 'a time of unparalleled progress.'"

Why? Throughout history imperial leaders inevitably emerge and drive their nations into wars for greater glory and "economic progress," while inevitably leading their nation into collapse. And that happens suddenly and swiftly, within "a decade or two."

You'll find Ferguson's latest work, "Collapse and Complexity: Empires on the Edge of Chaos," in Foreign Affairs, the journal of the Council of Foreign Relations, a nonpartisan think tank. His message negates all the happy talk you're hearing in today's news -- about economic recovery and new bull markets, about "hope," about a return to "American greatness" -- from Washington politicians and Wall Street bankers.

'Collapse of All Empires:' 5 Stages Repeating Through the Ages

Ferguson opens with a fascinating metaphor: "There is no better illustration of the life cycle of a great power than 'The Course of Empire,' a series of five paintings by Thomas Cole that hangs in the New York Historical Society. Cole was a founder of the Hudson River School and one of the pioneers of nineteenth-century American landscape painting; in 'The Course of Empire,' he beautifully captured a theory of imperial rise and fall to which most people remain in thrall to this day. Each of the five imagined scenes depicts the mouth of a great river beneath a rocky outcrop."

If you're unable to see them at the historical society, they're all reproduced in Foreign Affairs, underscoring Ferguson's warnings that the "American Empire on the precipice," near collapse.

First. 'The Savage State,' Before the Empire Rises

"In the first, 'The Savage State,' a lush wilderness is populated by a handful of hunter-gatherers eking out a primitive existence at the break of a stormy dawn." Imagine our history from Columbus' discovery of America in 1492 on through four more centuries as we savagely expanded across the continent.

Second. 'The Arcadian or Pastoral State,' as the American Empire Flourishes

"The second picture, 'The Arcadian or Pastoral State,' is of an agrarian idyll: the inhabitants have cleared the trees, planted fields, and built an elegant Greek temple." The temple may seem out of place. However, Cole's paintings were done in 1833-1836, not long after Thomas Jefferson built the University of Virginia using classical Greek and Roman revival architecture.

As Ferguson continues the tour you sense you're actually inside the New York Historical Society, visually reminded of how history's great cycles do indeed repeat over and over. You are also reminded of one of history's great tragic ironies -- that all nations fail to learn the lessons of history, that all nations and their leaders fall prey to their own narcissistic hubris and that all eventually collapse from within.

Third. Consummation of the American Empire

"The third and largest of the paintings is 'The Consummation of Empire.' Now, the landscape is covered by a magnificent marble entrepôt, and the contented farmer-philosophers of the previous tableau have been replaced by a throng of opulently clad merchants, proconsuls and citizen-consumers. It is midday in the life cycle."

'The Consummation of Empire' focuses us on Ferguson's core message: At the very peak of their power, affluence and glory, leaders arise, run amok with imperial visions and sabotage themselves, their people and their nation. They have it all.

But more-is-not enough as greed, arrogance and a thirst for power consume them. Back in the early days of the Iraq war, Kevin Phillips, political historian and former Nixon strategist, also captured this inevitable tendency in Wealth and Democracy:

"Most great nations, at the peak of their economic power, become arrogant and wage great world wars at great cost, wasting vast resources, taking on huge debt, and ultimately burning themselves out." We sense the "consummation" of the American Empire occurred with the leadership handoff from Bill Clinton to George W. Bush.

Unfortunately that peak is behind us: Clinton, Bush, Henry Paulson, Ben Bernanke, Sarah Palin, Barack Obama, Mitt Romney and all future American leaders are merely playing their parts in the greatest of all historical dramas, repeating but never fully grasping the lessons of history in their insatiable drive for "economic progress," to recapture former glory ... while unwittingly pushing our empire to the edge, into collapse.

Four. Destruction of the Empire

Then comes 'The Destruction of Empire,' the fourth stage in Ferguson's grand drama about the life-cycle of all empires. In "Destruction" "the city is ablaze, its citizens fleeing an invading horde that rapes and pillages beneath a brooding evening sky." Elsewhere in "The War of the World," Ferguson described the 20th century as "the bloodiest in history, one hundred years of butchery." Today's high-tech relentless news cycle, suggests that our 21st century world is a far bloodier return to savagery.

At this point, investors are asking themselves: How can I prepare for the destruction and collapse of the American Empire? There is no solution in the Cole-Ferguson scenario, only an acceptance of fate, of destiny, of history's inevitable cycles.

But there is one in "Wealth, War and Wisdom" by hedge fund manager Barton Biggs, Morgan Stanley's former chief global strategist who warns us of the "possibility of a breakdown of the civilized infrastructure," advising us to buy a farm in the mountains.

"Your safe haven must be self-sufficient and capable of growing some kind of food ... well-stocked with seed, fertilizer, canned food, wine, medicine, clothes, etc. Think Swiss Family Robinson." And when they come looting, fire "a few rounds over the approaching brigands' heads."

Five. Desolation ... After the Empire Disappears

"Finally, the moon rises over the fifth painting, 'Desolation,'" says Ferguson. There is not a living soul to be seen, only a few decaying columns and colonnades overgrown by briars and ivy." No attacking "brigands?" No loveable waste-collecting robots from Wall-E?

The good news is the Earth will naturally regenerate itself without savage humans, as we saw in Alan Weisman's brilliant "The World Without Us:" Steel buildings decay. Microbes eat indestructible plastics. Eons pass. And Earth reemerges in all its glory, a Garden of Eden.

Epilogue: 'All Empires ... Are Condemned to Decline and Fall'

In a Los Angeles Times column, Ferguson asks: "America, a Fragile Empire: Here today, gone tomorrow, could the United States fall that fast?" And his answer is clear and emphatic: "For centuries, historians, political theorists, anthropologists and the public have tended to think about the political process in seasonal, cyclical terms ... we discern a rhythm to history. Great powers, like great men, are born, rise, reign and then gradually wane. No matter whether civilizations decline culturally, economically or ecologically, their downfalls are protracted."

We are deceiving ourselves, convinced "the challenges that face the United States are often represented as slow-burning ... threats seem very remote."

"But what if history is not cyclical and slow-moving but arrhythmic?" asks Ferguson. What if history is "at times almost stationary but also capable of accelerating suddenly, like a sports car? What if collapse does not arrive over a number of centuries but comes suddenly, like a thief in the night?" What if the collapse of the American Empire is dead ahead, in the next decade? What if, as with the 2000 dot-com crash, we're in denial, refusing to prepare?

Ferguson's final message about America's destiny comes from Foreign Affairs: "Conceived in the mid-1830s, Cole's great five-part painting has a clear message: all empires, no matter how magnificent, are condemned to decline and fall." Throughout history, empires function "in apparent equilibrium for some unknowable period. And then, quite abruptly ... collapse," a blunt reminder of the sudden, swift, silent, certain timetable in Diamond's "Collapse" where a "society's demise may begin only a decade or two after it reaches its peak population, wealth and power."

You are forewarned: If the peak of America's glory was the leadership handoff from Clinton to Bush, then we have already triggered the countdown to collapse, the decade from 2010 until 2020 ... tick ... tick ... tick ...
Copyrighted, MarketWatch. All rights reserved. Republication or redistribution of MarketWatch content is expressly prohibited without the prior written consent of MarketWatch. MarketWatch shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon.

Monday, 8 March 2010

'High' risk of recession relapse

LONDON - BRITAIN which emerged from recession in the final quarter of 2009, faces a 'high' risk of relapse and below-average growth in the next two years, the British Chamber of Commerce warned on Sunday.

'The UK economic outlook will remain highly uncertain for a considerable time,' the BCC said in the group's latest economic forecast. The recovery will be fragile, and the risks of a relapse are high.'

The BCC predicted that the economy will grow 1.0 per cent this year, followed by expansion of 2.1 per cent in 2011. It shrank by 5.0 per cent in 2009. The 2010 forecast was unchanged from previous guidance but the 2011 figure was lower than its prior prediction of 2.3-per cent expansion.

'The obstacles to a sustained medium-term recovery now appear greater,' the business group said. The BCC added that the recovery would be 'modest and below the historical average in the next two years'.

Britain escaped from recession in the fourth quarter of last year with growth of 0.3 per cent. The expansion during October-December 2009 followed a deep recession that lasted six quarters - the country's longest on record. 'The recession may have technically ended, but there is no room for complacency,' BCC director general David Frost said in the report. 'For the recovery to be sustained, it is crucial that all the political parties recognise the vital role of wealth-creating businesses in driving economic growth and job creation.

'The government must use the forthcoming budget as a platform for laying the foundations for a business-led recovery,' Frost added, in reference to the budget which is widely expected later this month. 'If it fails to do so, the recovery will take longer to gain momentum and may even slip into reverse.' -- AFP

Saturday, 6 March 2010

This Could Save You From Financial Disaster

By Dan Caplinger

Making sure you have enough money to retire comfortably is the biggest long-term financial challenge you're likely to face. Some of the most useful tools to help you save for retirement, however, also have other features that could have an even bigger impact on your finances long before the day you quit your job.

Making the most of a good thing
Tax-favored retirement accounts like IRAs and 401(k) plans come with a host of benefits. The most immediate comes from traditional IRAs and 401(k)s, which give you an immediate tax deduction for the amount of money you contribute. Depending on your tax bracket, a $5,000 contribution to an IRA could be worth as much as $1,750 in tax savings this year.

More important from a long-term perspective, however, are the long-term advantages to having money inside a retirement account. As long as your money is safely sheltered within that account, you don't have to worry about paying any income tax on the capital gains you realize or the investment income you receive. Moreover, if you have a Roth IRA, you'll never have to worry about paying taxes -- even when you take your money out, all the income is tax-free as long as you meet the Roth requirements.

Higher taxes = more savings
Unfortunately, there's every indication that taxes are headed higher for many taxpayers. Although that's bad news for the investments you hold in regular taxable accounts, it makes the value of your tax-advantaged retirement accounts even greater.

As an example, take one of the more draconian tax hikes that could come as early as next year: an end to preferential dividend tax rates. Right now, qualified dividends enjoy a maximum tax rate of 15%. Next year, though, those special provisions are slated to go away, which could result in taxes on dividends rising as high as 39.6%.

That's a big hike -- but it's one you can avoid if you own your dividend-paying stocks inside a retirement account.

Keeping your money
In addition, having money in retirement accounts gives you something you might not have realized: protection from creditors. In particular:

* The laws that govern employer plans have long held that retirement assets within such plan accounts were exempt from bankruptcy laws. That means that even if you file for bankruptcy, you're entitled to keep the money within your 401(k).
* Until a few years ago, the protection for IRAs wasn't as generous. But a 2005 law paved the way for IRA protection. For IRAs that you open yourself by making direct contributions, you're entitled to protection of up to $1 million. That means that even if you file for bankruptcy, you can keep $1 million worth of IRA money for yourself.
* Rollover IRAs -- ones you create by moving money out of an ex-employer's 401(k) or other plan -- aren't even subject to the $1 million limit. You can protect all such assets from creditors.

With many people considering drastic measures like walking away from their mortgages, creditor protection and bankruptcy planning have taken on added importance. The benefits of retirement accounts in this area could be even more valuable to you.

Do it today
For all these reasons, opening an IRA or contributing to your employer retirement plan at work is essential to your financial success. Not only will it improve your chances of financial success in the long run, but it could make a huge difference in your quality of life today and in the years to come, even before you retire.

What China's Actions Mean for the Global Economy

By Jennifer Schonberger

When the world was reeling from the global recession, China was the leading the global economic rebound. The Shanghai Composite Index surged ahead by 80%, and companies like China North East Petroleum (NYSE: NEP) and China Automotive Systems (Nasdaq: CAAS) rose by more than 600%.

The country’s massive stimulus package spurred investment in infrastructure and boosted demand for equipment and commodities, helping companies like Caterpillar (NYSE: CAT) and Freeport-McMoRan (NYSE: FCX). But as China attempts to cool what officials feel is an overheating economy, concerns swirl around what those actions will mean for the sustainability of the global economic recovery, and companies like Diana Shipping (NYSE: DSX) that rely on global revenue streams.

Mark Edwards, vice president and portfolio manager for T. Rowe Price Emerging Market Stock Fund (PRMSX), weighed in on these topics in an interview, as well as discussing how the global recession has initiated a rebalancing of the global economy.

Here is an edited transcript of our conversation:

Jennifer Schonberger: Given that China is taking steps now to rein in lending and cut the amount of capital sloshing around in their economy, what do these actions mean for the global recovery? Is it premature to pin global economic recovery hopes on China?

Mark Edwards: I think last year China definitely led the rebound in terms of demand for commodities, which helped areas like Brazil [and] Australia. We think that China is cooling its economy very gently. So while it’s taking its foot off the accelerator, it’s certainly not putting its foot on the brake yet. So I think demand will remain very strong in China.

Secondly, ultimately, the West will need to recover on its own steam, and China isn’t going to be able to drag the west out singlehandedly. I don’t think Western economic recovery will suffer because China is trying to gently cool its economy.

Schonberger: Incidentally, economists at JPMorgan (NYSE: JPM) are projecting that consumers from emerging markets will account for 33.6% of the world’s consumer spending, compared with 27.1% from the U.S. Have we entered an era where the emerging-market consumer replaces the U.S. consumer as the world’s consumer?

Edwards: For the last few years, the BRIC economies, led by Chinese consumption, has been replacing [the U.S. consumer]. The drop in U.S. sales has almost exactly been replaced by the growth in Chinese sales. Previously, the world was over-reliant on the U.S. consumer. We think it’s much healthier now that there are some big emerging nations, which are going to supply good drivers of demand.

Schonberger: The Chinese government has talked about driving economic growth for China internally rather than through exports. How long before that happens?

Edwards: It’s a process that’s actually been ongoing for a while that’s driven really by urbanization, infrastructure, the consumer, and the strong rural economy. [Pre-crisis,] the Chinese export boom was so strong ... because U.S. demand was very strong, and the Chinese economy was too heavily weighted toward exports.

... The export machine did collapse, but domestic demand more than compensated. In 2009, the economy grew at 8% to 8.5%. Net exports actually were a negative 4%, consumption was a positive 4.5%, and investment and fixed capital formation made up the balance.

So last year was proof that China isn’t actually totally reliant ... So in a way, the global financial crisis has helped that process of rebalancing, and has enabled the shift to encourage domestic demand.

Schonberger: There's talk of China allowing the Yuan to appreciate. What are the chances of that in your view, and what does it mean for China's economy?

Edwards: ... I think they’re waiting to make sure the Western recovery is really going to happen and not double dip. So as soon as they are convinced the U.S. and Europe are recovering in a sustainable way, and therefore that their export machine will see some demand, then I think they will have the confidence to allow their currency to go back to the pattern of a gentle appreciation.

... Now, they don’t like being told by the U.S. to change their currency. If President Obama gives them lectures, then they won’t do anything.

Schonberger: What are your expectations for China politically, and what does that mean for how you invest there?

Edwards: One has to remember it is an unusual model. It’s a capitalist-communist economy where the government is extremely involved, both in terms of setting policy and because they own a lot of the companies. They own some 65% of the listed companies on the stock market.

So, Rule No. 1: You never invest in a stock that seems to be against the general tide of government policy. Also, in areas such as the media, you have to be careful that you’re not going to invest in stocks that are going to cause political unhappiness. So, for example, from time to time they crack down on what’s going on with the Internet, or in terms of TV programming.

The third theme you have to remember is that they’re not elected democratically, but their power comes from enabling the people to become richer over time -- delivering a better quality of life.

In particular, the next generation of leadership will change in 2012. So we’re already starting to see a generational change on the horizon, which means decision-making may become more cautious. The retiring premier and president will not want their legacy tarnished, and they will want to hand over an economy that is in good shape.

What to Buy When Nothing's Cheap

By Dan Caplinger

Smart investors look for great values among investments. But when the prices of everything seem to be going straight up, what's a good value investor supposed to do?

What the rally did
After a big run-up like we've seen over the past year, it's no big surprise that the pickings for value seekers have started to get a little thin. But I didn't realize just how thin until I took a look at the new 52-week lows list.

Typically, checking out which stocks are hitting new lows for the year can uncover a treasure chest for value hunters. Seeing what investors have beaten down and left for dead last year, for instance, would have given you so many strong ideas that you would've had trouble looking into them all.

Yesterday, though, I found only a single regular stock on the NYSE list: TerraNitrogen. The Nasdaq list was no better: I didn't find a single stock with a market cap over $100 million on it. So much for easy pickings!

What got left behind
Unfortunately, when the stock market goes up 60% in a year, it's going to carry a lot of stocks along with it. You're not going to see very many stocks lose money during such a powerful rally, especially if you tend to focus on large-cap stocks.

What you will see, though, are stocks that don't go up as much as the overall market. Look at stocks like Qualcomm (Nasdaq: QCOM) and Activision Blizzard (Nasdaq: ATVI), for instance, and you'll see that they're up only 15% and 11%, respectively, since this time last year. Yet not all such stocks look like huge bargains; both of those stocks have trailing price-to-earnings ratios above 30, yet analysts don't see a huge amount of earnings growth in the near future.

To find the best values available at today's prices, you'd ideally like to see all three of these attributes:

* Modest share price growth over the past year.
* Reasonable valuations.
* Prospects for future growth that are in line with current valuation.

It's always tough to find the perfect mix of those characteristics. But here are some stocks that do a reasonable job at that balancing act:

Stock


1-Year Return


Current P/E


EPS Growth Estimate for Next Year

ExxonMobil (NYSE: XOM)


2.1%


16.4


27.0%

Wal-Mart (NYSE: WMT)


13.1%


14.6


9.5%

McDonald's (NYSE: MCD)


23.9%


15.4


8.8%

Abbott Labs (NYSE: ABT)


18.5%


14.6


12.5%

FirstEnergy (NYSE: FE)


2.9%


11.8


13.3%

Source: Yahoo! Finance.

None of these stocks has done all that well during the rally. Yet they're all slated to see some decent earnings growth in the next year as the recovery takes hold -- without the high valuations that would keep those stocks from being worth your while.

Grab the bonus
Curiously, all five of the stocks in the table above share another trait you may not have expected: Each of them pays a good-sized dividend of 2% or more. That's especially valuable if you're looking to draw some immediate income from your stock portfolio.

But even if you're still firmly in the wealth-accumulation phase of your life, those dividend payments also give you a sign of confidence that the company has generated the cash flow necessary to finance their payouts -- and that it expects to continue to be able to do so in the future. Given just how disruptive the market meltdown and the breakdown in the credit markets were to less financially secure companies, you shouldn't discount the peace of mind that dividend stocks provide by exercising the fiscal responsibility necessary to raise enough cash to pay their dividends year in and year out.

There's always value
Value investors are among that rare crowd that gets disappointed when share prices go up, as it means that the best opportunities to invest become a bit less attractive. But even as the stock market has risen, good value stocks haven't disappeared entirely. You just have to know where to look and be willing to pay something more than the rock-bottom prices that prevailed last year. Over the long haul, though, the investments you make today may well be just as profitable as any other one you make.

Goldman Sachs Information, Comments, Opinions and Facts