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Saturday, 30 October 2010

Six-Figure Jobs in Demand

by Cindy Perman

All six-figure jobs were NOT created equal.

Not only do some require more education and experience than others, some are just more in demand than others. So, if you want to increase your chances of landing a six-figure job, it helps to know which ones have the most positions available.

Finance-related jobs accounted for more than half of the top 25 jobs with the most openings that paid over $100,000, according to research by That's everything from a finance manager to an internal audit supervisor and an accounting director.

There's still a lot of competition for those jobs, though: estimates that for every online job listing in financial services and banking, 30 people click on it. For accounting jobs, that number rises to 34. Health care and information technology had the least clicks per post, while media and construction had the most.

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So, where are the best opportunities? Here are eight of the top six-figure jobs that have the most openings -- and who's hiring.

Finance Manager

Finance-related positions dominate's list of the most in-demand six-figure jobs and, of those, finance managers are near the top of the list.

The good thing about pursuing a career as a finance manager is that nearly every company, government agency or other type of organization requires a finance manager -- no matter what the economy's doing. That's the person who oversees the preparation of financial reports and handles the cash management and investment activities of the firm.

A bachelor's degree is required by most firms -- and many require a master's degree or professional certification. The hours can be long, typically 50 to 60 hours a week, plus some travel.

The field is expected to grow by 8 percent over the next decade, which is average, according to the Labor Department. Competition is expected to be tough for these jobs, so those with a master's degree are likely to have the edge.

Who's hiring right now? Ernst & Young, Bank of America and Deloitte are among the firms doing the most hiring for finance managers, according to

Software Engineers

Not only are software engineers in demand right now, the field is expected to be one of the fastest growing over the next decade, rising 32 percent.

But let the programmer beware: While computer software engineers, the guys who write software, are projected be in demand in the next 10 years, demand for computer programmers, the guys who write the instructions for a computer to use that software, is expected to shrink 3 percent in that time.

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The reason? Software engineers will be in demand due to increased computer networking, expanding technologies and the need for more security on those systems, while programmer demand will take a hit from the rise of open-source software and outsourcing.

Most software-engineer positions require a bachelor's degree in computer science, software engineering, or mathematics, and many require graduate degrees.

Who's hiring right now? Microsoft, EMC and Broadcom, according to

Corporate Public Relations Director

Demand for public-relations managers is expected to be stronger than average due to an increasingly competitive and global business environment. It is crucial for a firm to have a good relationship with the public -- their profitability, whether they're publicly traded or not, is dependent on their reputation.

Public-relations managers do everything from managing PR campaigns to doing damage control when a negative rumor or story about the company emerges. Some work traditional 40-hour workweeks but most need to be on call 24-7 in case of emergency.

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Employment for PR specialists is expected to grow 24 percent over the next decade, faster than other professions. Being on top of new trends, like social media, is crucial and additional languages are a bonus.

Who's hiring right now? Kaiser Permanente and AstraZeneca, according to

Investor-Relations Manager

Demand for public-relations managers is expected to be stronger than average -- and that is particularly true for those who specialize in investor relations, communicating the firm's financial information to investors, analysts and the media. Increased regulation and scrutiny in particular will drive the need for skilled investor-relations managers.

The qualifications for this job are unique: Not only does the person have to have strong communications skills but also a firm command of financial systems and statements -- and how to explain that in plain English. They also have to be good at crisis management and willing to work long hours, should the stock come under pressure from a rumor or news event.

A bachelor's degree is usually required, with a focus on finance, economics and journalism. Being a member of the National Investor Relations Institute is particularly helpful for networking -- they have local chapters in most states.

Who's hiring right now? Citigroup and Bank of America, according to

Sales Executive

As companies dig out from the recession, sales executives are going to be in particular demand because they're the ones that drive growth, bringing in new business and new sources of revenue.

Sales executives are the ones that set strategies and goals, and direct their sales reps for the best way to improve their sales performance. You need good people skills for this job but also good analytical skills -- knowing the trends and making sure your team is out front. There's a lot of pressure with a sales executive job because once you set those goals -- you have to meet and exceed them. The firm is counting on you.

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Having a bachelor's and/or MBA is helpful, with courses in marketing as well as law, management, economics, accounting, finance, mathematics and statistics helping to provide an extra edge. Most firms tend to promote from within. Advancement is typically quicker at large firms than small ones, according to the Labor Department's outlook for the industry.

Who's hiring right now? IBM, CSC and ADP, according to

Compensation Analyst

A compensation analyst develops salary, bonus and benefits structures, identifies compensation and benefits issues and makes adjustments based on new regulatory requirements.

Typically this position requires a bachelor's degree, preferably in mathematics, business administration or human-resources management.

Not only is there solid demand for compensation analysts today but the outlook is also strong for the next decade, due to health-care reform and globalization.

Who's hiring right now? KPMG, JPMorgan Chase and Bank of America, according to

Associate Professor

The number of tenure-track professors is on the decline as schools increasingly seek flexibility in dealing with compensation issues, making associate professors one of the most in-demand $100k+ jobs on

The trend now is toward hiring professors for limited-term contracts, typically 2 to 5 years. Competition is expected to be tough for the tenured positions and often a professor will have to move into a more administrative or managerial role such as department chairperson in order to achieve tenure. Those with a PhD have the best job prospects, according to the Labor Department.

Overall, demand for postsecondary teachers is expected to grow by 15 percent in the next decade, faster than average, as enrollment is projected to increase -- not just among those 18 to 24 but also adults returning to college to change professions or enhance their prospects in an existing field. Demand is expected to be strongest for professors in fast-growing fields such as business, nursing, biological sciences and other health specialties.

Who's hiring right now? George Mason, University of Iowa and University of Miami, according to

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Company Attorney

Globalization and legislative changes are driving the need for more in-house attorneys.

Among other issues a corporate attorney has to deal with are patents, contracts, property interests and negotiating with unions. Lawyers typically work long hours, though the hours are slightly less brutal for corporate attorneys.

Not only is demand strong now but it's projected to be strong over the next decade, according to the Labor Department, amid increased demand for services such as health care, intellectual property, bankruptcy, corporate and security litigation, antitrust law and environmental law. Though, a shift toward using big accounting firms or paralegals for some of these functions will curb demand to some degree. Economic downturns also take a toll as companies are less inclined to pay hefty legal fees.

Competition is expected to be tough, so a willingness to relocate is a plus.

Who's hiring right now? KPMG, Ernst & Young and JPMorgan Chase, according to

Friday, 29 October 2010

Are Home Prices Fated to Fall Farther?

Daniel Indiviglio

The U.S. housing market is a mess. Home sales have been incredibly weak ever since the buyer credit expired back in April. There are still many struggling homeowners out there defaulting and foreclosing. So many homes are underwater that even those who can pay are questioning whether or not doing so makes sense. And of course, a new fiasco has recently ensued with some banks and servicers revealing that their procedures weren't as clean as they should have been. This has slowed foreclosures and created fear among potential buyers. The likely result from all of this badness: home prices are bound to decline farther. Is there any way to stop that inevitable outcome?

In a sense, there isn't. There are still a significant number of borrowers out there who cannot afford their mortgage payments. A handful might find a solution in a modification program, but most will not. Until all of these borrowers finally are foreclosed on or complete a short sale, the inventory of homes will rise at an unnaturally fast pace. That will put downward pressure on home prices, particularly as buyer demand remains anemic.

Some government fixes attempt to solve this problem. The first was already alluded to -- mortgage modifications. Although this might help a small number of borrowers, it isn't a silver bullet. Re-default rates tend to be incredibly high, often exceeding 50%. So modifications actually prolong the market's misery as most of those borrowers eventually face foreclosure again anyway.

The second is some sort of attempt to spur demand, like the home buyer credit. As we saw there, however, that mostly tends to distort the market. So this won't hold up home prices in the long run either.

But there is one thing that would absolutely help home prices: if borrowers who can afford to pay their mortgages continue to do so. Nothing would be as dangerous to home prices as another wave of strategic defaults.

In a sense, strategic defaulters create a self-fulfilling prophecy. They are angry that their home price is so low, and don't expect it to rise quickly to again match the cost of their mortgage. Consequently, they walk away and go rent for cheaper. As a result, home inventory grows, and prices decline, or don't rise as quickly, because demand can't keep up with supply.

As home prices continue to decline again, homeowners who can afford to make their payments will feel even more tempted to walk away. While that might seem a more rational response than living in a home worth less than its mortgage, it will also make matters much worse. This is a situation where, if all homeowners who can afford to keep paying agreed to do so despite home values declining, then they wouldn't fall as far. Unfortunately, these choices are made on an individual basis, so they can't benefit from everyone agreeing to tough it out.

Thursday, 28 October 2010

Eight Steps to Financial Health

by Laura Rowley

Like many Americans, Leah West, 40, is struggling to shed debt and manage an array of financial obligations. After her divorce seven years ago, Leah, a mother of three, enrolled in college and earned her bachelor's and master's degrees. She moved up the ladder in health care administration, and earns about $80,000. But she's now saddled with more than $82,000 in debt, mostly student loans; and her home is worth less than what she paid it. Leah also wants to set aside money for college tuition for her kids, and build a retirement fund.

Since September, I've been coaching Leah in her quest to improve her finances, a journey she blogs about at Her story offers practical lessons in how to attack multiple financial goals and maintain momentum. Here are just a few:

1) Focus on the positive

Before you confront a mountain of bills, remind yourself what's working for you. Leah had earned a master's degree — an accomplishment just 6 percent of Americans can claim. She enjoys her job, has a solid income and excellent insurance coverage. She is in good health, has three wonderful kids, and can cover all her bills without falling further into the red. Relationships, education, career experience, health and spirituality are all components of well-being; savoring the positive can provide the momentum to tackle the bad stuff.

2) Set one to three manageable goals

Don't overwhelm yourself with a list of ten things to fix immediately. Leah's priorities were eliminating her credit card debt; creating a plan to pay off her student loans (which were in forbearance); and building up an emergency fund of $10,000. Once we had a strategy up and running, we could move on to other goals, such as college savings and retirement.

3) Get a handle on the real numbers

Although Leah was making double the minimum payment on her credit cards, she felt she wasn't making progress. I used an online debt calculator to show her the truth: By paying twice the minimum, she would banish the debt in 15 months and pay $302 in interest. If she made only the minimum payments, it would take more than six years, and she'd pay $1,328 in interest. Use tools like this one to help you get a grip on the math.

Leah also got the hard numbers on her student loan debt to make sure the loans weren't snowballing at absurdly high interest rates, and disrupting the rest of her financial plan. Fortunately, the rates were quite low, so we left that alone for the moment to focus on the debt paydown. (That would free up the cash necessary to eventually tackle the student debt.)

Finally, we discussed Leah's retirement plan. She had enrolled in a 403(b) plan when she started her job at a health center and contributed steadily for four years. But about 18 months ago, her employer eliminated matching funds because of budget cuts, so Leah stopped contributing. The health center is expected to reinstate the match next year, and Leah plans to jump back in then. It's a smart move from a numbers perspective: It's better to pay down credit card debt at 20 percent interest than to contribute to a plan with no match, because she's unlikely to earn a 20 percent return on her retirement savings.

4) Rank your rates, then cut them down

Leah listed her credit cards on a single page from highest to lowest interest rate, along with the amount due and the company contact information. She called each lender and asked for a rate reduction, using this script: "I have been a cardholder since ____. In the past few months, several credit card companies have offered me lower rates than my current rate with you. I value our relationship, but would like you to match the other offers that I have received and reduce my interest rate by 10 percent. Are you authorized to adjust my interest rate?" (If they say no, ask politely to speak to someone who can and repeat the request.)

Although it took several hours of phone hassles, Leah cut her interest rate by 13.5 percentage points across three cards. Savings: About $275.

5) Snowball it down

When we started, Leah had four months left on her car payment. Once that debt is paid off, she'll direct the money to the highest-interest credit card. Similarly, when that's paid off, the money will be targeted (with her car payment) to the next credit card until they're all completely paid off. Then that giant snowball of cash will be used to pay off her student loans. The key is to keep the money out of her daily budget, so she doesn't use it to boost her lifestyle.

6) Track spending to the penny

Leah began looking for ways to reduce her monthly expenses, and thinking about her choices in a value-oriented way. For instance, she could move from her home on Cape Cod to a cheaper suburb of Boston, but she values living on the beach. On the other hand, Leah realized she was dropping about $400 a month at a corner convenience store, on non-essentials like deli sandwiches and homemade ice cream. She's eliminated those indulgences, dropped a gym membership she barely used and found ways to save on her cable and auto insurance. The idea is to cut where she can so she can spend on what she values most. The only way to do that is to know where every penny goes.

7) Look at ways to increase your cash flow

Leah usually gets a tax refund in April of more than $1,000. She spoke with an accountant about changing her withholding at work to get more cash in each paycheck (and no refund in April, because that's giving Uncle Sam an interest-free loan for a year). The accountant ultimately advised against it for now, but she'll revisit the idea next year. More importantly, she increased her income by working freelance on her blog. Those extra paychecks are earmarked to pay off her debt and build an emergency fund of $10,000.

8) Keep a gratitude journal to stay motivated

Leah started a journal right after her divorce, when she was overwhelmed and frightened about the future. She returned to it recently when she hit a financial setback — her partner of more than two years moved out, and took all of the living room furniture with him. (She bought a few basic pieces so the kids wouldn't have to sit on the floor.) The journal reminded Leah of how far she's come, and helped her find the energy and patience to keep moving forward.

Wednesday, 27 October 2010

Out of Work, Out of Options and Over the Hill

by Emily Glazer

After 20 months without a job, 55-year-old Henry Dietz has nearly drained his 401(k) retirement plan.

He already has used up his personal savings, borrowed extensively, switched to a catastrophic health plan, which only covers medical emergencies, and even skipped family funerals because of travel expenses.

If he doesn't find a job soon, he may not be able to make his mortgage payments and the family may have to "move back with Mama," says the married father of three from Raleigh, N.C., who was laid off from an advertising agency.

Mr. Dietz's situation may be extreme, but many people are facing a similar dilemma: over 50, unemployed and running out of options.

With no job prospects long before they can afford to retire — and Social Security benefits still years away — many unemployed workers in their 50s and early 60s are struggling to pay the bills, the mortgage, health-care expenses and college tuition. It's a scenario that was unimaginable to many just a few years ago.

Of the 14.9 million unemployed, more than 2.2 million are 55 or older, according to the U.S. Labor Department. And almost half of those have been unemployed six months or longer. The unemployment rate in that age group is a record high 7.3%.

So what's an unwitting early retiree to do? Here are some tips to help stretch your finances.

1. Retirement Accounts

If, like Mr. Dietz, you have no choice but to dig into your retirement account, there are ways to minimize the tax hit and penalties.

Withdraw money from an individual retirement account or 401(k) before age 59 1/2 and you'll pay federal income taxes on the withdrawals and will get hit with a 10% penalty.

But the tax code has a provision, 72(t), that allows someone younger than 59 1/2 to withdraw a set amount of money at least five times until age 59 1/2 or for five years, whichever is longer. You won't pay a penalty, but the money is still taxed.

The caveat: Once you start taking out the money, you're locked into making withdrawals, says Jerod Wurm, a certified financial planner in Sacramento.

Jonathan Pond, a financial adviser for AARP, says that if you were laid off this year, you might want to delay tapping your retirement money until next year, when you might be in a lower tax bracket.

If you need a chunk of money for a short period of time, consider the 60-day rollover requirement. This rule allows you to take money out of a qualifying retirement account, tax- and penalty-free, once a year, regardless of your age — but the full amount must be deposited back into the account within 60 days.

2. Health Insurance

"It really is penny wise and pound foolish to go without" health coverage, says Mr. Pond, especially at an age when health-care expenses can start to rise.

Maintaining coverage is easier said than done when the pennies are hard to come by. But your lower income may qualify you for options you may not have considered if your Cobra coverage is coming to an end or you didn't have employer-provided insurance to begin with. (Cobra allows terminated workers to continue under a former employer's group plan.)

Most states have programs that offer low-cost coverage, typically if one earns less than $30,000 a year. The MassHealth program in Massachusetts, for example, covers adults and children under age 19 if they live with the parents.

Short-term insurance policies, which typically cover unexpected illnesses and accidents, can run as low as $30 per person for a month. Catastrophic insurance typically starts as low as $30 a month depending on a person's age and health.

Have you been denied coverage or been quoted an exorbitant rate because of a pre-existing condition? You can enroll in the federal Pre-existing Condition Insurance Plan, a part of the new health-care law. (The provision banning insurers from denying coverage based on pre-existing conditions doesn't take full effect until 2014.)

Premiums range from $320 to $570 a month per person depending on the state. But with private insurance, premiums for people with "pre-existing conditions...could easily run into the four figures," says Henry Aaron, a senior fellow at the Brookings Institution.

You also may be able to use out-of-pocket health-care costs to your advantage come tax time. You can deduct medical expenses exceeding 7.5% of your adjusted gross income. While that may have been too high of a threshold in the past, you may qualify now because of your lack of income. (See Topic 502 at

3. Real Estate

The typical advice is to downsize to a cheaper home in a cheaper locale. But today's real-estate market is anything but typical. And for people who are hunting for work or have a spouse with a much-needed job, moving to a state with a lower cost of living may not be feasible.

So use your home to make some extra cash. If you live near a college or university, for instance, rent an extra room to a student or recent graduate. You can easily get a few hundred dollars a month. Contact a school's student-housing department or put up fliers on campus.

For homeowners who are 62 and over and still have equity, another option is a reverse mortgage, which allows older homeowners to tap their home's equity while they remain in the house. The loan typically doesn't come due until the homeowner sells the house or dies. And upfront fees have come down some recently.

4. College Expenses

Still on the hook for college tuition for your kids or yourself? Try renegotiating loan and aid terms.

Jerome Chester, a 51-year-old from Bethesda, Md., who has been unemployed since June, went to student-loan provider Sallie Mae to renegotiate his tuition loan. He was able to defer payments, about $1,000 a month, for six months.

And a school's aid package isn't always set in stone. Go back to the school and ask for more aid given your financial troubles. Results will vary by school and a family's financial status.

Tuesday, 26 October 2010

Blue-Chip Specials From the Buffett Menu

By Andrew Bary

There's no quibbling with Warren Buffett's extraordinary overall investment record, which has resulted in a $205 billion stock-market value for (NYSE: BRKA - News) Berkshire Hathaway. But, in the past few years, Buffett has invested in some companies whose shares have been disappointing. Among them: ConocoPhillips, U.S. Bancorp, Kraft Foods, Sanofi-Aventis, Johnson & Johnson and even Wells Fargo.

All of these are strong, well-managed companies. Assuming Buffett hasn't erred, investors have the opportunity now to buy some of them for less than what Berkshire paid.

U.S. Bancorp, for instance, trades near 23, appreciably below Berkshire's average cost of $31. ConocoPhillips is at 61; Berkshire paid 73. French drug maker Sanofi's U.S.-listed shares, at 34, are below Berkshire's cost of $40 (Berkshire mainly owns the local shares). Kraft is at 32; Buffett paid 33. We based the cost figures on data in Buffett's annual shareholder letter.

Buffett wouldn't discuss his equity investments with Barron's. But in a CNBC interview in March 2009, he said: "I make plenty of mistakes. That's part of the game. You just got to make sure that the right things overcome the wrong ones." That's certainly true for Berkshire, whose Coca-Cola and Procter & Gamble holdings, which date back to the 1980s, are about 10 times above the company's cost. The P&G stake came from an investment in Gillette, bought by P&G in 2005.

With Conoco, Buffett told CNBC, he erred because he bought it when oil was above $100 a barrel; the shares tanked when crude collapsed. Berkshire, which lost more than $1 billion on that investment, has cut its Conoco stake by more than half since late 2008.

Wells Fargo is a Berkshire holding dating back 20 years. While Buffett has a gain on the banking giant, it is mainly from early purchases of the stock at depressed prices. In recent years, Berkshire has added to its holding at an average price around 32; Wells Fargo now is around 26. J&J, at 64, is close to Berkshire's cost of $60.

Berkshire's losers trade at reasonable valuations. Sanofi is valued at just seven times projected 2010 profits; Wells Fargo, for less than 10 times next year's estimated profits and for a historically low 1.6 times tangible book value. Long viewed as one of the best-run financial companies, U.S. Bancorp fetches 11 times projected 2011 profits.

Not surprisingly, Buffett had some nice things to say about his stocks in the 2009 annual letter that March. He wrote that Berkshire's decision to pare its stakes in ConocoPhillips, Moody's, P&G and J&J last year was driven in part by a need to raise cash for what turned out to be lucrative investments in Swiss Re and Dow Chemical convertible preferred. Buffett wrote those four stocks "likely will trade higher in the future."

Based on what Buffett has done in the market, he's gotten more bullish on Johnson & Johnson, and less excited about Conoco, Kraft and P&G this year; he has bought more J&J and pared his holdings of the others.

Buffett likes simplicity. He views Wells Fargo as a high-return bank that sticks to basics. In the third quarter, it paid an average interest rate of less than 0.5% on its deposits. In early 2009, when the stock was around 10, Buffett told a CNBC interviewer that, when the financial crisis ended, Wells Fargo could generate $40 billion of pretax profits before a provision of $10 billion to $12 billion for loan losses. That equates to roughly $4 a share in after-tax profits.

That scenario seems optimistic now, thanks to a weak economy, share issuance and regulatory changes that are cutting fee income industrywide. Wells Fargo also is grappling with the impact of possibly improper disclosures on foreclosures. Analysts see it generating $2.80 a share in profits next year and $3.50 in 2012. Those earnings could easily lift the stock above 30.

While still enormous at $55 billion on June 30, Berkshire's equity portfolio isn't the dominant driver of its stock price the way it was 15 or 20 years ago. Mattering more are Berkshire's wholly owned businesses, including the Burlington Northern railroad, auto insurer Geico, several utilities and large property and casualty reinsurance operations.

Buffett doesn't disclose the performance of Berkshire's equity portfolio. We estimate that it's about flat this year, versus a 5% gain for the S&P 500 (through Wednesday), after rising about 17% in 2009, a year in which the S&P climbed 23%.

Buffett has done very well with some $21 billion of non-traded securities purchased during the financial crisis, including $5 billion of Goldman Sachs preferred stock and $3 billion of General Electric preferred, both with 10% dividend yields and warrants that, in the case of Goldman, now are worth about $2 billion. In April, Barron's speculated Goldman probably would seek to redeem that high-cost preferred. The Wall Street Journal reported Thursday that Goldman is considering such a move.

Many pros believe that, after a disappointing decade, blue-chip stocks will be one of the best investments over the next 10 years. Investing in those with the Buffett imprimatur could be a great way to share in that wealth.

Monday, 25 October 2010

Upper class and you

Do you think it is getting increasingly hard for someone in this age to join the Upper Class in your society?

What about the noveau riche? Do they qualify as upper class?

Saturday, 23 October 2010

If Stocks Are Near 2010 Highs, So Is Complacency

by Nick Godt

It's not just the stock market that's revisiting levels unseen since April: The Chicago Board of Options Exchange Volatility Index, which gives the pulse of the market, is trading near its lowest levels since the spring.

Last week, the VIX otherwise known as the market's fear gauge, sank below 20 for the first time since May 3 and it closed below 20 for the first time since April 29.

When the VIX drops below 20, it typically signals complacency is rampant in the stock market. Bad news is brushed aside, and stocks react to any news that's not "as bad as feared" with a rally.

But the market can only see the glass as half full for so long. Eventually, the cup overfloweth.

We're not there yet. The VIX sank to its lowest level for the year, near 15, in April as stocks continued to cheer the belief, back then, that the global economic recovery was for real, until a crisis in Europe forced a correction and a reassessment of reality.

But it's worth noting that the stock market's violent reaction Tuesday to China's surprise rate hike — which saw the VIX jump 8% as the Dow industrials tumbled 165 points — could be a signal of things to come.

Of course, stocks bounced back on Wednesday as the VIX fell back below 20. We are in earnings season and, much more importantly, the market is now assured that the Federal Reserve will soon provide more liquidity to try to offset a slumping economy and deflationary pressures.

After all, stocks' rebound since July has come in the face of mounting evidence that the economy is slowing, making it more and more likely that the Fed will delivery another round of its so-called quantitative easing measures.

The central bank won't meet until early November. That gives plenty of time for the VIX to continue to fall. And it might be just when the liquidity is delivered that the cup will overflow

When Will the Madness Stop?

by Brett Arends

If you want to measure the level of craziness on Wall Street at the moment, take a look at what just happened to Wal-Mart Stores (NYSE: WMT - News).

This week investors were so eager to buy bonds they snapped up $5 billion worth of new Wal-Mart debt at pitifully low yields.

Yet they are showing comparatively little interest in Wal-Mart stock -- whose dividend yield just keeps getting better and better.

This isn't an isolated instance. Ordinary U.S. investors are flooding bond funds with new money, and those funds have to go out and buy these bonds at almost any price. At the same time, they are taking money out of stock funds -- and never mind the fundamentals.

Do investors really understand the risks they are taking with their money? Or the opportunities they are missing?

Take a look at the bond issue. Wal-Mart sold $750 million worth of three-year bonds paying 0.75% a year. It sold $1.25 billion of five-year bonds paying 1.5%, $1.75 billion of 10-year bonds paying 3.25% and $1.25 billion of 30-year bonds paying 5%.

Remember that those bond coupons are subject to two hidden costs. First, bond interest is taxed as ordinary income. That means that if the bonds are held in a taxable account, they will be taxed up to 35% right now -- and as high as 39.6% next year if the Bush tax cuts expire as planned.

Second, bonds face a serious risk from inflation. Who wants a piece of paper paying 5% a year for 30 years if inflation jumps to 7%? Nobody. If that happens, the price of the bond would plummet.

Now let's take a look at Wal-Mart stock.

At $54, it has barely moved over the past 10 years. Yet during that time the company's annual sales and net income have more than doubled. Net operating cash flow has nearly tripled. And dividends have quadrupled, from 24 cents to $1.09.

Okay, so it was overvalued a decade ago. Today it's 13.5 times forecast earnings. And the dividend yield is 2.2%.

It's not a king's ransom, but it's better than you're getting on those three- and five-year bonds, and not that far behind the yield on the 10-year.

Wal-Mart has raised dividends by an average of 16% a year over the past decade. If it merely raises them by 10% a year in the future, the yield on the stock will surpass that on the 10-year bonds within about five years. It will surpass that on the 30-year bonds within 10 years.

The company could raise those dividends more quickly if it chose. Its dividends are easily covered by its earnings and cash flow. And it is currently spending billions more buying back stock to boost investors' returns.

From the point of view of the investor, stock dividends enjoy two advantages over the bonds.

They are taxed lightly, at a maximum of 15%. If the Bush tax cuts expire completely, that advantage would disappear. But in the likeliest scenario, the tax cuts would continue for households earning less than $250,000 or so a year. So for most ordinary investors, dividends would keep their tax advantage.

And dividends enjoy some inflation protection, too. If we see a big surge in inflation, stocks won't be a great investment. But they will be much better than bonds. And companies sooner or later get to pass on rising costs to consumers as rising prices. Dividends will tend to rise.

No one knows what inflation is going to be in the future. But, unbeknownst to most investors, the Treasury market embeds a forecast, and it's the best guess available. Right now, by comparing the yields on regular and inflation-protected Treasury bonds, we can see that the market expects 2% inflation over the next 10 years and about 2.5% over the next 30.

Now compare those forecasts to the coupons on the new Wal-Mart bonds.

Someone buying the 10-year bond is locking in a likely "real," post-inflation yield of just 1.2% a year. Someone buying the 30-year bond should expect maybe 2.5% a year over inflation. And these are pretax rates. It is perfectly possible that some investors, without realizing it, have just locked in a negative real yield -- in other words, they have made an investment that guarantees they will lose money after taxes.

What we are seeing is merely one example of the very "dumb" process by which so many ordinary members of the public invest their money. The problem is that they, and their advisers, are apt to separate "asset allocation" from investing -- in other words, they first decide to invest in bonds and then send money to a bond fund. The hapless bond fund manager then has to go out and "put that money to work," even in an overvalued market.

So, right now, investors love "safe" bonds and emerging-market equities, and they dislike U.S. equities. As TrimTabs Investment Research notes, "While U.S. equity mutual funds have redeemed $54 billion this year, global equity mutual funds have sucked in $62 billion. Emerging markets attracted the bulk of the inflow." Meanwhile, there's been a tsunami into bond funds -- surging to around $30 billion a month in the past few months.

Yet Wal-Mart stock surely offers a better bet than the bonds. The balance sheet is solid. Operating cash flow was $26 billion last year. Return on investment is 19%. As of the end of July, it had more than $10 billion in cash on hand.

And Wal-Mart stock offers an emerging-market play as well. A quarter of sales now come from overseas, with the fastest growth coming from China and Brazil. The company just opened its 300th store in China.

Yet U.S. investors don't want to hear about Wal-Mart stock. They're looking for "safe" bonds and exciting ways to invest in China. Go figure.

Write to Brett Arends at

The haves, the have-nots and the dreamless dead

By Emily Kaiser

WASHINGTON (Reuters) - In 2007, when the world was on the brink of financial crisis, U.S. income inequality hit its highest mark since 1928, just before the Great Depression.

Coincidence? Maybe not.

Economists are only beginning to study the parallels between the 1920s and the most recent decade to try to understand why both periods ended in financial disaster. Their early findings suggest inequality may not directly cause crises, but it can be a contributing factor.

This raises a host of social, economic and political questions. Should public policy aim to reduce inequality, and if so by what means? Does concentrated wealth at the top of the income spectrum generate asset bubbles, or vice versa? Could raising taxes or interest rates ward off financial meltdowns?

Americans are generally not bothered by inequality because they believe with hard work, they, too, can strike it rich. Government policies aimed at spreading the wealth rarely get much support. (Remember 2008, when then-candidate Barack Obama's campaign-trail comment about redistributing the wealth catapulted "Joe the Plumber" into media stardom?)

"It is usually only left-leaning rich people that care about inequality in the U.S.," said Carol Graham, a senior fellow at the Brookings Institution think tank who studies the economics of happiness.

Those attitudes may be subtly shifting, although it is unclear that this is anything more than just a temporary knee-jerk reaction to the latest bout of turmoil.

Public opinion polls show voters mixed on whether to back higher taxes on the wealthiest households, as President Obama has proposed. The issue is so contentious that Congress put off its decision until after the November 2 midterm elections.

Resentment toward Wall Street is simmering as bankers' paychecks swell to pre-crisis levels while unemployment remains more than twice as high as it was in 2007. Some politicians have been voted out of office simply because they supported the $700 billion bank bailout enacted in 2008.

Yet there is nowhere near majority backing for the sort of progressive New Deal policies passed during the Great Depression, which helped narrow the wealth gap and keep it contained until it resumed widening in the 1970s.

This time around, the wealth disparity narrowed in 2008 because rich households took a heavier hit from the financial crisis, but Census Bureau data shows it turned around immediately. In 2009, inequality was at the highest level since Census began tracking household income in 1967.

America has one of the largest wealth gaps among advanced economies. Based on an inequality measure known as the Gini coefficient, the United States ranks on a par with developing countries such as Ivory Coast, Jamaica and Malaysia, according to the CIA World Factbook.


Emmanuel Saez, a University of California, Berkeley, economist who was awarded a 2010 MacArthur Foundation "genius" grant for his work on income inequality, said recession-induced income declines for the super-rich tend to be fleeting unless there are "drastic" regulatory and tax policy changes.

His research with co-author Thomas Piketty shows the top 1 percentile of households took home 23.5 percent of income in 2007, the largest share since 1928, but that slipped back to 20.9 percent in 2008. (Unlike Census, Saez relies on IRS tax data, which is released with a two-year lag, so he does not yet have figures for 2009.)

During the last period of economic expansion, 2002 to 2007, the top 1 percent enjoyed 10.1 percent annual income growth, adjusted for inflation. For the other 99 percent, the growth rate was just 1.3 percent, Saez found. That meant the top 1 percent received 65 cents of every dollar in income growth.

"We need to decide as a society whether this increase in income inequality is efficient and acceptable and, if not, what mix of institutional reforms should be developed to counter it," he concluded.


There is little agreement among economists about what precisely links high inequality to crises, which helps explain why so few officials saw the financial upheaval coming.

Rapid expansion of credit is one common thread.

Robert Reich, a Berkeley public policy professor and a labor secretary under President Bill Clinton, thinks stagnant middle-class wages led households to pull equity from their homes and overload on debt to maintain living standards.

Raghuram Rajan, a professor at the University of Chicago's Booth School of Business and a former chief economist of the International Monetary Fund, believes governments tend to promote easy credit when inequality spikes to assuage middle-class anger about falling behind.

"One way to paper over the rising inequality was to lend so that people could spend," Rajan said.

In the 1920s, it was expansion of farm credit, installment loans and home mortgages. In the last decade, it was leveraged borrowing and lending, by home buyers who put no money down or investment banks that lent out $30 for each $1 held.

"Housing credit gave you an instrument to assist those falling behind without them feeling they're beneficiaries of some sort of subsidy," Rajan said. "Even if their incomes are stagnant, they feel really good about becoming homeowners."


Another theory is that concentration of wealth at the top sends investors searching for riskier interest-bearing savings. When so much cash is sloshing around, traditional safe investments such as Treasury debt yield very little, and wealthy investors may seek out fatter returns elsewhere.

Mark Thoma, who teaches economics at the University of Oregon, wonders if the flood of investment cash from the ultra-rich -- both in the United States and abroad -- encouraged Wall Street to create seemingly safe mortgage-backed securities that later proved disastrously risky.

"When we see income inequality rising, we ought to start looking for bubbles," he said.

Kemal Dervis, global economy and development division director at Brookings and a former economy minister for Turkey, said reducing inequality isn't just a matter of fairness or morality. An economy based on consumption needs consumers, and if too much wealth is concentrated at the top there may be times when there is not enough demand to support growth.

"There may be demand for private jets and yachts, but you need a healthy middle-income group (to drive consumption of basic goods)," he said. "In the golden age of capitalism, in the 1950s and 60s, everyone shared in income growth."


The fact that economists are even examining the link between inequality and financial crises shows just how much the thinking has changed in the wake of the Great Recession.

Paul Krugman, the Nobel prize-winning economist, said that before 2008, when he spoke of inequality approaching levels last seen before the Great Depression, it would inevitably lead to questions about whether another crisis was looming.

"No, I'd say -- there really isn't a clear reason why high inequality should lead to macroeconomic crisis," he recalled in a presentation to a conference on income inequality in June.

Now, he says, he is considering whether inequality somehow creates macroeconomic vulnerability.

Krugman certainly wasn't the only one who dismissed the idea of a connection between inequality and crisis before the latest episode.

Ajay Kapur, a Deutsche Bank strategist, spotted the inequality parallels between the 1920s and the most recent decade, but didn't see the meltdown coming. The former Citigroup strategist created a stir five years ago when he built an investment strategy around his thesis that essentially divided the world into two camps: the rich and the rest.

Kapur told clients in 2005 that the United States and a handful of other economies were developing into "plutonomies" where the wealthy few powered economic growth and consumed much of its bounty, while the "multitudinous many" shared the leftovers.

Plutonomies come around only once or twice a century, he argued -- 16th century Spain, 17th century Holland, the Gilded Age. The last time it happened in the United States was during the "Roaring 1920s".

There was money to be made by buying shares of luxury companies that made toys for the rich, he told clients, suggesting a basket of stocks that included upscale retailer Burberry and luxury home builder Toll Brothers.

"When I presented this to clients, they said, 'Okay, this is interesting because you're telling me what happened in the 1920s is happening right now, and you obviously know what happened after 1929, right?'," Kapur said in an interview.

His response? That can't happen again because we know better now.

"To be perfectly honest.... I certainly didn't think it would all melt down in 2007. I'd be lying if I said that."

Kapur still isn't convinced there is a direct connection, and points out that 2007 and 1928 are only two data points and it's dangerous to draw conclusions from such a small sample.


Inequality doesn't always lead to financial crisis, which makes it difficult for policymakers to know when it might be growing into a serious problem that ought to be addressed.

Many of the root causes -- technological advances, financial innovation, higher education -- are social goods, not ills, so it makes little sense to attack them.

The traditional view among economists is that combating inequality would hurt growth. Many argue that inequality is "if anything, favorable to -- or at least a necessary by-product of -- economic growth," as Federal Reserve Bank of Dallas researchers wrote in a 2008 paper on inequality.

In the decades before the Great Depression, advances in mass-production and transportation enabled large-scale factories to churn out more goods with fewer workers.

In the past two decades, the big change was the explosion of personal computing and the Internet. The ability to instantaneously transmit masses of information over thousands of miles meant workers no longer needed to be in the same place, and jobs could easily shift to low-cost locales such as Bangalore, India, or Shenzhen, China.

Demand for unskilled labor fell. The relatively small segment of the population with the qualifications to compete -- in the 1920s, a high school diploma; in today's economy, a college degree -- earned more money, widening the wealth gap.

Unemployment data bears that out. Even before the latest recession started in late 2007, the jobless rate for those with only a high school diploma was more than double the rate for those with at least a Bachelor's degree. As of September 2010, unemployment among high school graduates was 10 percent; for those with a four-year college degree it was just 4.4 percent.

This suggests one government response to inequality should be to channel more money into education, said Jack Ablin, chief investment adviser for Harris Private Bank in Chicago.

Ablin said only a small sliver of his high net-worth clients inherited their wealth, so simply comparing wealth concentration between the 1920s and now may be a bit unfair.

"Becoming wealthy in the olden days was almost genetic," he said, referring to wealth handed down from generation to generation.


The work hard, get rich formula is deeply embedded in the American psyche, which helps explain why Americans have generally tolerated inequality.

For every dynastic family name such as Kennedy or Rockefeller, there are those who reached the top through creativity and sweat, from Sam Walton who built the global Walmart empire from a single dime store in Arkansas, to Google founders Larry Page and Sergey Brin who started their company in a garage.

Rags to riches tales are an integral part of what makes the United States a beacon to immigrants who dream of a better life. No one embodies that better than President Obama, whose mother once turned to food stamps to feed her family, yet he was able to attend top-tier universities and aspire to the most powerful office in the world.

Graham, the Brookings economist who studies happiness, said most Americans, including the poor, believe that hard work is more important than luck in getting ahead.

"If I work hard enough, I too can be Bill Gates," is how Graham explains the philosophy.

The only groups that don't share that view and consistently rank toward the bottom on measures of happiness are the long-term unemployed and those without health care, she said.

Both groups grew during the recession. As of September, there were 6.1 million people who had been out of work for more than six months, more than four times as many as there were at the start of the recession.

Deborah Coleman is one of the long-term unemployed. There is no disguising the anger felt by the 58-year-old former telecommunications company manager in Cincinnati, who has been out of work for more than two years.

"Am I pissed that I have lost everything while the rich on Wall Street are still living it up? You bet I'm pissed," she said. "I'm one of the many people who've lost everything and then been swept under the carpet."


Graham does not yet have enough data to determine whether attitudes toward inequality shifted after the financial crisis, but she suspects there has been very little movement.

The debate over whether to extend Bush-era tax cuts for the wealthiest households may provide an early litmus test. Obama has proposed keeping the lower tax rates only for families making less than $250,000, but Republicans and a handful of Democrats went them extended for all.

Obama's framing of the issue suggests the White House does not see much voter support for using tax policy to even out income inequality.

On the campaign trail in 2008, Obama told Joe Wurzelbacher, who became known as Joe the Plumber, that if the economy is good for those at the bottom, it's going to be good for everyone. His comments about redistribution sparked fury among conservatives who saw it as evidence the future president harbored socialist leanings.

Since that "spread the wealth" gaffe, Obama has chosen his words more carefully and regularly points out that he is no modern-day Robin Hood.

Ending the tax breaks for the wealthiest "isn't to punish folks who are better off -- God bless them -- it is because we can't afford the $700 billion price tag," Obama said recently.

His opponents say imposing higher taxes would kill the economic recovery because the rich spend, invest and hire more than everyone else, faintly echoing the plutonomy theme laid out by Deutsche Bank's Kapur.


Like cholesterol, there is a "good" and a "bad" kind of inequality, according to Francois Facchini, an economist at the University of Paris.

The "good" kind is aspirational. It encourages people to strive toward success, like Graham's Bill Gates analogy. The "bad" kind fosters disillusionment, a feeling that no matter how hard you work, you cannot win.

Pollster John Zogby sees a growing number of Americans falling into the second category. He calls them the "Dreamless Dead," those who no longer believe in the existence of the American Dream of hard work begetting success.

Those who work hard but fail to get ahead lose faith in the dream, he said. Beginning in the 1990s, Zogby noticed an increase in the percentage of people who said they were working in jobs that paid less than previous positions.

"That's when I started to zero in on the American Dream because my assumption was it was going up in smoke," he said.

In the early 1990s, 14 percent of those polled by Zogby said they were making less money than they had before. After the recession, the percentage had more than doubled.

Janet Townsend, who has worked at General Motors for 34 years, is one of those faced with the prospect of a drastic pay cut. She was told she'd have to take a 50 percent wage reduction because GM wanted to sell the Indianapolis plant where she works to a private investor. Union workers opposed the deal. The plant will be shut next year.

"I haven't seen any auto executives or Wall Street bankers taking a paycut, in fact their pay seems to keep going up," she said. "This country is built on the principles of life, liberty and the pursuit of happiness.

"But when a corporation tries to make me take a 50 percent pay cut, then you're taking away my right to pursue happiness while enhancing your own."


If inequality can lead to financial catastrophe and voter outrage, should Washington try to stop it from getting too wide?

Obama's avoidance of spread-the-wealth comments would indicate the White House does not think there is political backing for policies aimed explicitly at redistribution.

However, at least one new arrival to Washington's policy-making scene, Fed Vice Chairman Janet Yellen, has expressed concern that extreme inequality could ultimately undermine American democracy.

"Inequality has risen to the point that it seems to me worthwhile for the U.S. to seriously consider taking the risk of making our economy more rewarding for more of the people," she wrote in a 2006 speech.

The public policy response depends on what the root problem really is. Thoma, the University of Oregon economist, said it still isn't clear whether bubbles cause inequality or inequality causes bubbles.

If it is the former, Yellen and the Fed could play a role in preventing disaster by raising interest rates or tightening regulation when they see evidence of a dangerous asset price bubble building.

Fed Chairman Ben Bernanke has argued that interest rates are too blunt of an instrument to prick asset bubbles because they could tip the entire economy into recession rather than targeting a narrow source of instability.

If inequality is the core issue, more progressive taxes or investing in education programs might be more effective.


Before policymakers can act, they will need to get better at identifying unsafe imbalances.

The most commonly used measuring tools, such as per capita income, can be misleading because they report at averages. Data on average income, for example, can be skewed by huge gains at the top, making spending power appear higher than it really is.

Willard Wirtz, who was President John F. Kennedy's labor secretary in the 1960s, is often credited with saying: "When you have your head in the freezer and your feet in the oven, on average you are doing okay."

Steve Landefeld, director of the Bureau of Economic Analysis which produces thousands of reports including GDP, has proposed adding more data series that might serve as an early warning system that imbalances were building.

One bright red flag that policymakers seem to have missed pre-crisis was the disconnect between swiftly rising house prices and stagnant wages for most middle-class workers.


Left alone, income inequality looks likely to continue rising at least through this year. The stock market has already regained more than half of the ground lost between an October 2007 all-time high and a March 2009 trough. Those gains flow disproportionately to the wealthy.

Meanwhile, the overall unemployment rate will probably end the year about where it started, at 9.7 percent, while the education gap widens. The jobless rate for college graduates has come down by 10 percent since January; for those who didn't finish high school, it has risen 1 percent.

This pattern has been in place for more than a decade and it has not generated much popular support for addressing income inequality. That may change as strained U.S. finances eventually force officials to choose where to cut spending.

In the next five years, the government debt burden may reach a critical point where it is growing at a faster rate than the economy, pushing up taxes and diverting money that could be spent more productively on research or education.

Credit rating agency Moody's has warned that the budgetary decisions facing the United States and many other rich countries may "test social cohesion."

"Will society accept the measures that need to be taken to stabilize the debt position of the government?" Moody's analyst Steven Hess said in an interview.

"Economic growth is not going to get the country out of the negative debt trajectory it now faces," he said.

Means-testing social security payouts so that less money goes to the wealthiest would be one way to help curb the deficit and income inequality at the same time. Other ideas might include phasing out tax write-offs for mortgage interest for higher-income homeowners.

Both options are likely to be considered by a federal deficit commission that is due to report its findings in December. Its recommendations, however, are not binding, so Congress may choose an entirely different path -- one that does less to address inequality.

Hess said he did not expect the sort of riots and protests that have marked austerity pushes in Greece and other parts of Europe, but said inequality can heighten social tension.

Kapur, the strategist behind the plutonomy thesis, said the forces that put the United States into his plutonomy category appear to have peaked, and he has shifted his investment focus to emerging markets where returns look sweeter.

Although he did not see the financial crisis coming back in 2005, he accurately predicted what would eventually undermine his investment strategy. Time will tell whether he also foreshadowed shifts in U.S. attitudes toward inequality.

"Perhaps one reason that societies allow plutonomy is because enough of the electorate believe they have a chance of becoming a Pluto-participant," he wrote back then.

"Why kill it off if you can join it? In a sense, this is the embodiment of the 'American Dream'. But if voters feel they cannot participate, they are more likely to divide up the wealth pie, rather than aspire to be truly rich."

(Additional reporting by Nick Carey and Kim Dixon; Editing by Jim Impoco and Claudia Parsons)

Friday, 22 October 2010

Four reasons not to listen too closely to the bears

Paul J. Lim

On paper, this seems like a hospitable environment for the bulls on Wall Street to roam. The recession that began in late 2007 has officially been declared over. Interest rates and inflation are at historic lows, and stocks are up more than 70% from their low 18 months ago.

But when you flip on CNBC or turn to your paper's business section, it's all gloom and anxiety. The talking heads are warning that the economy could be headed for a double-dip recession or maybe something worse.

Meanwhile, mutual fund managers are sitting on cash, and a recent survey of investment newsletters found that bearish advisers vastly outnumbered bulls for the first time since the market cratered in March 2009.

Individual investors have caught the pessimism bug too: At the end of August, only 21% of individual investors described themselves as being bullish, vs. about 50% who said they were bearish.

That spread between optimists and pessimists hasn't been so wide since the credit crisis nearly two years ago. Since the start of 2009, $70 billion has been yanked out of U.S. stock mutual funds while more than half a trillion dollars has gone into bonds.

"Sometimes it feels like I'm the last optimist standing," says University of Pennsylvania professor Jeremy Siegel, whose book Stocks for the Long Run was the bible of '90s bulls.

Now a puzzle: If investors are feeling so crabby, why aren't stocks cratering? It could be that they're caught up in the market's mixed signals. It's unclear right now whether you can consider the broad market cheap or dear.

So while there's no obvious rationale to sell just now, it might just take a little bit of bad news -- such as a surprisingly bad earnings report -- to send investors running. But there's also a strong counterargument that the dearth of bulls is a good sign. Four reasons not to listen too closely to the bears:

1. Investor sentiment often points the wrong way

Right now there's an overhang of fear in the market that's not justified by companies' fundamentals. People's anxiety about their own jobs and the economy is probably spilling over into their portfolios.

And David Kotok, chief investment officer of Cumberland Advisors, says investors are still gripped by "financial post-traumatic stress disorder" left over from the 2008 crisis.

But as a group, investors' emotional weathervanes very often point the wrong way.

For example, at the end of the bear market in March 2009 the pessimists outnumbered the optimists by nearly 2 to 1. Yet in the 12 months that followed, the Standard & Poor's 500 index soared more than 60%.

Similarly, in October 2002 the number of bearish investors greatly outnumbered the bulls just as the stock market was about to enter a five-year rally. And on the flip side, asks Siegel, "How many bears could you find in tech stocks in March 2000?" Not many, but that was just before the Internet bubble burst.

How to play it: This adds up to a case for sticking by your stock allocation. But recognize that fragile investor sentiment could lead to a short-run market drop. That would be a timely occasion to book some profits in bonds and recommit that money to stocks.

2. Corporate balance sheets are strong

"If you focus solely on the economy, you could get bearish," says Ronald Muhlenkamp, manager of the Muhlenkamp Fund. "But when you look at the health of companies themselves, it's very easy to get bullish."

For one thing, after getting out from under debt over the past two years, corporations are now sitting on more than $1 trillion in cash.

Ironically, a big reason investors are so worried about the economy is that corporations are doing too good a job sticking to their financial diets. As companies both big and small have gotten rid of debt at a record pace, they've simultaneously cut back cold turkey on spending and investing, which is one reason cash reserves are soaring.

The good news is that some of this cash is starting to come off the sidelines and is being deployed in ways that could benefit you.

For instance, as merger-and-acquisition activity has begun to pick up recently, stock prices have also begun to rise. In addition, companies in the S&P 500 have boosted their dividend payments by nearly $14 billion so far this year, after slashing their payouts by $37 billion in 2009. Dividend-paying stocks have returned more than 10% this year, three times the return of the broad market.

How to play it: First, take a look at tech stocks. The sector, which used to shun dividends, now accounts for nearly 10% of the S&P's payouts, as industry titans like Intel are kicking back more cash to their shareholders.

In May, Intel said the company would double its earnings over the next five years. Even if the company can't achieve this through simple growth, it has enough cash to buy back stock and double per-share profits. "Meanwhile, you're getting paid a 3.3% yield to wait," says Robert Turner of Turner Investment Partners.

If you'd rather invest in tech via a fund, Technology Select Sector SPDR is an exchange-traded fund with a focus on larger companies. For a more diversified play on dividends, consider Vanguard Dividend Growth. Unlike many dividend funds, it doesn't just buy stocks with the highest yields, but includes newly emerging -- and faster-growing -- dividend payers.

3. The economy isn't as bad as you think

At least the global economy isn't. Take Europe, for example. While southern European countries were walloped by a debt crisis earlier this year, the region appears to have addressed many of those concerns.

In September, the European Commission nearly doubled its forecast for the region's growth this year, from 0.9% to 1.7%. Beyond Europe, the global economy is expected to grow at least 3.5% a year through 2014, which is about a third faster than projections for the U.S.

How to play it: Think European-based multinationals. Though European stocks are rebounding, they're still cheap. Historically they've traded at a 15% premium to the S&P; today they're even.

4. Parts of the market are attractively priced

Kotok likes Siemens, which is based in Germany, one of the region's strongest economies. The giant diversified manufacturer is growing 15% a year but trades at a P/E of less than 12. If you prefer funds, Vanguard Europe Pacific ETF is a MONEY 70 choice with two-thirds of its stake in Europe.

While there's great debate whether the broad stock market can be viewed as cheap, it's still easy to find attractively priced stocks right now. Bill Miller of Legg Mason Capital Management, a famous bull from the 1990s, argued in a recent commentary that some of the biggest high-quality U.S. firms are as cheap as they've been since 1951.

How to play it: Following a maverick like Miller is risky. His main fund lost big in 2008 as he stuck by financial stocks. But he also has a record of spotting huge opportunities others have missed, and his case for Exxon Mobil is intriguing. He notes it's cheaper now than it was during the financial panic.

Commodities Should Come Naturally for Investors

Most people can't spell commodities, says investing guru Jim Rogers.

Spelling aside, the idea of putting a percentage of your portfolio in the earth's resources makes sense, say financial advisors.

Commodities are great for diversification purposes and global demand is rising.

"Commodities are one of the few areas of the world economy that have bullish fundamentals," says Rogers, a popular author and co-founder of the Quantum Fund. "For 25 years there's been very little investment in production capacity, so we've had supply going down at a time when demand is going up."

As an asset class, commodities have several attributes.

"Principal among them is a pattern of returns which tend to be fairly dissimilar to other asset classes," says Roger Gibson, founder and Chief Investment Officer of Gibson Capital in Wexford, Pennsylvania.

Such dissimilarities can reduce risk because the ups and downs offset each other. Though not perfectly counter-cyclical to stocks and bonds, commodities are still a fine addition because it is hard to find assets that are negatively correlated. (Slideshow: The 10 Hottest Commodities of 2010)

Entry Points

There are many ways to invest in commodities. The first, buying a commodity outright, involves taking physical delivery, which, excluding gold, is impractical. Besides, what are you going to do with a barrel of oil anyway?

Nearly all investors, Rogers says, would be better off in an an index fund. Gibson also likes commodities index investments because trying to pick an individual commodity relies on skill and tends to cost you more for implementation. If cleverness runs out, you pay for performance that you are not getting.

Gibson uses the Pimco Commodity Real Return Strategy Fund(OTC Funds: pcrax)and Credit Suisse Commodity Return Strategy Fund. Both are mutual funds benchmarked to the Dow Jones UBS Commodity Index, and are designed to give continuous exposure to the five basic commodity groups-energy, agriculture, precious metals, industrial metals and livestock.

Another way to get involved is through a futures contract, which is an agreement to buy or sell a commodity down the road at a specific price.

Kevin Kerr, founder of Kerr Trading International in Chicago, actually encourages people who want to put resources into their portfolio to get closest to the actual commodity through options on futures.

The reasoning is that with futures your profits and your risk are unlimited. However, options, on the other hand, allow you to limit your loss and this is what makes them attractive, says Kerr. Rogers agrees that this is the best leverage and way to invest in the commodities themselves, if you know what you are doing. To start the ball rolling on this front, open a brokerage account that allows you to trade futures.

For optimal balance, between 5 and 15 percent of your portfolio should be in resources, adds Kerr. That could include equity resources or related equities, like Deere & Co (NYSE:DE - News) in the agricultural space. However, he says, investors who are comfortable with equities tend to gravitate towards those related to commodities, and then can't figure out why they don't correlate more. The biggest reason is that the actual commodities don't have the overhead or energy costs that companies do.

To clients who say they don't need exposure to crude oil because they already own Exxon Mobil (NYSE: xom) , Gibson says, "you get a different investment result from investing in the basic commodity than from owning the stock of companies that are involved in those commodities."

Exchange traded funds, ETFs, are another way to get in the game.

As of August, there were 52 commodity ETFs with a market value of $83.4 billion, versus 43 and $58.2 billion a year ago, according to the Investment Company Institute. The lion's share track metals and minerals, specifically gold and silver, with agriculture and energy accounting for lesser numbers.

ETFs, however, can be tricky. Some ETFs are baskets of equities related to the sector, while others are backed by the actual commodity itself.

The two formats will perform differently, and Kerr prefers the latter.

"I'll get clients calling to say, 'I'm watching gold and it has rallied $300 higher, but my mining stocks are down.'"

Kerr explains that investors are overlooking other factors, such as the price of oil. If oil prices are also going up, it is increasing the production costs of miners because mining is an energy intensive business. If you are considering an ETF, take a long look to make sure it is close to the underlying commodity.

To get cracking on your legwork, Kerr suggests looking online for a source of information that you like and then follow it. Rogers says it is easier research commodities than it is stocks.

"No one knew what a dot com was, yet people were buying them like crazy," says Rogers. "We all know what cotton is. All you have to do is figure out if there is too much or too little of it."

Bottom line, says Rogers: "If you don't know anything about commodities, you probably shouldn't be investing in them at all. If you know a whole lot, focus, concentrate and swing for the fences."

Who's Buying and Selling This Rally?

Josh Lipton

The stock market has moved sharply higher since August 27, when Fed Chairman Ben Bernanke suggested that the Fed might consider another bond purchase program, a maneuver known as quantitative easing.

The point of the program is to prop up the fragile economy by keeping long term interest rates low and encourage borrowing and spending by consumers and companies.

Specifically, the Fed Head said: "The Federal Reserve is already supporting the economic recovery by maintaining an extraordinarily accommodative monetary policy, using multiple tools. Should further action prove necessary, policy options are available to provide additional stimulus." (Also read Never Mind What the Fed Thinks; Markets Say QE Is Coming.)

Investors, believing the Fed can come to the rescue, have responded: citing exchange-traded funds as indicators, the SPDR S&P 500 ETF (SPY), which includes holdings like Exxon (XOM), Apple (AAPL), Microsoft (MSFT), IBM (IBM), and Bank of America (BAC), is up 9.5% since August 27.

Strategists ask the following question, however: just who has been doing the buying?

We know it's not you and your neighbors. The general investing public has continued to largely side-step stocks in their own background. Burned by two bear markets, and a stock market that has gone nowhere in 10 years, retail investors have been tough to lure back into the US equity market. (Also read Equities Edge Toward a Top.)

Sine the beginning of September, they have dedicated just $1.91 billion to US equity funds, according to EPFR. Year-to-date, they have yanked out $54.1 billion.

The principal buyers, say strategists, have included a couple of well-heeled groups of money-makers. First, there are the hedge funds. In September, hedgies reportedly turned in their best performance in 16 months with a 3.5% gain. However, that still undershot a 9% advance for the overall market.

There are therefore reasons to believe that the so-called "smart money" in fact missed the big September move in the market, which might have been dominated instead by the sovereign wealth funds like the kinds operated by the governments of Singapore and Kuwait. However, hedge fund managers are paid for performance and they cannot allow a headline-making advance to happen without them. So they're now buying in order to play catch up and meet their performance bogeys, says Jon Markman of Markman Capital Insight.

A second big buyer in the stock market, says Gluskin Sheff's David Rosenberg, would be the proprietary trading desks at the big commercials banks. These are traders that invest their firms' capital. As Rosenberg recently noted, using weekly Fed data, bank-wide trading assets have soared $50 billion alone in the past month.

Vinny Catalano of Blue Marble Research agrees that it's the fast-money crowd dominating the run-up. "This is predominantly hedge funds and prop traders and they're dancing to the music of ‘Don't Fight the Fed'", says Catalano. "You don't have much buying power from mutual funds because they're already at record low cash levels, and they're getting plenty of ongoing redemptions from investors."

What about pension funds?

The Wall Street Journal this week published an article titled "Pension Funds Flee Stocks In Search of Less-Risky Bets," which started off with the following observation: "After making the same kinds of investment blunders as many individuals, corporate pension funds now are seeking the same remedies: fleeing stocks for the perceived safety of bonds."

Indeed, Dr. Ed Yardeni of Yardeni Research notes that the percentage of equities in defined benefit private pension plans rose from 35.1% during Q3-1990 to a record high of 61.9% during Q1-2006. It then plunged back down to 37.8% during Q1-2009. Of course, that was mostly attributable to the sharp decline in equity prices from October 2007 through March 2009. However, the percentage continued to drop down to 34.2% during Q2-2010 despite the impressive rally in stocks since March 2009.

However, Yardeni thinks the industry, looking ahead, might have no choice but to allocate more funds towards the equity market. That's because they'll remain desperate, he says, for better returns than are now available in the fixed-income markets.

"Many pension plans continue to use the expected return on their assets as a discount rate," Yardeni says. "This is often 8%, and reflects the performance of the past 20-30 years. Good luck with that if bond yields remain this low."

One group of investors that have been determined sellers all year: the men and women actually running our publicly-traded companies. According to Jonathan Moreland, director of research at, in every month this year, the C-suite crowd has sold more than they bought.

In the first nine months of his year, he says, on average, 42% more companies had insiders selling stock than buying it. In total, $40.2 billion worth of stock was sold and only $7.54 billion was bought.

That stat might leave investors nervous: what do these executives know that the rest of us don't?

However, Alec Young, S&P's equity strategist, says that he doesn't place too much emphasis on whether CEOs are now selling their shares. "I don't consider this is some kind of major indicator," he says. "This has been going on all year and the market is still up. Now it may prove prescient, but I tend to focus more on valuation and the earnings outlook."

Nothing contained in this article is intended as a solicitation for business of any kind or for investment in the firm.

Thursday, 21 October 2010

Twitter as stock market predictor

Can Twitter predict the ups and downs of the stock market?

Researchers at a US university found they were able to predict the rise and fall of the Dow Jones Industrial Average with near 90 percent accuracy several days in advance by analyzing messages on Twitter.

The researchers at Indiana University-Bloomington's School of Informatics and Computing analyzed more than 9.8 million "tweets" from 2.7 million users of the micro-blogging service during 10 months in 2008.

They measured the "collective public mood" through tweets and then compared it to closing stock market values and found a correlation between the value of the Dow and public sentiment, Indiana University said in a press release.

"What we found was an accuracy of 87.6 percent in predicting the daily up and down changes in the closing values of the Dow Jones Industrial Average," said Johan Bollen, an Indiana University associate professor who carried out the study with Ph.D. candidate Huina Mao and Xiao-Jun Zeng of the University of Manchester.

Previous studies have found a link between Twitter traffic and a movie's success or failure at the box office but the Indiana University study is believed to be the first to study Twitter and Wall Street.

Indiana University said the researchers used two mood-tracking tools -- OpinionFinder and Google's Profile of Mood States (GPOMS) -- to analyze the text content of the Twitter messages.

OpinionFinder classified tweets as positive or negative measurements of public mood. GPOMS categorized the mood of tweets as calm, alert, sure, vital, kind, and happy.

The researchers then compared the public mood measurements with Dow Jones closing values.

Bollen said "the calmness index appears to be a good predictor of whether the Dow Jones Industrial Average goes up or down between two and six days later."

In an interview with the CNBC financial news channel, Bollen said "the public mood as expressed on Twitter by millions of people posting their Twitter feeds on a daily basis fluctuates over time.

"Those fluctuations, at least one of the indications we monitor -- namely mood, calm versus anxious -- is actually correlated with the Dow Jones Industrial Average's closing values," he said.

"It was surprising to us, because we thought it would actually follow the Dow Jones Industrial Average, in the sense that if it goes up, people are happy, if it goes down people are sad," Bollen said.

"But it turns out (that) the movements in the public mood actually predated from three to four days the up and down movements of the Dow Jones Industrial Average," he said.

The study is available for download at

The Politics of Envy

by Laura Rowley

A new study provides more evidence that when it comes to well-being, it's not the amount of money you make that matters, but whether you make more than your peers.

For the study, economists at the University of California at Berkeley and Princeton made use of a court decision that allowed the Sacramento Bee newspaper to create a Web site in 2008 listing the salaries of all state employees, including faculty and staff at the University of California. The researchers contacted a random subset of employees at three UC campuses, informing them about the existence of the site. Some 80 percent of those contacted checked out colleagues' wages.

A few days later the researchers surveyed all campus employees about their use of the site, their pay and job satisfaction, and how likely they were to search for a new job. They compared the answers from workers in the treatment group (who were informed of the site) with those in the control group (who were not). Then they matched survey responses to the salary data.

For people below the median income in their department or work unit, knowing what others earned made them less satisfied with their earnings and jobs overall, and increased the likelihood of searching for a new job. "By comparison, those who are paid above the median experience no significant change in any of these outcomes," the researchers write.

"People tend to react more to what they perceive as a loss than what they perceive as a gain," said David Card, who co-authored the paper with Enrico Moretti and Emmanuel Saez of Berkeley and Alexandre Mas of Princeton. "If you were unsure about where you stood and you find out you are actually below someone else in the department, that's more salient and causes a negative effect. For those who found out they were above the median, the positive effect was zero."

A number of studies have documented a similar correlation between relative income and job satisfaction, happiness and even health and longevity. For instance, Harvard researcher Erzo F.P. Luttmer studied geographic areas of roughly 15,000 people and found that, other things (like satisfaction with one's health and marital status) being equal, Americans who earned less than their neighbors were more likely to be unhappy.

In a separate study, Andrew Oswald of England's Warwick University and David Blanchflower of Dartmouth found when people make relative-income comparisons, they often look at those who earn more — and get upset when their paycheck compares unfavorably. Brookings Institution researcher Carol Graham has found the same effect among upwardly mobile workers in multiple countries. And researchers in Toronto found that actors who are nominated for an Academy Award and win live four years longer, on average, than those who are nominated and lose. In statistical terms, winning an Oscar is "like reducing your chances of dying from a heart attack from average to zero," writes British epidemiologist Michael Marmot in his book, "The Status Syndrome."

In the Berkeley study, researchers also found evidence that access to information about co-worker pay increases concerns about nationwide income inequality among both low and high earners. Specifically, 86 percent of respondents who were privy to their co-workers' pay increases either agreed or strongly agreed with the statement, "Differences in income in America are too large." Only 11 percent disagreed and 2 percent strongly disagreed.

Victor Claar, associate professor of economics at Henderson State University in Arkansas, argues that those macro income-gap concerns are fueled by the same breed of envy that makes someone want a new job when their pay falls below the median. In a speech at the American Enterprise Institute last month, Claar argued that "envious majorities" can pursue bad public policy to "narrow the gap between them and the targets of their envy."

"In a market you are rewarded according to the value you contribute to that system," Claar said in his speech. "And different individuals are endowed with different resources initially, with different talents, different appetites for risk, some work harder than others; and the outcomes in a market system, because it is a meritocracy, are different. And when there are different outcomes, there is the potential for this sin of envy."

Policies that attempt to address what's really a moral failing can be damaging to employment and economic growth, Claar told me in an interview. Better to address envy in private: "If you feel sad when someone else experiences good fortune, no one is miserable in that story but you, and you need to work that out by talking to your friends or your priest, rabbi or minister," says Claar.

"If our choice is between envy and attempts to fix it by changing rules of the game, I think we've already seen that makes people furious," Claar continues. But if everyone plays by same rules, at least you feel the game was played fairly and the system treated everyone equally, he says.

Therein lies the problem. Not to fuel the populist flame, but many Americans diligently followed "the rules" — getting a college education, working hard in their careers, buying a home with a reasonable down payment, saving for retirement and their children's college, and not treating their house like an ATM. And what they got for their efforts were stagnating wages, unemployment, underwater mortgages and diminished savings. They were plodding along, pursuing the American dream, and they got robbed.

Moreover, their outcomes were different precisely because not everyone played by the same rules. For instance, under the old rules, if you took a big risk that went sour in a market economy, you lost your shirt. Under the new rules, that only applies to people and institutions that aren't too big to fail.

Under the old rules, when you fell, you had to pick yourself up and start from the bottom. Under the new rules, that only applies to people and institutions who aren't the beneficiaries of government largesse. One example is the loosey-goosey monetary policy that has allowed financial institutions to profit and pay a record $144 billion in compensation and bonuses, while doing very little of the lending to individuals and small businesses that the largesse was intended to facilitate. It's worth noting that the banks weren't rewarded with profits for the "value they contribute to the system," as Claar would put it, but because they didn't need to set aside as much to cover loan losses, since they aren't increasing their lending to Main Street.

I believe in the market system, when it really is merit-based, because it fosters economic growth that can lift up the poor. In 1999, when the economy was gangbusters, I volunteered in a program that taught life skills to formerly homeless drug addicts and helped them find jobs — and we could find them for people who'd spent a decade on the streets, and time in jail. They didn't want handouts or bailouts, they just wanted work. And when they found it, the effect on their lives, their confidence and their happiness was profound.

I also think envy is inevitable in a market system, because all earned success contains a measure of good luck. People can start out with the same goals and aspirations and then life intervenes. Two people earn their CPAs and work diligently and honestly, and in 2001 both make partner — one at Ernst & Young, the other at Arthur Andersen. Through a connection, one gets a piece of the Google IPO and one invests with Bernie Madoff. One gets cancer while the other doesn't.

Social comparison, envy and status-seeking have been part of the human condition since Cain and Abel. But that's not the source of the populist anger. It has to do with the glaring disconnect between value contributed and reward received. It's a recognition that the current rules of the game have created perverse incentives and moral hazards. It demands a public discussion about which rules foster an optimal level playing field, which rules serve the free market system best. And it has nothing to do with envy.

The Biggest Money Mistakes Couples Make

Kimberly Palmer

Managing your own money is hard enough; add another person to the equation and it becomes an obstacle course: Does it make sense to combine bank accounts after moving in together? Should you pay off your credit card debt before getting married? Does the higher earner need to cover more of the bills?

Here are six common mistakes that couples make with their money--and how to avoid them, adapted from the new book Generation Earn: The Young Professional's Guide to Spending, Investing, and Giving Back.

Not talking about finances.

Sure, discussing who pays for what and how much debt each person brings into the relationship is awkward--but also necessary. Before moving in together, talk about how you plan to share household expenses, whether the person with the higher salary will contribute more, how much credit card debt you have, and how you plan to share big-ticket items like cars. Also, take time to map out the logistics: Will you pay bills out of one shared bank account? Or keep all your money separate?

Don't forget to bring up your long-term goals, too, which can make the discussion a little more romantic. Do you want to swim with dolphins in the Bahamas? Or backpack around Europe together? Agreeing on common goals makes it easier to save.

Combining accounts too early.

Putting all your money into one account might be the more romantic option (and prevent any debate over who picks up the tab at dinner), but it can also cause major problems in the event of a breakup. Couples who live together without first walking down the aisle face financial vulnerabilities with joint accounts that married couples don't.

Investments in shared assets, such as a home or car, can be lost during a messy breakup if only one person's name is on the title. Money or labor that went into redoing a former partner's kitchen may never be recouped. And while details vary by state, even assets such as joint savings accounts can go to the person who is first to make the withdrawal. Legalities aside, a lot of couples say they like the independence of having two accounts anyway, at least before they decide they've found their permanent soul mate.

Sharing credit cards, real estate, and other types of debt.

If you add your partner's name to the title of your home, then they own it, too--even if you paid for the down payment and mortgage. "I see it happening too often--a couple gets together, says 'I love you, let's set up house and make this official'. . . and then [one person] signs away half of their equity," says Sheryl Garrett, a certified financial planner based in Shawnee Mission, Kansas, and author of Money Without Matrimony. Couples also need to talk about who would get the first opportunity to purchase the house if they were to break up, at what price would they sell it, and how many days they would have to refinance the mortgage in their own name.

Signing on to someone's car loan or credit card can create similar problems. If you break-up and the other person fails to make their payments, then you're on the hook, too. Even if you've long gotten over the relationship, your credit might feel the after-effects for years.

Getting surprised by the marriage penalty.

Newlyweds who earn similar, high salaries often get an unwelcome surprise the year after they get married: They find themselves stuck with a mega-tax bill. That's because the so-called marriage penalty still exists in the upper tax brackets. In 2010, for example, husbands and wives who each earn $68,650 and up in taxable income are at risk for paying more married than they did as singletons.

Earnings above that amount face a 28 percent tax, compared to 25 percent pre-marriage. Couples are most at risk when they bring home similar incomes. (The reverse is also true. When one person in the marriage brings home all or most of the money in a marriage, that couple usually gets a tax break.) The best way to prepare for this unwelcome wedding "gift" is to know it's coming and to deduct more from your salary throughout the year to avoid a large bill on April 15.

Ignoring the risk of a break-up.

Talking about how you would split things up if you decided to go your separate ways can prevent bad surprises later. Unless children or major assets are involved, there's usually no need to hire a lawyer. In fact, you can just write down the answers to these questions along with any others that apply: Who would stay in the apartment? Who would get the cats? The car? If you want to formalize the process, you can pay a nominal fee to download forms, such as a living-together guide and contract, at

Since unmarried couples don't get to argue their case in divorce court, it could be your only protection in place if things go south. (The legal ramifications of common-law marriages, civil unions, and domestic partnerships vary by state.) Couples might also want to consider talking about any debts, past bankruptcy filings, and credit report problems, because even if you're not legally liable for your girlfriend's $50,000 student loan, it could end up affecting your quality of life if 10 percent of the household income goes toward paying it off each month.

Putting one person in charge of money.

It's normal to specialize in relationships--to delegate dinner planning to the best cook, and gardening to the one with a green thumb. But giving one person all of the money management responsibility can lead to an unbalanced relationship.

New York-based relationship therapist Bonnie Eaker Weil explains that no one should ever feel like he or she has to ask permission before buying something. "I call it 'Mother, may I?' You don't want to get into that position where you're the little girl, or you're the little boy, and the other person is your parents. You want to have your own money, and certain things are guilt-free, and you just do what you want with it. If you want to buy a latte, or lipstick, or a facial, you do not have to ask permission, because it's your own money," says Weil. Plus, in the event of a break-up, you want to make sure you know where all your money is and how to manage it.

Monday, 18 October 2010

Study predicts women in power, Muslims heading West

n the next 40 years, an unprecedented number of women will be in positions of power, Muslim immigration to the West will rise, and office workers will be unchained from their cubicles, a report released last week says.

South America will see sustained economic growth and the Middle East will become "a tangle of religions, sects and ethnicities," says the report by Toffler Associates, a consultancy set up by the author of the 1970s blockbuster "Future Shock."

Toffler Associates released its predictions for the next 40 years to mark the 40th anniversary of "Future Shock," in which author Alvin Toffler studied the 1970s to see what would happen in the future.

His prognosis 40 years ago was that technology and science would develop at such an accelerated pace that many people would be unable to process the enormous amounts of new information available and would disconnect from life.

Some of "Future Shock's" prognoses have come true, including that news would travel around the world instantly, that same-sex couples would wed and raise families, and that violence and environmental disasters would increase and have broad consequences -- like the BP spill in the Gulf of Mexico.

So it might be worth paying heed to what Toffler Associates foresees for the next 40 years, including container ships getting larger to meet increasing demand for faster, cheaper delivery of goods, and the Suez and Panama Canals being "improved."

They envision more and more people growing their own food to reduce their dependence on large manufacturers and distributors, and the proliferation of high-speed Internet and low-cost video-conferencing freeing office workers from their cubicles and working from anywhere in the world.

Only a very small number of states will continue to behave as "rogue" nations, Toffler Associates says, naming North Korea and Iran.

"A true test for political leaders will be in how they handle relationships with these nations and to what extent they allow them to control geo-political agendas," the consultancy says.

China will position itself as a global economic power, allying with Brazil and India to influence currency use and with Venezuela and African nations to ensure its energy needs are met.

The United States, meanwhile, will depend on China for 17 rare earth metals that are essential to produce everything from weapons components to radars to wind turbines and hybrid cars.

The development of alternative energy forms will create "losers in a post-petroleum world" including Saudi Arabia, Iran, Iraq, several Gulf states, Russia and Venezuela, the report says.

Christianity will rise rapidly in the global South, while Muslims will migrate in increasing numbers to the West, where their presence will reshape public attitudes and government policies.

Climate change will fuel conflict as melting sea ice exposes mineral wealth and oil fields in the Arctic and as rising sea levels force large populations from their homes.

An aging population will cause spending on long-term care services for the elderly to nearly quadruple by 2050, and social security and Medicare, the US health insurance for the elderly, will cease to "exist as we know them," Toffler managing partner Deborah Westphal told AFP.

"We don't know what will replace them; we just know that we will be in a different type of society with different types of people and different needs," she said.

As for women, they will take on leadership positions around the globe at a never-before-seen rate, as countries realize "you can't be successful with just 50 percent of the population participating in decision-making," Westphal said.

And in the next 40 years, information-gathering will speed up even more as the world enters the Petabyte Age, Toffler Associates predicts.

Petabytes -- which are 10-to-the-15th-power bytes, or measures of computer files, hard disk space, and memory -- are used today only to measure the storage space of multiple hard drives or collections of data.

Between now and 2050, measuring data in petabytes will become the norm, and so will data saturation, Toffler Associates predicts.

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