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Monday, 31 October 2011

Dark clouds on horizon despite EU deal: PM; He warns of slower growth as economy matures, population growth slows

Teh Shi Ning; In Perth


PRIME Minister Lee Hsien Loong says 'there are dark clouds on the global economic horizon', despite the great relief that a long-awaited eurozone rescue deal brought to markets late last week. And back home, the 'price to pay' of managing Singapore's population by constricting foreign worker inflow, coupled with a maturing economy, will mean that growth of 3 or 4 per cent a year ought to be considered 'not a bad year', he said.

Speaking to Singapore media on the sidelines of the Commonwealth Heads of Government Meeting (CHOGM) in Perth yesterday, Mr Lee said the Monetary Authority of Singapore's prognosis last week of stalled growth over the next few quarters, was 'not surprising'.

MAS had said that 2012 growth may fall below the economy's potential of 3-5 per cent, before recovering again towards the end of next year. It is an 'optimistic' view, Mr Lee said. Even if things do improve by then, he thinks the longer-term problems in Europe are unlikely to 'disappear next year' and expects 'several years of difficulty in the economy', which Singapore must be prepared for.

Describing last week's rescue deal - to write down the value of Greek government debt held by banks and other private investors by half and boosting the eurozone's bailout fund to around one trillion euros (S$1.76 trillion) - as a 'temporary solution' that 'hasn't made the problem go away by any means', Mr Lee said it must first be implemented to be proven effective.

There are concerns over whether the bailout fund is large enough, and longer-term structural issues such as fundamental differences in productivity, fiscal balance and inflation tolerance remain. Closer political ties and a more cohesive Europe is the way forward, but is unlikely to be achieved any time soon too, Mr Lee said. 'It depends on countries feeling for one another, but for the Germans to feel for the Greeks, never mind like the Greeks, and vice-versa, I think that's a work of many, many years.'

These 'dark clouds on the horizon' and the possibility that world economies are headed for a second dip in the medium term, have already slowed demand and hit Singapore, Mr Lee said.

Reiterating that higher growth rates of 5-7 per cent of previous years can no longer be expected in future, Mr Lee said 3-4 per cent should be deemed 'not bad' in the economy's new phase of growth.

'It's a different phase. When you're an adolescent, you grow and shoot up inches every year, but when you mature you hope to grow, not necessarily taller, but wiser and better. We have to make that change of gear,' he said.

Acknowledging that moves to limit the inflow of foreign labour via stricter criteria and higher levies have been painful for employers, many of whom are small and medium enterprises, Mr Lee said Singapore faces 'some very difficult choices'.

'It's not as if, if you sent away all the foreign workers or kept out all the foreign workers, then we'd live in paradise. There is a price, and it's quite a high price to pay. As we try to manage the population in Singapore, we're going to also have to accept a lower growth rate,' he said.

Singapore politics, too, has entered a new phase. Giving his take on the first sitting of the new 12th parliament, which closed just over a week ago, Mr Lee noted 'a lot of excitement and interest' over what the newly elected Members of Parliament (MPs) had to say.

Opposition MPs 'put a lot of effort into their speeches' but it remains to be seen if they will 'participate in helping to solve problems', Mr Lee said. Parliament is 'not just a show, it's not just theatre', rather, it is 'a place where we should have serious discussion and we should discuss, not just criticise'.

Referring to several occasions on which opposition MPs floated criticism of the government as 'what people say', Mr Lee said the responsibility of an MP is not merely to repeat others' views but to have their own views and 'express them fearlessly'.

'To dare to challenge a government doesn't take courage because the government is not the emperor - it cannot chop your head off. But to dare to stand up and say something which is true but may be difficult, spiky issues which the population may not wish to hear, that takes courage, because the population has votes,' he said.

The government's responsibility is to 'speak the truth to Singaporeans' and the opposition's is to 'acknowledge the truth and speak it, whether or not it's politically advantageous to them', Mr Lee said.

Mr Lee: 3-4 per cent should be deemed 'not bad' in the economy's new phase of growth

Too early to give US economy the all-clear; Unemployment rate remains high and risk of a recession is real

Andy Mukherjee, Senior Writer


IF HISTORY is any guide, it may be unwise for investors to give too much importance to a report last week that suggests the US economy is speeding up again.

Data released last Thursday by the US Commerce Department showed that gross domestic product (GDP) expanded at an annualised 2.5 per cent rate in the third quarter, almost double the 1.3 per cent pace in the previous three months.

The data release was impeccably timed. News that Europe's politicians had finally managed to come up with a plan for containing their region's sovereign debt crisis already had traders itching to extend their risky bets.

The fine print of the US GDP report, which showed spending by households grew at a faster pace than expected by economists, only added to that sense of optimism. The S&P 500 Index shot up 3.4 per cent last Thursday.

Amid this carnival of enthusiasm, investors chose to more or less ignore the US Department of Labour's more sombre assessment of the unemployment situation. That report, which was also released last Thursday, showed that in the week ended Oct 22, initial jobless claims had stayed resolutely above 400,000.

In the past 29 weeks, there have been only two weeks when the claims have been below that danger mark. This is entirely consistent with a bleak picture for the overall labour market.

The US economy is driven by household spending, which can grow meaningfully, and in a self-sustaining way, only if people have jobs that pay decent wages. With the US unemployment rate refusing to budge from a very high 9.1 per cent in the past three months, that's unlikely to happen soon.

So what's going on with the GDP data? Why is it pointing to a recovery'

For a possible answer, we need to go back a decade.

On April 27, 2001, the Commerce Department announced its advance estimate of 2 per cent GDP growth for the first quarter of 2001. That was double the pace of expansion in the final quarter of 2000.

That data release caught Wall Street by surprise. Few analysts had expected the economy to show such remarkable resilience following the dot.com collapse.

Indeed, the bond market was by then expecting a full-fledged recession, and Mr Alan Greenspan, who was then chairman of the US Federal Reserve, had confirmed the debt market's pessimism by unexpectedly cutting interest rates on April 18, nine days before the Commerce Department issued its clean bill of health for the economy.

Then, on May 25, 2001, the growth estimate was lowered to 1.3 per cent from 2 per cent. Another tweak, one month later, saw the figure being clipped further to 1.2 per cent. The revised number, while significantly lower than the advance estimate, still suggested a decent level of expansion for the economy in the first quarter.

Then came the Sept 11 terror attacks on New York and Washington, and all remaining optimism in the economy vanished. Stocks came under heavy selling, which continued until the third quarter of 2002.

Much later, the very last revision to the data would show that the pessimists - and Mr Greenspan - had been right all along, and that instead of expanding, the US economy had actually contracted in the first quarter of 2001 by as much as 1.3 per cent.

Separately, the National Bureau of Economic Research confirmed that the US economy had entered into a recession in March 2001, almost two months before the Commerce Department issued its advance estimate of 2 per cent growth.

This history lesson has a simple message for investors: Advance GDP estimates are a rather unreliable gauge to assess the strength of the aggregate economy. They are especially useless around tipping points.

And by all accounts, we are close to one. Goldman Sachs currently estimates the chance of a new US recession at 40 per cent, while Societe Generale's economists believe the likelihood is as high as 65 per cent. According to the New York-based Economic Cycle Research Institute (Ecri), the odds are 100 per cent. The Ecri, which has a solid track record in predicting past recessions, has warned its clients that a new one is inevitable.

But if there is indeed a recession, how bad will it be? According to Mr Zach Pandl, a senior economist at Goldman Sachs, US housing, auto sales and investments in business structures - factories, hotels and shopping malls - have already fallen so much that scope for further declines in these activities may be limited.

So a new recession may not do colossal damage to total economic output. Mr Pandl's estimate is for a contraction of 1.4 per cent in US GDP, less than the 2.3 per cent shrinkage seen on average during recessions since World War II.

However, there is a flip side to the story. After almost four years of battling the 2008 financial crisis and its aftermath, the fiscal and monetary policy arsenal in the US is almost depleted. The Republicans won't let the Obama administration loosen its purse strings any further, while there is little more the US Federal Reserve can do short of raining money on people from helicopters.

Under these circumstances, climbing out of even a shallow hole may prove to be an onerous task for the economy.

'A US recession today would be painful,' Mr Pandl says. 'Given its high level, even a 'small' increase could take the unemployment rate to 11-12 per cent.'

Even a shallow US recession may have a deep impact on corporate profits and stock prices. 'If there is a recession, even a mild one, I would expect a substantial setback to corporate earnings,' notes Morgan Stanley's global developed market strategist Gerard Minack. 'To the extent corporates have maintained a tight cost base, there would be less-than-usual scope to cut costs in a downturn.'

The recession risk is quite real for the US economy. It will take more than an ebullient GDP estimate to make the danger go away.

andym@sph.com.sg

5 Ways to Retire on a Small Income

We all want to be happy and comfortable in our golden years. To get there we focus on saving money every month, investing for the long term, and figuring out when we should retire.

A huge step in the right direction is to be financially free by the time we leave the workforce, and one of the quickest ways to get there is to make more money. However, asking for a raise or finding a more lucrative job are not strategies everyone can pursue. Luckily, there are many ways to prepare for a secure retirement without a large income. Here are five ways to improve your chances of having a comfortable retirement.

Focus on income. One of the main reasons we fear retirement is because of the lack of steady income. Most people in their working years attempt to increase their net worth, ignoring how that lump sum can be translated into a stream of income for the future. As a result, they have to deal with the emotional impact of always seeing their nest egg decrease as they withdraw from their savings in retirement. Instead, focus on setting up income streams for retirement.

Cut spending. One of the most efficient ways of reaching your retirement goals is to cut your expenses. When you are able to reduce how much you spend, you can not only save that extra money, but also learn that you need less to live a comfortable life. If you end up saving too much for retirement you can always inflate your lifestyle later.

Hang out with frugal people. No one wants to be called cheap. But what's deemed cheap in some social circles is admired in others. If you enjoy living frugally, then you will find it even more enjoyable meeting others who share your passion.

Learn to enjoy your hobby and not the buying process. Many people spend quite a bit of money on their hobbies, and they blame their passion for the increase in spending. Yet, I'm sure there are ways to enjoy the same hobby without buying all that stuff. Do you really need a different camera lens for every situation to enjoy photography? Is it a necessity to have the latest equipment to enjoy a sport? Learn to enjoy the hobby rather than the impulse spending. You might actually discover a whole new perspective towards your hobby.

Find a company you enjoy working at. Let's face it. Most people want to retire early. Yet, no one ever quits their job if they love what they are doing. Some people will tell you to find a job in an area that you are passionate about, but the company has to have the right culture too. It doesn't matter how much you love the line of work if your boss is always being unreasonable. Find a company where you love the people and culture, and you will naturally be more passionate about what you do. When you enjoy your work, you can work well past traditional retirement age and still be happy.

David Ning runs MoneyNing, a personal finance site aimed at helping others change their habits for a better financial future. He suggests that everyone to sign up for an online savings account to get more out of our hard earned money.

Saturday, 29 October 2011

Demand for labour 'will fall sharply after festive season'

By Magdalen Ng

Demand for labour is already slowing but the trend will intensify after the Christmas and Chinese New Year holidays, according to the Monetary Authority of Singapore (MAS) on Thursday.

The economic slowdown here and persistent uncertainties in the global economy are taking some of the heat out of the labour market.

Financial services and trade-related sectors - both sensitive to economic changes - have already been scaling back their hiring, with other sectors tipped to follow suit in the next few quarters.

The Electronics Leading Index indicator continues to show a sharp fall-off in final demand, signalling that job cuts will persist in the industry.

Why You Should Stop Trying to Beat the Market

by Walter Updegrave

How much better will you do if you invest well instead of poorly (or earn the average)? -- James McGrath, San Marcos, Calif.

Considering all the attention investment pros (and financial magazines) lavish on picking the right stocks and funds, I can understand why you might think superior investing ranks above all else when it comes to a secure future and a comfortable retirement.

Savvy investing is certainly important — you don't want to blow your savings on lousy funds or ineffectual strategies. And you'll end up richer if you happen upon a winning investment. If you'd owned the Sequoia Fund for the past decade, for example, a $10,000 balance would have grown to more than $16,000 now, vs. $12,800 if you'd simply earned the market return.

But as a practical matter you can't know in advance which fund or stock will beat the market — in fact, over the past 15 years, only 55% of U.S. equity funds did so, according to Morningstar. Rather than pinning your hopes on higher returns, I'd say boosting your savings rate is a surer way to improve your retirement prospects.

To see what I mean, check out this example. Let's say you're 35 years old, earn $60,000 a year, and sock away 10% of your salary (including your company match) into a 401(k) that's already worth $75,000. And assume you're stashing your retirement moolah in a diversified portfolio of 60% stocks and 40% bonds.

You're doing a reasonable, though not spectacular, job of preparing for retirement. Your savings rate is decent, though it could be better. As for investing, you're hardly a slouch, but ideally you should be devoting more of your 401(k) to stocks.

The key is starting with an overall plan — that is, deciding on the appropriate asset allocation, or blend of stock and bond funds that makes sense given your age and stomach for risk.

Indeed, when the folks at T. Rowe Price ran the numbers on this saving and investing regimen, they projected that you'd have a 68% chance of accumulating enough money to retire in 30 years on 70% of your pre-retirement income and not deplete your funds until age 92.

Not bad. But if you could do just one thing to improve your outlook, what would it be? Save more or earn more?

You can't, of course, say you'd prefer an 8% annual return instead of 6% and turn a dial higher to get it. The investing world doesn't work that way. So to try to earn more you have to invest more aggressively.

In this example, both increasing your savings rate from 10% to 12% and shifting to a more growth-oriented portfolio that's 80% stocks and 20% bonds — an appropriate mix for a 35-year-old — will boost your chances of retirement success. But saving more has a larger effect than earning a higher return would.

In the real world you're not limited to one move. You can bump up the amount you save and improve a sub par investing strategy. Do both those things — which, ideally, you would — and you can feel even more confident about achieving a secure retirement.

In theory, later in your career, when you're more likely to have a large balance in your retirement accounts, a relatively modest increase in your rate of return could boost the size of your nest egg more than upping your savings rate would.

On a $500,000 portfolio, for example, an additional half percentage point of return would translate to an extra $2,500 a year, more than someone earning $100,000 would get by moving from a 10% to a 12% savings rate.

Trouble is, the more risk you take in pursuit of loftier gains, the more your returns will jump up and down from year to year, and the harder your portfolio will get hammered during market setbacks. Take a 55-year-old a decade from retirement — for that person, a pedal-to-the-metal approach is no help. Because you have less time to recover from a setback, it slightly cuts your chances of reaching your goals.

That said, you still have one way to effectively earn more on your portfolio — without ratcheting up risk: Pare investment fees.

Annual expenses for stock funds average 1.5%, while the yearly tab for bond funds comes in at roughly 1%. By opting for low-cost options like index funds and exchange-traded funds, which often charge less than 0.5% annually, you may be able to reduce your costs by anywhere from a half to a full percentage point a year. Over the course of a career, that can boost the eventual size of your nest egg a good 10% to 20%.

Finally, there's one more compelling reason not to rely on astute investing. Given the sluggish growth and onerous levels of government debt here and abroad, even the most savvy investors may have to settle for relatively modest returns. That could be a major problem if your retirement security hinges on racking up big gains. Boosting your savings rate is a surer way to increase the ultimate size of your portfolio.

So by all means, make sure you're investing as well as you can. If you really want to improve your prospects, though, save more.

Thursday, 27 October 2011

The Economic Agony of Today’s Twenty-Somethings

By Daniel Gross

Most of the coverage of today's economic difficulties focuses on older folks. How will the mid-career people who lost their jobs during the deep recession of 2008-2009 find new posts? Will the Baby Boomers, and whether they will be able to rely on Social Security and Medicare? What can be done to help homeowners and families caught up in the mortgage mess?

In a recent cover story in New York, Noreen Malone offers a sharply reported take on a demographic group that is often overlooked: twenty-somethings. As Malone and I discuss in the accompanying video, today's twentysomethings, while they may have fewer financial and familial obligations than their parents, and more time to prepare for a straightened future than the Baby Boomers, face their own unique challenges.

Here are some of the tough economic data points facing the "It Sucks to Be Us" generation:

Entering the workforce in a tough time has long-term impacts. Since the average workers get 70 percent of total raises in their first decade as a worker, "having stagnant or nonexistent ­wages during that period means you hit that springboard at a crawl," Malone writes. Seventeen years after entering the workforce, people who graduate college during a recession earn 10 percent less than those embarking on their careers during good economic towns. "In hard, paycheck-shrinking numbers, the salary lost over that stretch totals around $100,000."

Students today leave college with far more debt than they did in past years. The Class of 2009 had an average of $24,000 in student loans. "I almost don't even blink when someone says I have $100,000 in debt, just from undergraduate." According to one measure, "student loans have surpassed credit cards as the largest source of debt in the country."

Tough economic times mean twenty-somethings have a difficult time launching into independence — and that has an economic impact. They're more likely to rely on families and parents for support, thus cutting back on the old folks' ability to save, spend, and invest. " Thirty-nine percent of us in a 2010 National Journal poll were getting financial help from relatives, including a full quarter of those with full-time jobs," Malone writes.

The slow formation of households is holding back recovery in the housing market: "The median age of first marriages has crept up by about a year since 2006—a statistically huge increase—and the overall marriage rate is at an all-time low. The number of women between 20 and 34 rose by about a million between 2008 and 2010, but the number of children born to the group dropped by 200,000."

A college degree used to be insurance against a tough job market. According to the Bureau of Labor Statistics, for college graduates over the age of 25, the unemployment rate is about 4.5 percent. But for recent college grads, Malone says, the rate is closer to 14 percent.

Wednesday, 26 October 2011

5 Hedging Strategies for Do-It-Yourself Investors

Hedging was once the exclusive domain of institutional, or at least extremely sophisticated investors. For years this exclusivity worked out fine for both individuals and the institutions; bull markets don't need hedging and the institutions liked to justify their existence by making trades only they understood. Now that the bull market is dead Jay Pestrichelli, author of the new book "Buy and Hedge: The 5 Iron Rules for Investing Over the Long Term" says it's time for the layman investor to control their risk, and possibly make some money, by deploying some of the tools of the hedge fund trade.

Here's insight on Pestrichelli's 5 Iron Rules.

1. Hedge Every Investment: Pestrichelli calls this the One Rule readers should take away from the book. No "buy and hold" forever; don't hang on to losers because they can't possibly go lower. If the last 10 years, a period during which Pestrichelli says "buy and hold has gotten its teeth kicked in," has taught us anything it's this: Until a stock hits zero it can always go lower. If you hedge yourself via puts or sell discipline you remove the chances of falling in love with a loser.

2. Know Your Risk Metrics: In short these metrics are Capital at Risk (CaR), volatility, implied leverage, and correlation. No, these aren't the kind of things you're going to read about in the business section of your local paper. Yes, they are critical tools for those who don't wish to fly blind with their life savings. Pestrichelli's book does a pretty good job of summarizing concepts I spent a decent amount of money studying in business school.

3. Smart Portfolio = Long-term Outlook + Diversification: Rather self explanatory.

4. Unleash Your Inner Guru: I can't say I'm on board with unleashing your inner guru. Even gurus don't want to be gurus. That said, the basic idea of doing your homework, understanding your investments, and having the confidence to act on your own opinions is solid. Spouting off on your opinion then refusing to acknowledge mistakes is not a solid approach. And, no, I'm not a guru.

5. Harvest Gains and Losses: Here's where the learning curve gets steep. Pestrichelli offers lessons on using options strategies to effectively take profits off without actually selling your winners. While the methods are somewhat vanilla by the mind-numbing standards of options trading, individuals are entering the deep end of the pool when they start dealing in puts and calls. Comparing options to health, life, and auto insurance, Pestrichelli points out that people make options trades everyday. His book just casts some light on the process.

Having done more than my share of hedging in my past life I can say that it's not for everyone. "Buy and Hedge" offers some terrific, surprisingly comprehensible techniques for controlling risk. That said, options trading is the deep end of the trading pool. The options traders I know are a bit like hardcore card sharps; they may rake in the occasional pot off one another but they make their real living off the greenhorns stumbling into markets they simply don't understand.

Despite this Pestrichell and co-author Wayne Ferbert's basic point is irrefutable: Passive buy and hold investing hasn't worked for years. The techniques described in Buy and Hedged aren't for everyone but the book raises alternative ideas for those looking for alternatives to being held captive by the market's constant to and fro.

How to Pay for Early Retirement

by Linda Stern

The longer you work, the better, retirement experts will tell you. Plow on until you're 70 and you'll make more, have fewer years of retirement to fund, and collect a fatter Social Security check. But that's not always desirable, or possible.

People often retire in their early 60s because they can't get a job, they aren't healthy enough to work, or they're just sick of the 9-to-5 grind and want to begin the next part of their lives.

The question for them is how to pay for it. Early retirees can start collecting Social Security early, or defer their Social Security by using money from their 401(k) account or by buying an annuity.

The question is complex, and the wrong answer could really constrict your 80s and 90s. But it also seems like a question that should have a mathematical answer: Given enough data, shouldn't you be able to optimize your spending in your 60s to protect the cash flow you'll need for the decades you'll probably spend in retirement.

I asked David Hultstrom, a spreadsheet-loving financial adviser with Financial Architects in Woodstock, Georgia, to help me find the answer. Then I ran the question by a few other experts. Here's the latest, best advice on how to fund your 60s without impoverishing your 80s. There are, of course, some exceptions.

Spend your savings first. Your regular savings and investments, sitting in taxable accounts, are the most efficient place for a 60-something to find spending money, even though it might be difficult psychologically to take those withdrawals. You'll allow your tax-deferred savings as well as Social Security benefits to grow. And you'll be able to minimize your taxes by selling losing securities (and taking capital losses) to get spending money.

Then hit your tax-deferred accounts. This would include a traditional individual retirement account, rollover IRA and 401(k) plan. Every dollar you withdraw will be subject to income tax. So, if you are in a high tax bracket, you may want to switch this category with the next and pull enough money out of your Roth IRA to keep your overall taxes down. (Roth IRA withdrawals are not taxed in retirement.)

At 70, start your Social Security benefits. You may not be able to hold out until then, but deferring Social Security as long as possible does make sense — for a variety of reasons. Your benefit increases almost 8 percent a year for every year you defer it, and in this market it's hard to make that kind of return in any other instrument. Furthermore, Social Security is the rare retirement benefit that will be adjusted for inflation.

Finally, if you defer Social Security benefits until full retirement age — currently 66 — you'll be able to work around the edges and earn income without it reducing your benefits. The Government Accountability Office has determined that deferring Social Security benefits is a cheaper and more efficient way of getting a guaranteed source of income than buying an annuity.

Now for the exceptions: You may want to turn on that Social Security tap earlier if you have health problems and are fairly confident they will shorten your life expectancy. The break-even point for deferring Social Security until you are 66 is age 78, says Hultstrom. You may also opt to take benefits earlier if you're married and have a higher-earning spouse who is deferring benefits.

Buy an annuity. This is at the bottom of the list because giving up a large sum of money now to pay for a steady and increasing income stream is expensive. When Hultstrom compared a moderately priced inflation-adjusted immediate annuity to deferring Social Security, he found that the annuity buyer wouldn't break even until age 83 or 84. Even if the recipient lived to age 99, the annuity would still be more expensive than deferring Social Security. (The annuity he studied provided $1,400 in monthly income, indexed every year for inflation, for a 66-year-old man at a cost of $289,000 (available through the Vanguard Annuity Access platform).

The exceptions? Annuities work if you need more money every month than Social Security can provide and you aren't well-heeled enough to pay for that stream out of your investments. And some new annuity products aim to lower fees or add features that can make them more useful to investors. New York Life offers a new feature, called the "changing needs option" which would allow an annuity holder to take a larger monthly benefit in the first few years of the annuity, allowing the recipient to delay Social Security benefits. Then, when the Social Security benefits kicked in, the monthly annuity amount could be reduced. That may not be worth buying just to defer Social Security benefits but may make sense for a retiree who expects to supplement their Social Security with an annuity.

Use tools and advice. These are general rules of thumb, but every individual and couple faces a unique set of numbers and considerations. Some online tools, like the new Fidelity Income Strategy Evaluator, can bring you close to figuring out your own retirement income stream. But a good numbers-savvy, fee-only adviser (not someone who makes money selling insurance products) can help you figure out how to optimize your own 60s and, all those other retirement decades that may lie ahead.
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Monday, 24 October 2011

Mohamed A. El-Erian: America at Stall Speed?

NEWPORT BEACH - Judging from the skittishness of both markets and 'consensus expectations,' the United States' economic prospects are confusing. One day, the country is on the brink of a double-dip recession; the next, it is on the verge of a turbo-charged recovery, powered by resilient consumers and US multinationals starting to deploy, at long last, their massive cash reserves. In the process, markets take investors on a wild rollercoaster ride, with the European crisis (riddled with even more confusion and volatility) serving to aggravate their queasiness.

This situation is both understandable and increasingly unsettling for America's well-being and that of the global economy. It reflects the impact of fundamental (and historic) economic and financial re-alignments, insufficient policy responses, and system-wide rigidities that frustrate structural change. As a result, there are now legitimate questions about the underlying functioning of the US economy and, therefore, its evolution in the months and years ahead.

One way to understand current conditions - and what is needed to improve them - is to consider two events that recently attracted considerable worldwide attention: the launch of Boeing's Dreamliner passenger jet and the tragic death of Apple's Steve Jobs.

Let us start with some simple aeronautic dynamics, using an analogy that my PIMCO colleague, Bill Gross, came up with to describe the economic risks facing the American economy. For the Dreamliner to take off, ascend, and maintain a steady altitude, it must do more than move forward. It has to move forward fast enough to exceed critical physical thresholds, which are significantly higher than those for most of Boeing's other (smaller) planes.

Failure would mean succumbing to a mid-air stall, with tepid forward motion giving way to a sudden loss of altitude. Unless we are convinced of the Dreamliner's ability to avoid stall speed, it makes no sense to talk about all the ways in which it will enhance the travel experience for millions of people around the world.

America's economy today risks stall speed. Specifically, the question is not whether it can grow, but whether it can grow fast enough to propel a large economy that, according to the US Federal Reserve, faces 'balance-sheet deleveraging, credit constraints, and household and business uncertainty about the economic outlook.' And, remember, it is just over a year since certain US officials were proclaiming the economy's 'summer of recovery' - a view underpinned by the erroneous belief that America was reaching 'escape velocity.'

Stall speed is a terrifying risk for an economy like that of the US, which desperately needs to grow robustly. Without rapid growth, there is no way to reverse persistently high and increasingly structural (and therefore protracted) unemployment; safely de-leverage over-indebted balance sheets; and prevent already-disturbing income and wealth inequalities from growing worse.

The private sector alone cannot and will not counter the risk of stall speed. What is desperately needed is better policymaking. Specifically, policymakers must be open and willing to understand the unusual challenges facing the US economy, react accordingly, and possess sufficiently potent policy instruments.

Unfortunately, this has been far from the case in America (and in Europe, where the situation is worse). Moreover, US policymakers in the last few weeks have been more interested in pointing fingers at Europe and China than in recognising and responding to the paradigm shifts that are at the root of the country's economic problems and mounting social challenges.

This is where the insights of Steve Jobs, one of the world's best innovators and entrepreneurs, come in. Jobs did more than navigate paradigm shifts; he essentially created them. He was a master at converting the complicated into the simple; and, rather than being paralyzed by complexity, he found new ways to deconstruct and overcome it. Teamwork was an obligation, not a choice. And he eschewed the search for the single 'big bang' in favor of aiming for multiple breakthroughs.

Underlying it all was a willingness to evolve - a drive for perfection through experimentation. Moreover, he excelled at selling to audiences worldwide both his vision and his strategy for realising it.

So far, America's economic policymakers have fallen short on all of these fronts. Rather than committing to a comprehensive set of urgently-needed reinforcing measures, they seem obsessed with the futile search for the one 'killer app' that will solve all of the country's economic problems. No surprise that they have yet to find it.

Teamwork has repeatedly fallen hostage to turf wars and political bickering. Little has been done to deconstruct structural complexity, let alone win sufficient public support for a medium-term vision, a credible implementation strategy, and a set of measures that is adequate to the task at hand.

The longer the policymaking impasse persists, the greater the stall-speed risk for an economy that already has an unemployment crisis, a large budget deficit, many underwater mortgages, and policy interest rates floored at zero. This is an atmosphere in which unhealthy balance sheets come under even greater pressure, and healthy investors refuse to engage. In the process, the risk of recession remains uncomfortably high, the unemployment crisis deepens, and inequities rise as already-stretched social safety nets prove even more porous.

Mohamed A. El-Erian is CEO and co-CIO of PIMCO, and author of When Markets Collide.

Friday, 21 October 2011

Occupy Wall Street: Who is the top 1% for income?

Tami Luhby

Think it takes a million bucks to make it into the Top 1% of American taxpayers?

Think again. In 2009, it took just $343,927 to join that elite group, according to newly released statistics from the Internal Revenue Service.

Occupy Wall Street protesters have been railing against the Top 1%, trying to raise anger and awareness of the growing economic gap between the rich and everybody else in America.

But just who are these fortunate folks at the top of the income ladder?

Well, there were just under 1.4 million households that qualified for entry. They earned nearly 17% of the nation's income and paid roughly 37% of its income tax.

Collectively, their adjusted gross income was $1.3 trillion. And while $343,927 was the minimum AGI to be included, on average, Top 1-percenters made $960,000.

But the income threshold for this exclusive group changes every year, largely with the performance of the stock market, experts said.

Meet the Occupy Wall Street protesters

In 2007, when times were good on Wall Street, one needed to have an adjusted gross income of more than $424,000 to get into the highest rank. But the stock market decline in recent years has helped lower that bar back to a level not seen since 2002.

"The further up you go, the wider swings you see," said Pete Sepp, spokesman for the National Taxpayers Union. "They have a great deal of wealth sunk into the markets, which can vary quite widely."

While much of the wealthy's income comes from capital gains on investments, bonuses on the job can also give people the needed boost.

Just what jobs are those?

Many workers in the securities industry in New York likely qualify for the Top 1%.

These folks, many of whom work only blocks from where protesters are gathering in Zuccotti Park, made an average salary of just over $311,000 in 2009, according to the state Comptroller's Office. (This figure does not take into account certain income, losses and deductions that make up adjusted gross income.)

A separate study found that financial professionals made up about 14% of the top rank in 2005.

Executives, managers and supervisors working outside of finance accounted for 31%, the largest share, according to an analysis by Jon Bakija of Williams College, Adam Cole of the Treasury Department and Bradley Heim of Indiana University. Medical professionals came in at 15.7%, while lawyers made up 8.4%.

Over time, the Top 1% has claimed a bigger share of the income pie. In 2007, they earned 22.8% of the nation's income, more than double the amount in 1986, according to IRS data. The recession has since brought that slice down to just under 17% for 2009.

While those at the top have seen their incomes soar over time, middle-class incomes have stagnated.

"The higher up the income distribution you go, the more your income rose and the larger the share of total income gains went to your group," said Roberton Williams, a senior fellow at the nonpartisan Tax Policy Center.

But as corporate profits and productivity have increased, workers aren't reaping the benefits, said Edward Wolff, a New York University economics professor who specializes in income inequality. That's helping spark the movement, which has spread across the country.

"There is a lot of anger and it's for a very good reason," Wolff said. "If all of the income gain goes to the top, there's not much left to go to the rest of the people." Correction: An earlier version of this story included an incorrect timeframe for IRS income data. The most recent figures from the IRS are for 2009.

Hedge funds suffer worst performance since 2008

Hibah Yousuf

Feeling blue about the hit your portfolio took last quarter? You're not alone. Hedge funds also had a lousy third quarter, delivering one of the worst performances on record.

The summer's stomach-churning roller coaster ride throughout all markets , including stocks, bonds, commodities and currencies, triggered a loss of $85 billion in capital for the hedge fund industry during the three month period ended Sept. 30, according to industry tracker Hedge Fund Research.

The group's HFRI Fund Weighted Composite Index, a benchmark index for the hedge fund industry, dropped more than 6%, making it the worst quarter since the fourth quarter of 2008, and the fourth worst on record.

"The third quarter presented an extremely challenging performance environment, with asset volatility in many respects on par with financial crises in 2008 and 2009," said Kenneth Heinz, president of Chicago-based HFR.

The quarter's beating destroyed the gains logged by hedge funds during the first half of the year. On average, hedge funds are down 5.4% for the first nine months of the year, according to HFR's index.

Even some all-star managers like John Paulson are getting steamrolled.

Investor John Paulson: Alone at the bottom

The investment guru's primary fund, the Advantage Plus Fund, is down more than 30% in 2011. Those kind of losses can be pretty uncomfortable for a hedge fund manager who earned his fund billions when he bet against the housing bubble.

A spokesperson for Paulson & Co. declined to comment.

Despite the dismal performances, about 40% of hedge funds continued to draw in client money for a ninth straight quarter, albeit at a much slower pace. In total, the industry experienced net inflows of $8.7 billion during the third quarter, according to HFR.

During the first half of the year, when hedge fund assets shot up to new record levels above $2 trillion, the industry raked in about $30 billion each quarter.

"The hardest part of the third quarter was that everything was correlated--similar to what we saw in 2008, " said Christopher Zook, chief investment officer at CAZ Investments. "September was an especially painful month, when the only asset that rallied was U.S. government bonds. Even gold did poorly."

The third quarter is over. Good riddance!

Zook, who has about $150 million sloshing around in hedge funds, continued to add to his investments during the last three months, noting that a rocky performance isn't enjoyable, it's also expected from time to time.

He said he's "comfortable" adding to his firm's exposure to hedge funds, including Paulson's.

"[Paulson's] fund has been a wonderful investment over long period's of times, and even when he's underperformed in the past, he's addressed the issues," said Zook, who has been invested in Paulson's funds since 1994. "This time around, Paulson was simply too bullish."

As they attempt to recover from the quarter's wounds, Zook said hedge funds will fall into two camps. On one end, there will be fund that won't change a thing and hope to bounce back with the market, or continue to struggle with it.

On the other end, there will be those that will shift around their assets to protect themselves on downside, and in turn, give up some of the share on the upside.

Thursday, 20 October 2011

As Wall St readies cuts, fears grow in luxury market

By Phil Wahba and Jilian Mincer

REUTERS - New York luxury store owners and real estate agents are wondering whether they have to brace for some of Wall Street's pain.

With others likely to follow Goldman Sachs ' lead and slash compensation, Wall Street dealmakers, traders and other staff at banks and funds could cut back this holiday season.

That, along with the threat of layoffs, might spell shorter lines at luxury shops like Saks Fifth Avenue and will make finance industry types think twice before plunking down $200,000 to reserve a three-month summer rental for 2012.

"People do remember 2008," says Michael Pomerantz, president of financial advisers Pomerantz Financial Associates, which has Wall Street clients. "There's still so much fear, even among older traders and financial professionals, they're scared they'll get laid off."

When the financial markets seized up in 2008, luxury businesses got slammed. Saks, for example, saw double-digit sales declines and had to resort to deep discounts to clear inventory from its shelves.

Given that the New York area accounts for nearly a third of the nation's entire annual $65 billion luxury retail market, any blows here will have reverberations for the U.S. as a whole.

One associate at a top tier bank who declined to be identified, said he planned to spend less this year, regardless of how big his bonus ends up being, citing the threat of layoffs.

A number of major banks have announced job cuts in recent months, including Bank of America, JPMorgan Chase , UBS AG and Goldman.

A computer technician at another bank said he and his colleagues had low expectations for their year-end bonus. He said bonuses had already been slashed a few years back and there was now an expectation of a further reduction.

Even those who are still getting big bonuses may hesitate to flaunt their wealth in New York this year given the Occupy Wall Street protests have been growing from a camp set up near the New York Stock Exchange . A number of finance industry leaders have said they understand the anger of the protesters, many of whom are concerned about a lack of jobs and growing income inequality.

Goldman, which on Tuesday reported only its second quarterly loss as a public company, said it was setting aside 59 percent less money for overall compensation in the third quarter. During the first nine months of the year, Goldman set aside an average of $292,836 of pay per employee, down 21 percent from $370,706 for the same period last year.

Some other major banks have reported weak earnings, prompting Wall Street compensation consultant Alan Johnson to predict that bonuses overall may fall by 30 to 50 percent from last year.

Morgan Stanley Chief Financial Officer Ruth Porat said on Wednesday that the bank expects to save $1.4 billion over the next three years through a program that includes layoffs, pay cuts and other expense reductions.

The New York State Comptroller said last week that Wall Street cash bonuses are likely to drop for a second year. One in eight jobs in New York City is linked to the securities industry and the comptroller is expecting job cuts through 2012.

SPILLOVER

There are already some ominous signs in high-end real estate.

The market for apartments worth $4 million or more has become noticeably quieter in recent weeks, said Donna Olshan, president of Olshan Realty.

"This is the kind of market where the discretionary buyer might pause," she said. But more modestly priced apartments, like one-bedrooms for $600,000 or so are selling well, she added.

The pain may be worse in the Hamptons, a string of tony towns on Long Island where many rich New Yorkers have beach homes. The extent of the damage will not be known until early next year when more deals usually get done.

"We are heavily dependent on Wall Street," said Stuart Epstein, a managing director at Devlin McNiff Halstead Property in East Hampton.

For now, prospective buyers and renters are taking a 'wait-and-see' approach until they know how big their bonuses will be, he said.

Veteran caterer Peter Callahan, whose namesake company has catered many Wall Street events, said that so far this year business is up but he is still not sure how the year will end. Parties are less lavish nowadays because no one wants to look wasteful, least of all public companies, he said.

"That dancing in the end zone party is gone, and I don't see that coming back anytime soon," Callahan said.

Still, there are some positive signs.

In the past 10 days, U.S. stock prices have recovered a big chunk of the losses they suffered in recent months -- and luxury retail executives say that in New York, the Dow Jones industrial average can never be ignored as a proxy for consumer confidence among the well-heeled.

The sheer extent of the wealth in New York often acts as a buffer to economic blows. There are about 7,720 people in the area with a net worth of at least $30 million each, according to research firm Wealth-X.

DREAM CARS

Generally, small businesses that serve New York's affluent are not seeing an immediate pull back.

Upscale Manhattan travel agency Artisans of Leisure reports that business is strong, but that people are nonetheless being deliberate before they spend.

"People are really thinking hard about what they're purchasing and that what they're purchasing is special," said Ashley Isaacs Ganz, the agency's chief executive.

Businesses that serve seekers of luxury who don't necessarily want to make a large financial commitment are benefiting from such caution.

Gotham Dream Cars rents cars such as a Porsche 911 to a Rolls Royce for $600 to $2,200 a day and is doing great business, its founder and president Noah Lehmann-Haupt said.

"People realize the world isn't collapsing and they splurge and rent a car," said Lehmann-Haupt.

RESILIENT LUXURY

Some retailers, like Saks and luxury jewelry chain Tiffany & Co are particularly dependent on strong New York sales. Saks' Manhattan flagship store makes up more than 20 percent of company sales, while Tiffany up the street gets 8 percent from its famed store on Fifth Avenue. Representatives from the two companies declined to comment.

Earlier this week, consulting firm Bain & Co raised its luxury sales growth outlook for 2011, saying demand is stronger now than it was in spring.

And international tourists, particularly from China and Brazil, have been flocking to New York's high end stores and snapping up pied-a-terres since the recession, helping counter a slowdown in spending by Wall Street executive.

As it does every year, Neiman is betting that the rich will continue to splurge. The upscale department store on Tuesday presented its annual Christmas book, featuring items like a $45,000 ping pong table by Tom Burr, an 18-foot diameter yurt for $75,000 and a $420,000 international flower show tour for 10.

But while, luxury in New York has proven resilient, experts said an endless onslaught of scary headlines about layoffs and market plunges, could change that.

"It has a snowball effect on morale," says Jean-Marc Bellaiche, senior partner and managing director for the Boston Consulting Group.

(Reporting by Phil Wahba and Jilian Mincer. Edited by Martin Howell)

Know Yourself as an Investor

Big swings in the stock market can be confusing for investors. Should you buy or sell? Or do nothing?

There's no right answer. It really depends on what kind of investor you are. When you know yourself as an investor, tumultuous times in the market can be easier to deal with.

To determine what type of investor you are, think about your personal limitations, as well as your strengths and weaknesses. Are you patient? Do you tend to get nervous when times are tough? How well do you handle risk? Do you like to take chances?

Depending on your answers, an investment adviser would decide that you are either a conservative, moderate, or aggressive investor. But those labels are too broad and don't specify how much risk you're willing to take.

Risk tolerance is hard to determine and different for each person. No one likes to lose money. But most people understand they have to accept some risk in exchange for having their investments go up over time. However, they may not understand it until they experience what it feels like when their investments lose value.

Figure out how you would react to market movements by answering this question: If you look at your investments this month and see they're worth 10 percent less than they were the month before, what would you do?

1. Sell everything right away.

2. Be concerned, but take no action and continue to monitor them.

3. Invest more money because it's a great buying opportunity.

If you pick the first response, you generally don't like to see big changes in the value of your investments. If you pick the second, you're calmer and would likely change your holdings only as necessary based on your investment plan, not market volatility. And if you picked number three, you're comfortable with swings in the market and are willing to take chances.

This question and others like it attempt to put you in the moment to identify your emotions and motivations. Through your responses, you'll have a better idea of how much risk you can handle.

Now that you have determined your risk tolerance, you can start creating an investment plan. Before doing that, you must understand what you're trying to accomplish. Think about where you are in your life when you're setting your goals. Everyone has to save for retirement. You might also want to buy a home, start a business, or put money aside for your child's college education.

Then you have to ask yourself how you can reach those goals. Is it important that you don't lose any money with your investments? How much do you need to make from your investments to achieve your goals? Your answers will help shape your investment plan.

If you want to minimize risk in your investments, your account will include more conservative items like money market funds or treasuries. If you want or need your investments to have the potential for larger increases, your account will include more aggressive items like growth and value stocks. If you're somewhere in between, you'd likely own a mix of conservative and growth-oriented investments.

You also have to identify what type of return you want to generate from your investments. Are you trying to keep pace with inflation? Or do you want something closer to the returns provided by the stock market? These answers will also help determine what types of investments are best for you.

Once you decide how comfortable you feel about taking risks and seeing swings in the market, identify your goals, and decide how you want to reach those goals, you can create an investment plan that suits your personality and needs. Then, when the stock market gets chaotic, you'll rest easier knowing that your plan reflects who you are as an investor.

Adam Bold is the founder of The Mutual Fund Store, which provides fee-only investment advice with locations coast to coast. He's also host of The Mutual Fund Show, a call-in radio program broadcast across the country. Bold is author of the book The Bold Truth about Investing (April 2009). Bold is Chief Investment Officer of The Mutual Fund Research Center, an SEC-registered investment adviser, which provides mutual fund and asset allocation recommendations, and research to stores in The Mutual Fund Store system.

Thursday, 13 October 2011

I'm an accountant, I hate my job, but seriously, I wouldn’t know what else to do

I was born to be a lot of things, but being an accountant isn't one of them. In my heart of hearts I have always known this, but for some stupid subconscious reason, I have always ignored it.

Why? Well...um...err...I didn’t know what else to do.

How many people faced with the same predicament of deciding on a profession upon graduating used “not really knowing what to do” as their guiding compass?

Blink. Ten years have passed and you’re left wondering, how did I get here? In this cubicle? Doing something I cannot stand (and I’m not even honestly good at), with people I quite frankly don’t really care about?

For me that was accounting, a profession that conjures numerous clich├ęs, such as boring, bean counting, personality not needed, number crunching etc etc. These have now evolved and have been replaced by repetition, reconciliations, long hours, fudging figures, high turnover, Enron and even more reconciliations.

R-E-S-P-E-C-T

But please don’t get me wrong, I have the utmost respect, admiration and appreciation for accountants. I do. My closest friends are accountants, my mentors are accountants and my accountant is a damn good accountant. I have also been one for seven years in the financial services sector.

So for all those accountants stuck at work between 10pm and 3am in lieu of month-end – who’ve had to forcibly forego dinner, quality time with their family and friends, a favourite TV show and even a quick bathroom break, just so those books are closed to perfection – I sincerely salute you.

I didn’t resign because…

You might be left asking, “If you hate it so much, then why don’t you just leave?”

I’m the first person to berate myself for sticking with it for so long. It never helped that accounting, and the financial sector for that matter, pays so well and instantaneously blindsides with dollar signs. I was always caught up chasing the next pay cheque, hanging around a few more months for a bonus and salary hike, and holding my breath for my well-deserved promotion.

The result always afforded me the trips overseas, a new car, the latest gadgets, elevation up the clothing-label food chain, gambling in a few shares here and there, and even a deposit on an investment property. Important things in a twenty-something year-old’s life, right?

I still don’t know what to do

It sounds like I’m making excuses. Well I am. It’s hard to walk away. But hey, if it pays well and the bills get paid, shouldn’t that be enough? And shouldn’t I just be grateful to even have a job in this economic climate?

Yes it should, and yes I should. But what happens when the answer is no and no? What happens when the “I didn’t know what to do” escalates into “I still don’t know what to do” or “I don’t know what to do, but all I know is I don’t want to keep doing this”?

Sigh. It’s back to my cubicle for now, brushing these things aside and being thankful (half-heartedly) that I even have a cubicle to go to.

Best Jobs if You're Over 50

By Donna Rosato and Tom Ziegler

Far from ready to call it quits but tired of toiling in the same field? Do you have a dream job you couldn't afford to take when you had kids in college or 20 years left on your mortgage?

A growing portion of Americans 50 and older are still in the workforce, but at this stage of your career you may be ready to switch into a job with shorter hours, less stress, or more social purpose, even if it means backing off your peak pay.

"Many people need to work five or 10 years longer, but they want to do something other than make money for someone else," says Mary Bleiberg, executive director at ReServe, which places seasoned professionals in nonprofit, education, and public sector jobs (reserveinc.org). Another good site for pre-retirement jobs is retiredbrains.com.

MONEY's top jobs for folks over 50 do well in satisfaction measures like stress, flexibility, and social meaning. None require advanced degrees — too high a hurdle late in your career — though some will be hard to break into without related industry experience (such as marketing or tech).

The job skills you honed over a lifetime may transfer, but as an older job hunter you need to work harder to prove your skills are up to date. Digital know-how and social media experience, for example, are essential in the nonprofit world, says Bleiberg.

Some second-act jobs are low level, which might feel like a comedown. But the top of the corporate ladder often comes with big headaches. After decades in your office chair, you've earned a break for your last act.

These top jobs score high for flexibility and social meaning, enjoy relatively low stress, and none require advanced degrees.

1. Grant Coordinator

Median pay: $47,800
Top pay: $61,900
10-year job growth: 12%
Total jobs: 10,000

The job: Marry your professional skills with a cause you believe in by writing and coordinating funding requests for a nonprofit, school or government agency.

More than 1.5 million organizations depend on grants to keep programs running, especially important in a sluggish economy. Many grant writers consult, giving you control over how much work you take on and when you do it.

How to switch: Demonstrate good writing skills and passion for the project. Find a workshop at grantwritingusa.com.

Quality of life ratings: Personal satisfaction: B
Benefit to society: A
Low stress: C
Flexibility: A

2. Personal Trainer

Median pay: $52,600
Top pay: $136,000
10-year job growth: 29%
Total jobs: 30,000

The job: Fitness-conscious baby boomers are paying pros to help with their workouts. And companies and communities need trainers for wellness programs.

How to switch: This job is best for a workout lover, but being in good physical shape is not enough. You'll need training and certification (find information at afaa.com and nasm.org). A background in a health field or competitive sports is helpful, too.

Quality of life ratings: Personal satisfaction: B
Benefit to society: A
Low stress: B
Flexibility: B

3. Energy Field Auditor

Median pay: $41,200
Top pay: $66,500
10-year job growth: 12%
Total jobs: 10,000

The job: Homeowners looking to cut their energy bills — and maybe even their carbon footprint — are hiring auditors to check the house for leaks and recommend improvements. You set your own hours for appointments, and you can feel good about making the world a greener place.

How to switch: Engineering or construction know-how is helpful but not essential. You'll need to take a six-week training course for state certification. Find out more at aeecenter.org.

Quality of life ratings:
Personal satisfaction: B
Benefit to society: B
Low stress: C
Flexibility: B

4. Online Content Marketing Writer

Median pay: $51,900
Top pay: $104,000
10-year job growth: 13%
Total jobs: 10,000

The job: As companies turn to social media and the Internet to promote their products and services, they need pros to edit and manage their digital communication materials. You'll work with marketing staff to ensure the content matches corporate goals. You can do project work or freelance, giving you lots of flexibility.

How to switch: It's best to have a background in marketing and writing experience. Courses and even certification in digital media marketing helps, too. Get info at emarketingassociation.com.

Quality of life ratings:
Personal satisfaction: B
Benefit to society: C
Low stress: C
Flexibility: B

5. Tutor

Median pay: $52,400
Top pay: $106,000
10-year job growth: 15%
Total jobs: 20,000

The job: Private tutoring outside the classroom — often one-on-one but also for groups — is in demand, thanks to parents who want to give their children an edge and nonprofit and city/state programs aimed at improving the academic performance and college readiness of disadvantaged youth. You can schedule sessions any time you want, and the job doesn't require as much training as teaching does.

How to switch: No special degree is required, but teaching experience is helpful. For more on training programs for career changers, go to reserveinc.org and encore.org.

Quality of life ratings:
Personal satisfaction: B
Benefit to society: A
Low stress: B
Flexibility: B

6. SEO Specialist

Median pay: $52,100
Top pay: $71,400
10-year job growth: 13%
Total jobs: 10,000

The job: There are roughly 250 million websites on the Internet and the most popular way to find them: Google. Competition for the number one spot in Google's search results is fierce, and a search engine optimization, or SEO, specialist knows how to hone a website's pages so they will land near the top. Increasingly, organizations are realizing the importance of SEO, making it one of tech's fastest-growing fields. Since the job is largely online-based, you can work from anywhere and create flexible hours.

How to switch: Search for "SEO training" on Google, and you'll find millions of offers from "certified" experts. A more credible route is to look for classes at your local community college to boost your knowledge and resume. Most importantly, read all you can about this constantly evolving profession on online forums such as forums.seochat.com.

Quality of life ratings:
Personal satisfaction: B
Benefit to society: C
Low stress: C
Flexibility: A

7. Pilates/Yoga Instructor

Median pay: $62,400
Top pay: $137,000
10-year job growth: 29%
Total jobs: 10,000

The job: Mind. Body. Spirit. Career. Pilates and Yoga instructors guide classes (or individuals in one-on-one sessions) through each discipline, making sure students learn their particular practice in a way that is challenging, yet safe and comfortable. If you're thinking about becoming an instructor, it's probably because you already love doing it and want to share your experience with others. Whether you're working with a school or teaching on your own, you can tailor your classes to fit your schedule.

How to switch: As both fields become more popular, demand is growing for instructors, but certification and training are crucial to prevent injuries. Both the Pilates Method Alliance and the Yoga Alliance recommend at least 200 hours of training. For more details, go to pilatesmethodalliance.org and yogaalliance.org.

Quality of life ratings:
Personal satisfaction: B
Benefit to society: B
Low stress: B
Flexibility: A

8. Marketing Representative

Median pay: $52,500
Top pay: $92,800
10-year job growth: 7%
Total jobs: 10,000

The job: As a marketing rep you are the face of the company. You spend the most time with the customers, and your job is to keep them informed, happy and hungry for more. That requires an exhaustive knowledge of the company's product or service, along with the enthusiasm to drive your message home. Since the bulk of your work is managing clients, you can usually set a flexible schedule that doesn't tie you to a desk.

How to switch: Find a company whose product or service you believe in — if you don't feel it, you can't pitch it. Learn everything there is to know about them, then use your gift of gab to pitch yourself to the hiring team. Learn more from the American Marketing Association: marketingpower.com. Or if you need more formal guidance, free online courses can be found at MIT: ocw.mit.edu.

Quality of life ratings:
Personal satisfaction: B
Benefit to society: B
Low stress: C
Flexibility: A

9. Technical Writer

Median pay: $68,100
Top pay: $95,600
10-year job growth: 18%
Total jobs: 50,000

The job: Ever wonder who wrote the manual that taught you how to program your DVR? Technical writers take complicated information — like which tiny button erases your entire video library — and put it into simple-to-understand language. Most positions are in information technology, science and engineering, but the work has expanded across a wider range of industries. The field has a solid growth rate and commands one of the higher salaries on our list. Many jobs are on a contractual basis, so you can set your own hours and workload.

How to switch: Strong writing skills are a must, and a background or degree in a technical field can only add to your credibility. As more technical writing moves online, knowledge of desktop publishing and graphics programs will also help boost your prospects. Check out the Society for Technical Communication's website for more information: stc.org.

Quality of life ratings:
Personal satisfaction: B
Benefit to society: C
Low stress: C
Flexibility: B

10. Patient/Health Educator

Median pay: $63,300
Top pay: $87,600
10-year job growth: 18%
Total jobs: 10,000

The job: Spreading the word of wellness is the main goal of a patient/health educator. From hospitals to schools to public and private organizations, the job covers health education from head to toe. You can teach kids about the importance of exercise, set up lunchtime health screenings at an office, or counsel patients about difficult lifestyle changes after a major operation. Like a doctor or nurse, you are a caregiver — and your gift is knowledge. And as prevention takes a greater role in health care, the need for educators is rapidly growing.

How to switch: Entry-level positions generally require a bachelor's degree in health education. Check out local schools for continuing education courses that can expand your knowledge. If you have the time, an internship or volunteer experience can help fill out your resume. Learn more at aahperd.org/aahe, the American Association for Health Education's website.

Quality of life ratings:
Personal satisfaction: B
Benefit to society: A
Low stress: C
Flexibility: B

Wednesday, 12 October 2011

Republicans increasing risk of recession: Geithner

WASHINGTON (AFP) - US Treasury Secretary Timothy Geithner warned Republicans that they risk helping to tip the country into recession if they fail to back President Barack Obama's jobs bill late on Tuesday.

Speaking just before the Senate was expected to vote down the US$447 billion (S$574 billion) plan, Mr Geithner launched an uncharacteristically partisan attack on Mr Obama's political foes.

Asked during an interview with Bloomberg Television whether Republicans were raising the risk of another recession by standing in the way of the bill, Mr Geithner responded: 'Absolutely.' 'If Congress does not act, it will be because Republicans decided they did not want to do anything to help the economy,' he said.

'Growth will be weaker... people will be out of work. If the bill is not passed, he added, 'We will put off the important challenges.' 'That is not something we should do.' Mr Obama has spent weeks demanding that Congress pass a full version of a bill designed to boost growth, cut the unemployment rate of 9.1 per cent and shield the fragile US recovery from the threat of European debt contagion.

Repeat of 2008 credit crisis not likely: DBS economist

By Robin Chan

The euro zone sovereign debt crisis is unlikely to lead to a credit crunch that saw trade collapse in Asia in 2008, said DBS economist David Carbon.

'Markets have had 18 months to figure out who they can trade with. So we are unlikely to have the same ferocious snap we did in 2008,' said Mr Carbon, managing director for currency and economic research at DBS.

He was speaking at a media briefing at DBS headquarters.

'Asia's not immune, but it's not going to be 2008 all over again.'

Soros warns euro crisis could destroy world financial system

BERLIN (AFP) - Billionaire investor George Soros and some 100 former European dignitaries on Wednesday published an open letter warning that the euro zone debt crisis could bring down the global financial system.

'The euro is far from perfect,' they wrote in German business daily Handelsblatt. 'The current crisis has shown that.'

'But as a reaction to that, we need to revise the weaknesses in its make-up rather than allow the crisis to undermine, even destroy, the world's financial system,' they added.

The group, calling themselves 'concerned Europeans', appealed to governments to establish an institution that can provide liquidity to the whole euro zone, a strengthening of financial market oversight and a revised European Union (EU) growth strategy.

The letter was signed by top former politicians, such as ex-German finance minister Hans Eichel, former French foreign minister Bernard Kouchner and Pedro Solbes, who was once EU Economic and Monetary Affairs Commissioner.

Distinguished economists such as Mr Charles Goodhart from Britain and Mr Peter Bofinger from Germany also added their names to the appeal.

France and Germany have vowed to come up with a wide-ranging solution to the ongoing debt crisis by the end of the month but have kept mum on the details.

The euro zone power-brokers are working on four main issues - pumping more money into European banks; defining the way the European bailout fund should work; supporting the work of international auditors in Greece and toughening the EU's debt rules.

Later on Wednesday, European Commission President Jose Manuel Barroso was poised to issue hotly anticipated proposals on bank recapitalisation, seen as a key step in bolstering their defences against the debt crisis.

Tuesday, 11 October 2011

'Terrified' of the Stock Market: What Should I Do?

by Walter Updegrave

I'm terrified of the stock market these days. I plan to retire in April, but I'm afraid I'll lose everything before then. I want to put my money in a safer place, but I don't know where. Should I sell stocks now or wait to see if they go up in value? What do you think? -- Gerry

With the global economy reeling and many analysts worried the stock market could sink into a bear market, you have a right to be concerned. The last thing you want on the eve of retirement is to watch your nest egg go into a death spiral.

But engaging in a guessing game about when to sell stocks and where to move your money isn't the right way to address your apprehensions.

What you really need to do is take a step back, assess your situation and come up with a comprehensive plan for managing your retirement resources so you'll have enough income to sustain yourself throughout retirement.

Yes, how much you should devote to stocks versus other, less volatile investments will be a key part of that plan. But it's not the only important issue you'll have to decide, nor is it the first one you ought to address.

So how should you — or anyone who's nearing retirement or has recently retired — go about creating this type of plan? There are three basic steps:

1. Get a handle on your retirement expenses.

This may seem a far remove from your angst about the stock market. But before you can decide on a reasonable investing strategy for generating income for your retirement years, you've got to know what size expenditures you've got to cover. So the first thing you want to do is figure out how much you're going to spend on a monthly or annual basis.

You can do this with a yellow pad and a pencil, but I suggest using an interactive budgeting worksheet like the one available in Fidelity's Retirement Income Planner. One of the features I like about this worksheet is that you can designate whether an expense is essential or discretionary, which allows you to get a better sense of how much wiggle room you have for cutting your spending should the need arise.

As you're going through this process, be sure to allow yourself a cushion for unanticipated expenses, as well as ones, such as health care, that are likely to rise throughout retirement.

2. Tally your income from assured sources.

Once you know how much money will be going out, you want to see what portion of that outflow you can cover from sources other than your savings. For most retirees, Social Security is going to provide most, if not all, of their guaranteed income. You can see what size check you can expect given your earnings history and other factors by going to Social Security's Retirement Estimator tool. If you're fortunate enough to have a traditional check-a-month company pension, that income should also be included here.

If your income from assured sources exceeds your expected retirement expenses, good for you. You can pretty much invest as conservatively (or aggressively) as you like, as you won't have to rely on your savings to generate regular income.

But most people are going to have an income gap. And to fill that gap, they're going to have to rely on draws from their retirement portfolio. Which brings us to the third step (and the one you're most worried about)...

3. Settle on a reasonable stocks-bonds allocation.

This can be a bit tricky, as there's no official definition for what constitutes reasonable. But the idea is that you want to have some money in stocks to give you a shot at their higher long-term return potential (even though that potential clearly has been unfulfilled in recent years) and some in bonds to provide security and stable income (even though that income has been relatively low in recent years).

My suggestion would be to start at a mix of 50% stocks-50% bonds and then adjust up or down from there. If Social Security and a company pension will cover the bulk of your living expenses and you don't reach for the Maalox every time the Dow takes a dive, you might tilt more toward stocks.

But if you're relying heavily on your savings to meet living expenses and you get anxious when the market sags, then you might dial up the bond portion. Vanguard's web site has a calculator that can give you an idea of how long your savings might last with different withdrawal rates and different blends of stocks and bonds.

Another strategy to consider: devote a portion of your savings to an immediate annuity. Doing so can provide you with more assured income and perhaps alleviate some of your high anxiety about the stock market.

However you decide to divvy up your assets, I recommend you keep between one and two year's worth of living expenses in cash equivalents — preferably an FDIC-insured savings account and/or a high-quality money-market fund. This way you won't find yourself forced to sell in the midst of a market panic to pay current expenses.

I realize this answer may not be as emotionally satisfying as me spouting off a command like, "Sell if the market drops another 2%, split your money between gold and T-bills and don't get back into stocks until the S&P 500 climbs back above its 200-day moving average!"

But as authoritative as such a reply might sound, the fact is no one knows where this market is headed and when it might start to recover. So the best you can do in the face of that inherent uncertainty is develop a plan that can help you survive the current upheaval, and get you through the rest of retirement as well.

No Recession for U.S. as Forecasts Improve

Rich Miller and Vivien Lou Chen

The U.S. has likely dodged a recession for now, even though it’s too early to sound the all- clear for the economy.

A string of stronger-than-projected statistics -- capped by the news on Oct. 7 of a 103,000 rise in payrolls last month -- has prompted economists at Goldman Sachs Group Inc. and Macroeconomic Advisers LLC to raise their growth forecasts for third quarter growth to 2.5 percent from about 2 percent. That’s nearly double the second quarter’s 1.3 percent rate and would be the fastest growth in a year.

“The U.S. economy doesn’t look like it’s double-dipping at all,” said Allen Sinai, president of Decision Economics Inc. in New York. “But it is a crummy recovery.”

That recovery still faces what economist Chris Rupkey in New York calls “a lot of headwinds.” These range from the sovereign-debt crisis in the euro zone -- and increasing likelihood of a recession there -- to political gridlock in the U.S. over the budget.

“We can skirt a recession,” said Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. “But if headlines worsen in Europe and cause a major stock-market rout, it could lead to a loss of confidence here on the part of businesses and consumers and make forecasts for a recession a reality.”

Crisis Plan

European stocks and the euro rose after German and French leaders pledged to devise a plan to stem the debt crisis in three weeks. U.S. stock futures also gained.

The unsettled outlook may push U.S. Treasury bond yields back down as investors seek safety in the debt of the world’s largest economy. The yield on the 30-year bond remains on course to fall to about 2.5 percent, according to Christopher Hine, vice president of technical analysis at Credit Suisse Securities in London.

“The bull trend is still there,” he said in an Oct. 7 conference call with clients.

The long bond ended trading at 3.017 percent in New York on Oct. 7, after touching 2.69 percent Oct. 4, the lowest since January 2009. Yields rose as concerns about a recession ebbed.

The Standard & Poor’s 500 Index will face difficulty trading above 1,200 in the next few weeks as investors seek to determine the impact of the European crisis on U.S. corporate earnings, Sinai said. Business with Europe represents about 20 to 25 percent of operating profits for companies in the S&P, Sinai said.

Futures Rise

S&P 500 futures added 1.4 percent as of 11:24 a.m. in London, while the Stoxx Europe 600 Index rose 0.6 percent, extending a three-day, 6.7 percent jump. The S&P 500 had climbed as much as 0.6 percent on Oct. 7 on the back of the jobs numbers before being erasing gains after Fitch Ratings downgraded the foreign and local currency long-term issuer default ratings for Spain and Italy.

The euro advanced 1.6 percent against the dollar and strengthened 1.5 percent versus the yen after German Chancellor Angela Merkel said European leaders will do “everything necessary” to ensure that banks have enough capital.

Exceeded Forecasts

The 103,000 gain in September payrolls announced by the Labor Department was more than economists had forecast and followed an upwardly revised gain of 57,000 for August. Private employment climbed 137,000 and included the return of 45,000 striking workers at Verizon Communications Inc.

“The continued forward momentum in private job growth should ease concerns that the U.S. will slip into recession in the second half of this year,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York.

The latest numbers bring the jobs data in line with what other statistics are suggesting: Gross domestic product is growing “very slowly,” not contracting, he said.

Construction spending rebounded in August, propelled by the biggest jump in state and local government outlays in more than two years. Manufacturing accelerated in September, helped by gains in exports and production.

“For the first time in eight months, we revised upward our forecast of GDP growth over the second half, to just shy of 2.5 percent,” economists at St. Louis-based Macroeconomic Advisers said in a report last week. In September, they were predicting second-half growth under 2 percent.

The drags on the economy in the first half of the year -- higher gasoline prices and supply-chain disruptions from the earthquake and tsunami in Japan -- are dissipating, giving growth a lift, Feroli said.

Upward Revision

The average price for unleaded gasoline fell almost 20 cents, or 5.4 percent, in September to $3.43 a gallon, according to AAA, the nation’s largest motoring group.

The automobile industry has been an obvious beneficiary. Car and truck sales rose to a seasonally adjusted annualized rate of 13.1 million in September, according to Autodata Corp. That’s the highest since April’s 13.2 million, when lost output caused by the tsunami started restraining supply.

With vehicle production and inventories recovering for Toyota Motor Corp. (7203) and Honda Motor Co., the fourth quarter may be the year’s strongest, Al Castignetti, Nissan Motor Co.’s vice president of U.S. sales, said in an Oct. 3 telephone interview.

“People who have been sitting on the fence are likely to get back in the market,” he said.

While the U.S. is “shaking off” the first-half drags, it faces risks from events at home and overseas, Feroli said.

‘Edge of Recession’

The debt crisis in Europe will “likely slow the economy to the edge of recession by early 2012,” Andrew Tilton, senior economist at Goldman Sachs in New York, said in note last week to clients. He sees growth falling to a half percent in the first quarter of 2012.

A mild recession in the euro zone could shave as much as a half percentage point off U.S. expansion, said Nariman Behravesh, chief economist in Lexington, Massachusetts, at IHS Inc. The direct effect on trade likely would be small, he said. U.S. exports to the euro area were equivalent to less than 2 percent of GDP last year.

Greater consequences could come from the financial links between the two economies and the impact of the crisis on the U.S. stock market and general confidence.

“Europe is so large and so closely integrated with the U.S. and world economies that a severe crisis in Europe could cause significant damage by undermining confidence and weakening demand,” Treasury Secretary Timothy F. Geithner said Oct. 6 in testimony to the Senate Banking Committee. That would pose a “significant risk to global recovery.”

Confidence

Policy makers in Europe aren’t the only officials on the spot, according to Diane Swonk, chief economist at Mesirow Financial Inc. in Chicago. Authorities in the U.S. also need to act, she said. If a Congressional supercommittee can’t come up with the more than $1 trillion in budget savings required by November, “that further undermines confidence in our own government,” she said.

The U.S. also faces a big fiscal squeeze in 2012 from the scheduled expiration in December of a payroll-tax cut, extended unemployment benefits and a business-tax credit.

“We have a very big tightening on track for next year,” Feroli said. He put the amounts involved at about $350 billion, or the equivalent of about 2 percent of GDP.

President Barack Obama has offered a $447 billion jobs plan that includes an expansion of the payroll-tax cuts in 2012 and an extension of the unemployment benefits. It faces resistance in the House of Representatives, where Republicans hold the majority and oppose the tax increases Obama proposed to pay for the program.

“We’re still laboring under the fallout from the bursting of the housing and credit bubble,” Jan Hatzius, chief economist for Goldman Sachs in New York, told Bloomberg Television on Oct. 7. “In the aftermath of that, unfortunately, you’re often in a weak position for a long time.”

To contact the reporters on this story: Richard Miller in Washington at rmiller28@bloomberg.net; Vivien Lou Chen in San Francisco at vchen1@bloomberg.net

Saturday, 8 October 2011

Primary dealers see 35 pct chance of another recession: Poll

NEW YORK (Reuters) - Larger-than-expected jobs growth in September has Wall Street economists thinking the United States is unlikely to tip back into recession any time soon although economic growth will remain tepid, according to a Reuters poll on Friday.

The outlook for slow economic growth has most primary dealers -- the 22 large financial institutions that do business directly with the Federal Reserve -- looking for the U.S. central bank to hold interest rates at the current level near zero through 2013.

The median of forecasts from 17 of the 22 primary dealers gave a 35 percent chance the United States will slip back into recession within the next year. That level was unchanged from a similar poll done in late September.

The latest poll was conducted on Friday after the government announced U.S. employers added 103,000 jobs in September, which was above the expectation of 60,000 new jobs.

The higher-than expected jobs growth, along with upward revisions to the number of jobs added in the previous two months, likely means the United States will avoid recession -- for now -- the economists said.

"While the U.S. recovery continues to be inadequate in terms of lowering the unemployment rate, the September payrolls data are consistent with our forecast that the U.S. economy is not on the threshold of renewed recession," said Dana Saporta, economist with Credit Suisse in New York.

The median of forecasts from 19 dealers is for annualized U.S. gross domestic product growth of 1.7 percent in 2011, which was also unchanged from the results of a similar poll conducted in early September. As a comparative, U.S. GDP was up 3 percent in 2010.

The comparatively slow level of growth is expected to have the Fed on hold in terms of interest rates until at least the middle of 2013. Ten of 19 dealers expect rates to remain at the current range of zero to 0.25 percent until at least 2014. Nine of the 19 dealers who answered the question said they expect the Fed to raise rates in the second half of 2013.

"Monetary policy will remain in watch mode until further clarity arrives regarding the key issue of growth into year end," said Derek Holt, vice president of economics at Bank of Nova Scotia in Toronto.

The Fed has said in its recent policy statements that "a subdued outlook for inflation over the medium run are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013."

However, dealers do not see much of a chance of the Fed moving to further expand its balance sheet through direct purchases of Treasuries any time soon.

The median of forecasts from 15 primary dealers gave a 35 percent chance the Fed will embark on a "QE3" program of Treasuries purchases within the next six months. That was up marginally from a 32.5 percent chance of such a program in a late September poll.

The U.S. central bank is already buying Treasuries under the program dubbed "Operation Twist," in which it is selling shorter-dated debt and buying longer-dated Treasuries in an effort to lower mortgage rates and other long-term borrowing costs and so stimulate borrowing.

The Fed began buying, and selling, Treasuries this week as part of Operation Twist, and almost none of the primary dealers expect the central bank to initiate any further stimulus programs at the next policy meeting, on November 1-2.

Seventeen of 18 primary dealers, asked if the Fed will take further action to support the economy at the November meeting, said "no." The 18th economist said "maybe."

(Additional reporting by Pam Niimi; Editing by Leslie Adler)

Global Financial Meltdown Possible in 2 to 3 Weeks: IMF Advisor Shapiro

By Marlene Y. Satter

When asked what would happen if European political leaders could not come up with an effective plan to address the eurozone debt crisis, International Monetary Fund advisor Robert Shapiro said Friday that there would be a global financial meltdown within "two to three weeks."

Speaking in a BBC interview posted at ZeroHedge, Shapiro said that the problem was not confined to a relatively small Belgian bank (apparently referring to Dexia, whose fate is currently being determined due to its massive exposure to peripheral eurozone debt).

Instead, he said, "we are talking about the largest banks in the world, the largest banks in Germany, the largest banks in France. That will spread to the United Kingdom, in part through sovereign debt problems in Ireland. It will spread everywhere because the global financial system is so interconnected. All those banks are counterparties to every significant bank in the United States, and in Britain, and in Japan, and around the world."

Shapiro's comments come just a week after the BBC ran an interview with Alessio Rastani, a trader who said he "prayed for recession" and that millions would lose their savings. Rastani was rumored to be a Yes Man, but ZeroHedge took pains to point out that Shapiro most certainly was not.

Shapiro also said of the meltdown he foresees, "This would be a crisis that would be in my view more serious than the crisis in 2008.... No one knows the state of credit default swaps held by these institutions [U.S. banks] against sovereign debt and against European banks, nor do we know the state of credit default swaps held by British banks, nor are we certain of how serious the exposure of British banks is to the Ireland sovereign debt problems."

China’s Real Estate Market Running out of Steam

By Gao Zitan

Empty apartment buildings are reflected in a window in the city of Ordos, Inner Mongolia on Sept. 12, 2011. The city which is referred to as a 'Ghost Town' due to it's lack of people, is being built to house 1.5 million inhabitants. (Mark Ralston/AFP/Getty Images)

Andy Xie, former Morgan Stanley “star” chief Asia-Pacific economist, has been warning about a real estate bubble in China since 2002 and predicted that China's real estate market will collapse in 2012.

All the conditions for a real estate collapse in China seem to be in place: there’s a glut of unsold homes, prices are ski-high, and money supply is tight.

China presently has 16 billion square meters (170 billion square feet) of unsold new homes.

Many Chinese with money have invested in the booming real estate market in recent years. They bought multiple homes or apartments, which they could never rent, believing that the market would keep going up indefinitely, and their investments would pan out.

New real estate regulations earlier this year put a stop to this sort of speculation. Now families in some major cities are allowed to buy only one extra home beside their own residence.

In addition, China’s central bank keeps tightening monetary supply to curb inflation, making it hard for almost anyone to get bank loans, except through loan sharks at exorbitant rates.

Xie, who accurately predicted the crash of Hong Kong’s property market and the Asian financial crisis, advises all his Chinese friends to sell their vacant rental properties—even at reduced prices if needed, he told Tianfu Morning News recently.

Although home prices have not decreased significantly, sales have slowed. According to Xie, China’s housing market will keep decreasing, and he expects prices to drop dramatically.

“While the real estate market in the whole world is slumping, only China expects it to stay hot for long. In fact, it is not an exaggeration [to say] that China’s property prices may drop 70 percent in the future,” Xie said.

Xie said despite the great numbers of shutdowns by small and medium-sized enterprises putting pressure on Beijing to ease the tight money lending policy, it won’t happen any time soon. Against the backdrop of long-term inflation, the money shortage won’t become any better this year, or the next, he said, and the property market will thus be severely affected.

Xie said many real estate developers at present have the attitude that they can hold on for a few months, and when the monetary policy eases, they will push land prices up again. They even take out loans with interest rates of 30 to 40 percent.

“But once the monetary policy continues to tighten, a lot of developers are facing closures,” Xie warned.

The Beijing Real Estate Trade Management Website, a state website providing housing information, shows a 22.9 percent drop in pre-owned home sales for August as compared to July, and a 29.6 percent drop compared to the same period last year. Compared to 2009, sales dropped 64 percent, reaching their lowest point since 2009.

According to the latest data released by China’s Index Research Institute (IRI) on Sept. 21, among 35 cities monitored, the turnover of properties in 20 cities dropped compared to last year, with drop rates in 12 cities being more than 30 percent. For major cities, only Wuhan saw a rise, but all the rest dropped, and most of them dropped more than 50 percent compared to the same period last year.

The IRI report also showed a downslide in the land market, pointing to a sharp drop of land supply last week.

According to IRI, the 20 major cities monitored “released” 197 lots of land for sale last week, 63 fewer than the previous week. The total land area for sale decreased by nearly 50 percent.

Xie said at present, the supply of new homes in China has reached 16 billion square meters (170 billion square feet). In addition, developers are holding three billion square meters of land.

“Only when developers drop home prices to the level that first-time buyers can afford, will the surplus of homes be sold,” he said. “It means that prices of houses should drop significantly.”

Thursday, 6 October 2011

Behind the Great Wall, China Is Heading for a Hard Landing: Katsenelson

By Matt Nesto

Two months ago it was all about the debt ceiling and U.S. downgrade. Then it was Fed chief Ben Bernanke in focus. Now, it seems the market moves every day reacting to developments in the European financial crisis. "The market can only focus on one thing at a time," says well-known value investor Vitaliy Katsenelson, chief investment officer at Investment Management Associates.

"That's why nobody is talking about China or Japan because we are focused on Europe today," says Katsenelson. "The spotlight will be there when things get worse."

Katsenelson was an early adopter of China skepticism and has remained bearish on the country for more than a year. Today, the fact that China is slowing and struggling with inflation and over-capacity is a given. The debate is over how much the world's second largest economy will slow.

"The argument between hard landing and soft landing is going to be won by hard landing," Katsenelson says in the attached clip, pointing to the collapse in copper prices as "just the beginning."

In fact, if you compare some of the benchmarks in Europe to those in China and the industrial metals markets over the last one-month, a clear shift is already evident. In just 30 days, the Hang Seng Index and the Shenzhen Index are both down about 12%, Copper and Silver are down more 20%, but the benchmark stock indexes from Germany, France, Italy, Spain are all up by 2% to 8%.

With so much of the global growth story resting on China's shoulders, any change in the narrative will have widespread consequences. Katsenelson is not only avoiding Chinese stocks, he sees suffering ahead for China-linked commodity exporting economies like Australia, Russia, Canada, and Brazil. He's also avoiding "companies that provide equipment" like Caterpillar (CAT).

"Caterpillar's sales went up a lot, but its margins hit an all-time high, so I would have to normalize CAT's earnings and margins and suddenly they are not earning $8 or $9 a share, they're earning maybe $3," he says. "So it would be attractive to us at $30."

CAT is now trading in the mid-70's, and has fallen nearly 40% in five-months. His point is, "if you think they look cheap now, I would argue that you probably have plenty of time to wait because they'll get a lot cheaper."

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