Where's the U.S. economy headed?

Where's the U.S. economy headed?
Nov 2, 2009 10:37 AM,
By Forrest Laws, Farm Press Editorial Staff

"We don't know how much of that is cash for clunkers or the tax credit for first-time home buyers. We're also likely to see continued high unemployment numbers until companies begin to do more hiring."

U.S. farmers and consumers who are trying to figure out what the future holds aren’t getting much help from Washington these days. As a result, they may need to pick out some economic indicators that could help them chart their course.

Ernie Goss, professor of economics at Creighton University in Lincoln, Neb., identified some of those indicators while giving members of the American Society of Farm Managers and Rural Appraisers his take on the current economic outlook at the ASFMRA’s 80th annual meeting in Denver.

“We’re all sitting on the sidelines, trying to figure out what’s happening,” said Goss, a graduate of the University of Tennessee who has held a number of public and private economic positions over the years. “I’ve never seen this much uncertainty over government policy and the national economy.”

While that might be a good scenario for economists and lawyers, it gives little comfort to farmers and other small business owners and consumers, said Goss. The uncertainty over the so-called cap and trade legislation, health care reform and tax increases are causing nightmares for much of America.

“I also have a small consulting business, and I’m sitting here thinking ‘Should I hire now, should I hire later; should I buy a car now, should I buy a car later; should I buy a house now, should I buy a house later?” he said.

“We have millions of people sitting on the sidelines, and the chief, No. 1 economic problem we’re facing now is the lack of clarity. We don’t know the answers to those kinds of questions.”

Goss said the Commerce Department report issued when he spoke Thursday (Oct. 29) was “a very good sign.” The government reported that the nation’s gross domestic product grew by 3.5 percent in the third quarter of 2009.

“We don’t know how much of that is cash for clunkers or the tax credit for first-time home buyers,” he said. “We’re also likely to see continued high unemployment numbers until companies begin to do more hiring.”

Goss, one of 200 economists who took out a full page ad saying “We are not all Keynesians,” that appeared in the New York Times and the Wall Street Journal earlier this year, said he believes the government’s fiscal policies have not helped the economy all that much.

“Yes, the economy needed some stimulus; there’s no doubt about that,” he said. (Followers of the British economist John Maynard Keynes believe government spending or economic stimulus packages are the key to pulling the economy out of a recession/depression.) “Whether it was the right stimulus package is the question?

“It may be that if the government had allowed some of these big companies like AIG and General Motors to fail, it would have hurt, but we might also have a lot of this behind us now. We also wouldn’t have $11.2 trillion in federal debt.”

So what indicators should you be looking for in the coming months?

• The employment report for October will be released Nov. 6. “I expect the report to show job losses (above 200,000 persons) for a 24th straight month and an increase in the unemployment rate by 0.2 percent,” he said. “If the report goes above10 percent unemployment, that would be very bad. A good report would be only 100,000 jobs.”

• First time and continuing claims for unemployment insurance. This report is released every Thursday. “First time claims above 550,000 will be bearish,” he said. “I expect this number to drop below 500,000 by December (http://www.doe.gov/.)

• The first and most important indicator for November will be the Mid-America and U.S. October Purchasing Manager Institute’s survey released Nov. 2 (http://www.outlook-economic.com/ and http://www.ism.ws/.) “A drop in the national will be bearish (under 50 will be very, very bearish.”

• Goss suggests you keep an eye on the yield for 10-year U.S. Treasuries. If this yield approaches 4 percent within the next month, the Federal Reserve Board will be “between a rock and a hard place.” The rapidly rising yields reflect: 1) Concerns regarding the large increases in the U.S. budget deficit; 2) Rising inflation expectations; and 3) Investors have reduced their risk perceptions and are pulling money out of treasuries and putting it into equity markets (“a good thing”). (http://finance.yahoo.com/)

• Investors will be closely watching retail sales to detect a weak consumer reading. A weak consumer market will be a bad signal for the holiday buying season.

e-mail: flaws@farmpress.com


http://southeastfarmpress.com/news/american-economy-1102/index.html?imw=Y

Basically, the market has gone up on proof of earnings

Week Ahead: Earnings Could Keep the Bulls Running


Published: Friday, 16 Oct 2009
8:42 PM ET Text Size
By: Patti Domm

Executive Editor

Corporate earnings will trump almost everything for the stock market in the coming week.


A string of better-than-expected third quarter earnings reports have helped fuel the stock market rally, taking the Dow above 10,000 for the first time in a year.

About half the Dow 30 and a quarter of the S&P 500 report in the week ahead. Analysts expect the majority of these companies to continue to beat expectations.

Traders are also watching the dollar, which continues to weaken as stocks and other risk assets move higher. They are also keeping an eye on the quick boil in oil prices, which moved sharply higher in the past week and are beginning to make some investors cautious.

"Basically, the market has gone up on proof of earnings, so after this earnings season, there's not going to be another catalyst before earnings early next year," said Binky Chadha, chief U.S. equities strategist at Deutsche Bank.

"It's the second quarter of sequential top line growth, and we also should have the third quarter of bottom line growth. In the fourth quarter, year on year earnings will be positive because Q4 of '08 was so bad...Q4 earnings should mark the end of the earnings recession," he said.

Of the 61 S&P companies that reported so far, 79 percent have reported better than expected earnings. Chadha said, however, companies are also beating on the top line, and as of Thursday, 65.5 of a smaller sampling had better than expected sales results.


Chadha, like a number of strategists, believes the stock market is set to move higher, for now. But he also thinks it will take a breather after the earnings season. He expects the S&P to reach 1125 by the end of the earnings season but it could pull back into the year end, reaching a level of about 1075, close to its current level. His target for the end of next year is 1260.



http://www.cnbc.com/id/33351707/

Improving Global Economy Shows Up in Earnings

Improving Global Economy Shows Up in Earnings
Published: Tuesday, 20 Oct 2009 | 9:27 AM ET Text Size By: Bob Pisani
CNBC Reporter

Topline beats take back seat to positive 2010 commentary. Six big names beat earnings estimates: Apple [AAPL 198.76 8.90 (+4.69%) ], Coke, Pfizer, United Technologies and Caterpillar all beat on the bottom line.

But something's different this time: a higher percentage are beating on the topline as well. Apple did. Even Dupont, Pfizer and UTX did.


What is different this time is that the big multinationals have reaped the benefits of an improving overseas market, along with the weaker dollar.

The improving global economy is showing up in several of today's comments.

Caterpillar's Jim Owens:

1) "the third quarter marked the low point for Caterpillar sales and revenues"

2) "we are seeing encouraging signs that indicate a recovery may be underway"

3) 2010: "we've already started planning for an upturn"

Elsewhere:

1) futures dropped at 8:30 AM ET as September Housing Starts and Permits were below expectations.

2) Caterpillar [CAT 59.61 1.76 (+3.04%) ] up 6 percent pre-open, came in at $0.64, way above the $0.06 expected. Sales were not a blowout: $7.3 billion vs. $7.49 billion consensus.

The bull consensus seems to be playing out: Q2-Q3 may indeed be the trough for production, and with inventories lean even a small improvement in orders will help the top and bottom line.

2010 preliminary guidance of an increase of 10 to 25 percent for sales is also a positive surprise.

3) UTX [UTX 65.34 -0.10 (-0.15%) ] at $1.14 beat by $0.02, and while revenues were a tad better than consensus cost cutting was the major factor in the beat. CEO Louis Chenevert said orders had "stabilized."

4) DuPont [DD Loading... () ] beat consensus by two cents and talked about improving demand across key markets. Here's an interesting stat: profit is up 11 percent, but top line dropped 18.3 percent. They narrowed their earnings outlook for the year...it now expects earnings of $1.95 to $2.05 per share versus previous estimate of $1.70 - $2.10.

5) Strong earnings from Texas Instruments [TXN 23.66 0.14 (+0.6%) ], as well as earlier strong report from Intel [INTC 20.18 -0.23 (-1.13%) ] and Apple should keep the semiconductors going. The SMH (Semiconductor HOLDR, the main ETF-type instrument professionals use to trade semis) has been strong all year, bottomed earlier than the S&P 500, and has had a stronger recovery in the past year.

6) Coca-Cola [KO 54.06 -0.73 (-1.33%) ] topped Street estimates by a penny. The soft drink maker says higher sales volume and cost cuts helped pop Q3 profits. Sales by volume rose 2%.

7) Pfizer [PFE 17.93 -0.05 (-0.28%) ] also beat the Street. The drug maker came in at $0.51 for Q3 excluding items vs. estimate of $0.48. Aggressive cost-cutting helped offset the negative foreign exchange and competition from cheaper generics.

http://www.cnbc.com/id/33395059

Market rebound continues confound analysts

BEHIND THE MONEY: Analysts Give Companies Easy Earnings Ride


Posted By:John Melloy

Topics:Recession
Earnings
Stock Market
Stock Picks

Companies:Goldman Sachs Group Inc.
Caterpillar Inc

There was a great Monty Python sketch called the "Twit Olympics" where one of the events entailed jumping over a row of matchbooks. Perhaps that's what we should rename this earnings season after looking at the parade of earnings beats this morning, which follow the incredible estimate-pounding performance so far this season.

For example, Caterpillar [CAT 59.61 1.76 (+3.04%) ] reported a profit of 64 cents a share, compared to the Thomson Reuters consensus estimate of 6 cents a share. Were Caterpillar analysts asleep at the switch? Maybe, because despite a 60 percent jump in Caterpillar shares in the quarter, they didn't raise their forecast one iota, according to Birinyi & Associates.

CATERPILLAR INC(CAT)

59.61 1.76 (+3.04%%)

NYSE

It seems that was the trend for the whole market too. As the S&P 500 [.SPX 1091.06 -6.85 (-0.62%) ] surged 15 percent in the third quarter, analysts kept lowering their earnings estimates for the period.

They expected a 21% drop in earnings for the quarter on July 1 and bumped that down to a 25% decline by the time the quarter ended, with the biggest downward revisions coming in the financial, industrial and energy sectors, according to Thomson Reuters. The biggest surprises we've seen so far have come from those sectors in Goldman Sachs [GS 184.89 -0.61 (-0.33%) ] last week and Caterpillar today.

Jon Najarian, co-founder of Optionmonster.com, said this makes sense because since analysts set the bar so low, the so-called whisper numbers out there are much higher this reporting season then he can last remember.

The Fast Money traders keep bringing up on our conference calls how one concern of theirs is that the momentum of this market rebound continues to confound credible strategists they follow, such as Doug Kass, President of Seabreeze Partners and T2 Partners' Whitney Tilson, that have called for its end. Maybe this relentless rally is puzzling because the numbers it's based upon aren't as good as they appear.

U.S. stocks, buoyed by optimism for an economic recovery, are instead poised to fall.

Hedge fund manager Tilson doubled bets vs stocks

Wed Oct 14, 2009 2:35pm EDT

NEW YORK, Oct 14 (Reuters) - Whitney Tilson, manager of hedge fund T2 Partners LLC, said on Wednesday he has doubled his bets that U.S. stocks, buoyed by optimism for an economic recovery, are instead poised to fall.

"We've doubled our short book from 30 percent to 60 percent and we've trimmed our long book from 120 percent to about 90 percent," Tilson said in an interview with Reuters.

Tilson predicted stocks would give back gains even as the Dow Jones Industrial Average .DJI briefly climbed above the psychologically important 10,000 level early Wednesday afternoon -- part of a stunning rebound for markets that were dominated by fear as recently as March.

"Investors have now gone from being too pessimistic to too optimistic in general," he said.

But Tilson said the Dow touching 10,000 does not translate into the real economy. He predicted that banks, particularly small and regional lenders, would be hobbled by loan losses for up to five years.

"Investors are thinking that the losses are going to start to diminish fairly quickly over the next year or two, and our best guess is that losses remain very high for the next couple of years," he said. (Reporting by Jennifer Ablan and Joseph A. Giannone, editing by Leslie Gevirtz)

http://www.reuters.com/article/bankruptcyNews/idUSWEN467420091014

Investors Are Getting Overly Enthusiastic

Wednesday, 16 Sep 2009
Investors Are Getting Overly Enthusiastic, Says Tilson

Posted By:Lee Brodie
Topics:Employment | Housing | Stock Market | Stock Picks
Companies:Berkshire Hathaway Inc. | Regions Financial Corp | Zions Bancorporation


All this week Fast Money is speaking with the handful of investors who saw the Wall Street crisis coming.

Whitney Tilson, the founder of T2 Partners, is widely known for predicting the mortgage meltdown. What does he see down the road from here?

He’s still bearish, very bearish.

"I'm worried that investors are getting overly enthusiastic. They see a couple of month-to-month sequential home price increases, (and they get excited). We saw the exact same thing a year ago. Don't get faked out by the seasonality."



"We think home prices have another year to go before they bottom and that's going to impact any stock that has exposure to the housing sector."

His outlook comes in stark contrast to what we've been hearing from countless market mavens and even Fed Chief Ben Bernanke who all seem to agree the recession is over.

The Wild Card

Although it appears the economy is improving, unemployment is not and Tilson thinks jobs are the wildcard that could derail the whole kit and kiboodle.

When people lose their jobs they’re able to hang on for a while. They may not pay credit cards but try and keep up with the mortgage. But after a while it become impossible to pay the mortgage.

"What happens to underwater homeowners when they're underwater? Do they walk away from their homes if its economically rational to do so?"

Tilson is betting they do.

As a result Tilson predicts that mortgage defaults are about to skyrocket— the same with consumer loans. In fact, the damage Tilson forecasts is kind of scary.

“There are probably going to be $700 billion of losses in total over the next 8 years and we’ve only seen a few billion of it because those loans haven’t reset,” he tells the traders.

Also Tilson fully expects trouble in commercial real estate. In a past interview he told the desk that "the reason it hasn’t suffered badly so far is that they’re dealing with interest only loans with 5 and 10 year re-sets. Borrowers have been able to make interest payments. It’s upon re-set that they probably won’t be able to refinance."

What’s the trade?

I'd look at regional banks. 50% of their assets are in commercial real estate which is just starting to tip over. I'd short the weaker players such as Regions [RF 5.83 0.13 (+2.28%) ] and Zions [ZION 17.23 -1.10 (-6%) ].

And in case you're wondering, Tilson's largest long position is Berkshire Hathaway [BRK.A 100270.00 --- UNCH (0) ].

What do you think? We want to know.



Do you think a massive number of mortgages and consumer loans are about to default because of rising unemployment?

Vote:

1.  Yes, people can't keep up.

2.  No, most people have jobs and that won't change.

http://www.reuters.com/article/bankruptcyNews/idUSWEN467420091014

Markets Rise on Signs of Economic Growth

Markets Rise on Signs of Economic Growth


By JACK HEALY
Published: August 3, 2009
For thousands of investors whose portfolios are benchmarked to the Standard & Poor’s 500-stock index, recovery was a thing with four digits on Monday.

The closely watched stock index closed above 1,000 for the first time since Election Day, hardening beliefs that stock markets would continue to march higher as the recession shows signs of bottoming. Like other market gauges, the S.&P. 500 is still off more than a third from its all-time highs, but it has soared from its bear-market lows and is now up 11 percent for the year.

The day’s gains added more momentum to a three-week surge that lifted the Dow above 9,000 points as banks and major corporations showed they could still turn profits even as job losses mounted and the prospects for near-term economic growth remained cloudy.

Waves of optimism about global industry lifted the price of oil, grains metals and other commodities, as traders bet that a recovery would drive global consumption higher and revive the demand for raw materials.

Automakers were reaping a boost in sales from the government’s “cash for clunkers” program, which gives credits to motorists who trade in their cars for new, more fuel efficient ones. The Ford Motor Company reported that sales rose 2.3 percent in July, its first monthly sales increase since 2007.

Shares of Ford gained 4 percent, and American-traded shares of foreign car companies Toyota, Nissan and Honda were all higher.

Analysts said the deluge of subsidized auto sales unmasked a sign of economic recovery: pent-up consumer demand. Although consumer spending fell at a rate of 1.2 percent during the spring, consumers are more confident than they were last winter, and they are still willing to spend money when enticed by a bargain.

“The key here is, where’s the consumer mindset?” said Marc Pado, market strategist at Cantor Fitzgerald. “Consumers, when they perceive the bottom, are willing to jump out and buy high priced durable goods. The consumer’s getting hungry.”

Signs of improvement the industrial sectors of China, Europe and Britain bolstered stock markets in Asia, London, Paris and Frankfurt. And more positive readings on manufacturing and the housing market in the United States propelled stock markets on Wall Street toward their highest levels of the year.

The Dow Jones industrial average was gained 114.95 points or 1.25 percent to end at 9,286.56, also the best close since early November. The S.&P. 500 rose 15.15 points or 1.53 percent to close at 1,002.63. The Nasdaq composite index gained 1.5 percent to cross above the 2,000-point threshold, a line it had not breached since early October.

Leading the way were companies that sell oil and natural gas, and those that manufacture basic materials like steel, paper products or plastic. Investors rushed to buy their shares as the price of oil rose more than $2, to nearly $72 a barrel, and the prices of gold and copper also surged.

But the stock market’s gains were the dollar’s losses — and the Treasury market’s.

The dollar index, which weighs the currency’s value against six major currencies, fell to its lowest levels since late September.

The price of 10-year Treasury notes fell XXXX to XXXX as investors anticipating an economy recovery sought out higher yielding investments. The yield on the 10-year note, which moves in the opposite direction of price, rose to 3.64 percent from 3.48 percent late Friday.A surprising, though slender, 0.3 percent increase in construction spending in June also leavened the mood on Wall Street and offered optimistic forecasters another sign that the housing market was near bottom, if not already staging a recovery.

Builders spent more money in June to construct new homes, hotel projects, commercial centers and other projects, the Commerce Department reported on Monday. Part of the overall rise came from a 1 percent increase in government construction spending as stimulus projects began to get under way.

And the Institute for Supply Management reported that manufacturing activity contracted at its slowest pace since last August as businesses reported more orders and higher production than previous months, and improvements in employment conditions. The group’s manufacturing index rose to 48.9 in July, from 44.8 a month earlier.

“This is good news, though we still can’t be sure if further sustained strength is possible in the face of continued consumer deleveraging,” Ian Shepherdson, chief United States economist at High Frequency Economics, wrote in a research note. “This could just be a catch-up after the post-Lehman disaster.”

http://www.nytimes.com/2009/08/04/business/04markets.html?ref=business

U.S. GDP released Friday was better than economists expected.

U.S. Economy Shrank Less Than Expected in Quarter

The government reading on U.S. gross domestic product released Friday was better than economists expected.

By CATHERINE RAMPELL and JACK HEALY
Published: July 31, 2009

The economy’s long, churning decline leveled off significantly from April through June, the government reported on Friday, supporting hopes that the economy would turn around in the second half of the year.

The American economy shrank at an annual pace of 1 percent in the second quarter, after contracting at an annual pace of 6.4 percent earlier this year. Government spending, bolstered by the first payouts from a $787 billion stimulus package, propped up the economy and accounted for 20 percent of the country’s output.

But consumer spending, which makes up about 70 percent of the overall economy, has continued to fall as fearful Americans hold onto their paychecks and whittle down their spending. This has led to concerns about what will happen once stimulus funds peter out.

“The most severe part of the decline is behind us,” said Joshua Shapiro, chief United States economist at MFR. “But it’s hard to say how sustainable whatever bounce we might see will be. It depends largely on whether the consumer has the genuine ability to spend, or if it’s all just government cheese being handed out.”

The increasing reliance on the government to fuel the economy — and the decreasing contributions from consumers — could put the Obama administration and other Democrats in a difficult position. Many economists say that even if the economy has bottomed, the recovery over the coming months or possibly years many be painfully slow.

“We’re going from recession to recovery, but at least early on, it’s not going to feel like one,” said the chief economist at Moody’s Economy.com, Mark Zandi. “For economists, this is a seminal part in the business cycle, but for most Americans, it won’t mean much.”

Bright spots have been seen in stock markets, corporate profits, some housing markets and the pace of job losses. But generally the job market tends to follow the rest of the economy, as employers wait to hire more workers until their businesses strengthen. This means the threat of sustained, double-digit employment in coming months remains.

As long as employers keep slashing jobs, and consumers continue to hurt, pressure may mount on government officials to speed up the recovery.

“At some point it becomes Obama’s economy, not Bush’s economy anymore,” said Dean Baker, co-director of the Center for Economic and Policy Research, a liberal research group in Washington. “He made a big mistake in overselling the first stimulus, and then in celebrating all the ‘green shoots.’ That just opens the door for people to say, ‘Where are my green shoots? I still don’t have a job.’ ”

Unemployment climbed to 9.5 percent in June, leaving a total of 15 million people out of work and looking for jobs. Consumers, wary of losing their jobs or already unemployed, cut their spending by 1.2 percent in the second quarter and saved more than 5 percent of their disposable income, a stark turnaround from their spendthrift behavior during the housing boom.

“Concerns about a possible ‘double-dip’ recession probably would focus mainly on the consumer,” said Nigel Gault, chief United States economist at IHS Global Insight. “If households continue to try to bump up their savings rate, any growth we get in the overall economy could certainly relapse.”

Friday’s report on gross domestic product — a broad gauge of the country’s output — painted a bleaker picture of the recession than earlier estimates had.

The Commerce Department said the economy tumbled downward by 6.4 percent this winter as the country reeled from the shocks of the financial crisis, and it said the economy grew only 0.4 percent in all of 2008, compared to earlier assessments of 1.1 percent growth.

Now, even with jobs still vanishing and wages flat, many forecasters expect the downturn to level off. Economists say that businesses from small manufacturers to big automakers are poised to rebuild their depleted inventories, which fell by an annualized $141 billion in the second quarter. That restocking could spur economic growth later this year.


The Commerce Department’s quarterly assessment offered a tour through a dreary year. The economy withered during each of the last four quarters, its longest contraction since the 1940s. Businesses cut their investments and laid off millions of workers. Imports and exports tumbled.

The country’s gross domestic product fell to $14.15 trillion in the second quarter, from $14.5 trillion in the second quarter of 2008.

In interviews, small-business owners across the country say the ground is slowly reforming under their feet, and that business no longer seems to be careening downward. Indeed, business investment in structures like new factories and office buildings fell at a rate of 8.9 percent in the second quarter after declining by more than 40 percent in the previous three months. And investment in equipment and software, which fell 36 percent this winter, dropped a more modest 9 percent in the second quarter.

But many employers who have laid off employees or scaled back say they are not about to increase their spending or start hiring.

In Nashville, Jerry Robertson laid off one of his 15 employees, cut his budget for advertising and trade shows and moved into a smaller office space to cut costs at his company, which helps trucking companies manage their operations. His business is down about 10 percent from last year, and clients are still falling off his books.

“We do see it not declining as fast as it was, but we don’t see any growth,” Mr. Robertson said. “We’re still going down.”

http://www.nytimes.com/2009/08/01/business/economy/01econ.html?_r=1&hp

US Stocks Fall Sharply as Jobless Claims Hit 26-Year High

Stocks Fall Sharply as Jobless Claims Hit 26-Year High

By Renae Merle
Washington Post Staff Writer
Thursday, July 2, 2009; 4:58 PM

Stocks tumbled today after a government report showed the country's unemployment rate reached 9.5 percent last month as employers cut more jobs than expected, stoking investor concerns of a prolonged recession.

This Story
467K Jobs Cut in June; Jobless Rate at 26-Year High
Stocks Fall Sharply as Jobless Claims Hit 26-Year High
The losses were broad based with all 30 blue chip stocks on the Dow Jones industrial average losing ground. All of the major indexes, including the Dow, fell at least 2.5 percent and posted another weekly loss. Meanwhile, nervous investors moved into government bonds, a traditional safe haven during market turbulence, raising prices on some long-term notes.

After Wall Street closed the second quarter with its first quarterly gain in more than a year and a half, "many investors were feeling that the worse was behind us," said Matt McCormick, portfolio manager and banking analyst at Bahl & Gaynor Investment Counsel, an investment management firm. "This is a reminder that, no, it's not."

The Dow fell 2.63 percent, or 223.32 points, to close at 8280.74, while the broader Standard & Poor's 50-stock index was down 2.91 percent, or 26.91 points, to close at 896.42. The tech-heavy Nasdaq Composite index tumbled 2.67 percent, or 49.20 points, to close at 1796.52. After a short trading week, the Dow and S&P were down 2.8 percent and 3.2 percent respectively. The Nasdaq lost 2.58 percent for the week.

Financial stocks helped lead the declines today. Bank of America and Morgan Stanley fell 3 percent and 4.8 percent respectively. And energy stocks also took major losses after crude oil prices fell nearly 4 percent to $66.73 a barrel on the New York Mercantile Exchange. Exxon Mobil and Chevron each fell about 3 percent, while ConocoPhillips was down 2.6 percent.

Investors have been caught between optimism about early signs the recession is easing and pessimism about the pace of economic recovery. The labor report out this morning exacerbated concerns that the nation's workforce remains under assault and is unlikely to recover soon.

The number of jobs on employers' payrolls fell by 467,000 in June, according to a Labor Department report. That was significantly worse than analysts had expected. The unemployment rate rose to 9.5 percent, from 9.4 percent. Many economists expect that the rate will surpass 10 percent by fall.


The report suggests that hopes for an economic recovery during the second half of the year are "overly optimistic," Steven Ricchiuto, chief economist for Mizuho Securities, wrote in a research note. "Instead, the data is fully consistent with our forecast for a slower rate of decay in the economy. The worst of the contraction may be behind us but the economy is still in consolidation and will be through year end."

In one piece of upbeat labor news, the numbers of workers filing new claims for jobless benefits last week fell by 16,000 to 614,000, according to a Labor Department report out today. But the rate remains historically high and economists have said the number of workers needing unemployment insurance for an extended period is troubling.

Overseas stocks were also down. The FTSE 100 in London fell 2.6 percent and the Dax index in Germany fell 2.5 percent. Japan's Nikkei 225 average closed down 0.6 percent in trading Thursday.

US in worst recession for 50 years

US in worst recession for 50 years

The US economy slowed by an annualised rate of 6.1pc in the first quarter, confirming the current downturn is the worst American recession in 50 years.

By James Quinn Wall Street Correspondent
Last Updated: 10:12PM BST 29 Apr 2009

Poor, tired, huddled masses: not since the presidency of Dwight D Eisenhower 50 years ago has America experienced such an economic downturn However, the GDP figures from the US Commerce Department gave hope that America is seeing "green shoots" emerge, thanks to a return in consumer spending in some parts of the economy.

The data came ahead of yesterday's meeting of the Federal Reserve's Open Markets Committee (FOMC) which was expected to maintain its base interest rate at a range of 0pc-0.25pc.

The world's largest economy has now shrunk by 3.3pc since its peak last year, making this the worst recession since the 1957-58 slump, when GDP fell by 3.8pc. In addition, it is the first time since the 1974-75 downturn that America has recorded third consecutive quarters of negative growth.

The headline figure of a 6.1pc slump, on top of a 6.3pc contraction in the fourth quarter of 2008, was worse than the 4.6pc slide for the three months to March economists had expected.

But, in spite of better-than-expected consumer spending, businesses drastically cut spending and inventories, and the government sector, which has been propping up the US economy in recent months, also spent less than forecast.

The GDP figures are seen as possibly the most important read on the state of any country's economy, and are an indicator to production across the economy.

Consumer spending makes up approximately 70pc of US GDP, and the fact that it rose by 2.2pc in the first quarter – after dropping 4.3pc in the fourth quarter – is a positive sign amongst the gloom.

But increased consumption could not mask falls in other parts of the economy, such as a 34pc annualised slide in equipment and software, or a 38pc slide in residential investment.

Exports collapsed by 30pc, the biggest fall since 1969, while investment by business fell a record 37.9pc.

Related Articles
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US economy contracts 6.1pc in first quarter
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Australians rip up optimistic forecast and predict recession

http://www.telegraph.co.uk/finance/financetopics/financialcrisis/5245603/US-in-worst-recession-for-50-years.html

U.S. Household Wealth Falls by Trillions

Household Wealth Falls by Trillions

By VIKAS BAJAJ
Published: March 12, 2009
In the last few months, most Americans have felt poorer. Now they have the numbers to prove it.
The Federal Reserve reported Thursday that households lost $5.1 trillion, or 9 percent, of their wealth in the last three months of 2008, the most ever in a single quarter in the 57-year history of recordkeeping by the central bank.
For the full year, household wealth dropped $11.1 trillion, or about 18 percent. Though the numbers do not yet reflect it, the decline in the stock market so far this year has probably erased trillions more in the country’s collective net worth.
The next biggest annual decline in wealth came in 2002, when household net worth fell 3 percent after the collapse of the technology bubble. The most recent loss of wealth is staggering and will probably put further pressure on the economy because many people will have to spend less and save more.
Most of the wealth was lost in financial assets like stocks, which tumbled at the end of last year. The Standard & Poor’s 500-stock index, for instance, fell 23 percent in the fourth quarter. The value of residential real estate, the biggest asset for most families, fell much less — $870 billion, or about 4 percent.
Even the richest among us have become a lot poorer. This week, Forbes magazine published its list of the richest people in the world. At No. 1, Bill Gates, the founder of Microsoft, still had $40 billion to his name, but that was down $18 billion. The wealth of Warren E. Buffett, the investor whose company Berkshire Hathaway had a rare bad year, tumbled $25 billion, to $37 billion.
The loss of wealth is concentrated among the most affluent Americans, in large part because they own more stocks and bonds than the rest of the country. Only about 50 percent of households own stock, and many of them own relatively small sums in retirement accounts.
As a result of their greater wealth and higher incomes, the affluent tend to spend a lot more than their share of the population would imply. The top 20 percent of income earners spend more than the bottom 60 percent of income earners, according to calculations by Tobias Levkovich, the chief United States equity strategist at Citigroup.
“When their wealth is mauled, they are not particularly interested in spending,” Mr. Levkovich said.
The Fed report released on Thursday also showed that total borrowing and lending increased at an annual rate of 6.3 percent in the fourth quarter, mostly as a result of increased borrowing by the federal government to finance its operations and various bailouts of the financial system. The government’s borrowing increased at an annual rate of 37 percent.
But borrowing by households dropped 2 percent. Lending to businesses was up 1.7 percent. Recent surveys of loan officers by the Fed have shown that companies have been drawing down lines of credit that were established in the past, and that only a small fraction of the lending to the private sector is through new loans, which are much harder to obtain than in recent years.

http://www.nytimes.com/2009/03/13/business/economy/13wealth.html?partner=yahoo

Warren Buffett says financial crisis is 'economic Pearl Harbor'

Warren Buffett says financial crisis is 'economic Pearl Harbor'
Warren Buffett, the influential American investor, has likened his country's escalating fiscal woes to "an economic Pearl Harbor".

By Mark Coleman in Los Angeles Last Updated: 12:23PM GMT 10 Mar 2009
The multi-billionaire, who is an informal advisor to President Barack Obama, conceded the economy had approached "close to the worse case" possible.
He also warned that recovery would not come quickly.

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Acknowledging his own failure to foresee the scale of the crisis, he admitted: "It's fallen off a cliff. Not only has the economy slowed down but people have really changed their habits like I haven't seen."
Mr Buffett, recently ranked the second-richest American by Forbes magazine, said that fear was the greatest cause of damage to the economy, claiming it is now dominating the public's behaviour to an alarming degree.
"People are confused and scared," he said.
"People can't be worried about banks, and a lot of them are."
Mr Buffett singled out Americans' failure to predict the severity of home price declines, which he said in turn led to problems with securitizations and other debts tied to the stability of house prices.
He said: "It was like some kids saying the emperor has no clothes, and then after he says that, he says now that the emperor doesn't have any underwear either.
"We want to err on the side next time of not allowing big institutions to get as unchecked on leverage as we have allowed them to do."
Mr Buffett also urged consumers to curb their dependence on credit cards.
"I can't make money borrowing money at 18 or 20 per cent. I'd go broke."

http://www.telegraph.co.uk/finance/financetopics/recession/4965408/Warren-Buffett-says-financial-crisis-is-economic-Pearl-Harbor.html

Major indexes fall more than 6 percent for week

Major indexes fall more than 6 percent for week
Friday February 20, 7:32 pm ET
By Tim Paradis, AP Business Writer
Wall Street ends another terrible week; major indexes drop by more than 6 percent


NEW YORK (AP) -- Wall Street ended another terrible week Friday, leaving major indexes down more than 6 percent as investors worried that the recession will persist for at least the rest of the year and that government intervention will do little to hasten a recovery.

Investors shaved 100 points off the Dow Jones industrial average just a day after the market's best-known indicator dropped to its lowest level since the depths of the last bear market, in 2002. Stocks of struggling financial companies were among the hardest hit.

The Standard & Poor's 500 index, the barometer most closely watched by market pros, came close to its lowest point in nearly 12 years.

"Right now, more than a crisis in mortgages or in housing, we have a crisis in confidence. That is biggest problem in trying to analyze the current market," said James Stack, president of market research firm InvesTech Research in Whitefish, Mont. "You cannot analyze psychology."

Wall Street has been sinking lower as investors come to terms with the fact that the optimism behind a late-2008 rally was clearly unfounded. Companies' forecasts for this year, on top of a dismal series of fourth-quarter earnings reports, pounded home the reality that no one can determine when the recession will end.

"It was a market that was built on that hope, and what we're seeing now is an unwinding of that," said Todd Salamone, director of trading and vice president of research at Schaeffer's Investment Research in Cincinnati, of the rally from late November to early January.

The disappointment seen this week arose from the market's growing recognition that the Obama administration's multibillion-dollar stimulus and bailout programs are unlikely to turn the economy around anytime soon.

"There were a lot of people that were banking on Washington to get us out of this. I don't know if there is anything Washington can do," Salamone said. He said the global economy is going through the tedious process of reducing borrowing and working through bad debt -- something government help can't speed up.

With the week erasing whatever shreds of hope the market had, there is virtually no chance of a rally on Wall Street. What the market might see is a blip upward -- but blips tend to evaporate quickly.

That's what happened Friday. Stocks erased some of their losses after White House press secretary Robert Gibbs doused fears that the government would nationalize crippled banks. Investors who worried about seeing their shares wiped out by a government takeover welcomed the news, but it didn't ease broader concerns about the economy.

The Dow Jones industrials briefly went into positive territory, but quickly turned down again.

Salamone said investors had been too hopeful in late 2008 and at the start of this year that the new administration would be able to swiftly disentangle the economy.

The Dow industrials fell 100.28 points, or 1.3 percent, to 7,365.67 after earlier falling more than 215 points. On Thursday, the Dow broke through its Nov. 20 low of 7,552.29, and closed at its lowest level since Oct. 9, 2002.

The Dow's 6.2 percent slide for the week was its worst performance since the week ended Oct. 10, when it lost 18.2 percent.

The Standard & Poor's 500 index on Friday fell 8.89, or 1.14 percent, to 770.05. The benchmark most watched by traders came within less than 2 points of its Nov. 20 close of 752.44, which was its lowest since April 1997. It remains above its Nov. 21 trading low of 741.02.

The Nasdaq composite index fell 1.59, or 0.11 percent, to 1,441.23.

For the week, the S&P fell 6.9 percent, while the Nasdaq lost 6.1 percent.

Declining issues outnumbered advancers by about 3 to 1 on the New York Stock Exchange, where consolidated volume came to a heavy 8.12 billion shares as options contracts expired. Volume on Thursday came to 5.64 billion shares.

The Russell 2000 index of smaller companies fell 5.75, or 1.4 percent, to 410.96.

Other world indicators also fell sharply. Britain's FTSE 100 declined 3.2 percent, Germany's DAX index tumbled 4.8 percent, and France's CAC-40 fell 4.3 percent.

Shares of financial bellwethers Citigroup Inc. and Bank of America Corp. fell on worries the government will have to take control of them. Citigroup tumbled 22 percent, while Bank of America fell 3.6 percent. The stocks were down as much as 36 percent during the session.

The fears about the banks are hurting shareholders of those companies and dragging down the rest of the market because the broader economy can't function properly when banks are unable to lend at more normal levels.

"Financing is the blood which runs through our nation's veins. It's what keeps us alive," said Lawrence Creatura, a portfolio manager at Federated Clover Investment Advisors.

He said the talk of nationalizing banks only underscores the troubles with the economy.

"Things are clearly not normal. It's not healthy. The patient was on life support, and now what we're talking about getting out the paddle with respect to nationalization," Creatura said.

As investors dropped out of stocks, safer investments like Treasury debt and gold rose. The price of the benchmark 10-year Treasury note rose sharply, sending its yield down to 2.79 percent from 2.86 percent. The yield on the three-month T-bill, considered one of the safest investments, fell to 0.26 percent from 0.30 percent late Thursday.

Gold broke above $1,000, closing at $1,002.20 an ounce on the New York Mercantile Exchange.

Investors are looking desperately at any safe havens simply because the stock market, which rises and falls on investors' expectations for the future, sees only trouble ahead.

"There's still a big fear factor syndrome," said Michael Strauss, chief economist and market strategist at Commonfund. "There is a focus on what is happening here and now instead of six months to nine months from now."

The Dow Jones industrial average closed the week down 484.74, or 6.2 percent, at 7,365.67. The Standard & Poor's 500 index fell 56.79, or 6.9 percent, to 770.05. The Nasdaq composite index fell 93.13, or 6.1 percent, closing at 1,441.23.

The Russell 2000 index, which tracks the performance of small company stocks, declined 37.40, or 8.3 percent, to 410.96.

The Dow Jones Wilshire 5000 Composite Index -- a free-float weighted index that measures 5,000 U.S. based companies -- ended at 7,802.27, down 583.47, or 6.96 percent, for the week. A year ago, the index was at 13,758.35.

http://biz.yahoo.com/ap/090220/wall_street.html

Fed downgrades economic forecast for this year

Fed downgrades economic forecast for this year

WASHINGTON – The Federal Reserve on Wednesday sharply downgraded its projections for the country's economic performance this year, predicting the economy will actually shrink and unemployment will rise higher. Under the new projections, the unemployment rate will rise to between 8.5 and 8.8 percent this year. The old forecasts, issued in mid-November, predicted the jobless rate would rise to between 7.1 and 7.6 percent.

The Fed also believes the economy will contract this year between 0.5 and 1.3 percent. The old forecast said the economy could shrink by 0.2 percent or expand by 1.1 percent.

The last time the economy registered a contraction for a full year was in 1991, by 0.2 percent. If the Fed's new predictions prove correct, it would mark the weakest showing since a 1.9 percent drop in 1982, when the country had suffered through a severe recession.

The bleaker outlook represents the growing toll of the worst housing, credit and financial crises since the 1930s. All of those negative forces have plunged the nation into a recession, now in its second year.

"Given the strength of the forces currently weighing on the economy," Fed officials "generally expected that the recovery would be unusually gradual and prolonged," according to documents on the Fed's updated economic outlook.

Against that backdrop, unemployment — now at 7.6 percent, the highest in more than 16 years — will keep climbing and stay elevated for quite some time, the Fed predicted.

Fed officials anticipated that unemployment would remain "substantially" higher than normal at the end of 2011 "even absent further economic shocks."

The Fed forecast calls for the jobless rate to dip to between 8 and 8.3 percent next year, and to between 7.5 and 6.7 percent in 2011. All those projections are worse than the Fed's previous estimates and would put unemployment higher than the normal range around 5 percent.

Employment is usually the last piece of the economy to heal once the country is out of recession and in recovery mode. Businesses are usually reluctant to ramp up hiring until they feel confident that any recovery has staying power.

Under the Fed's new projections, the economy should grow between 2.5 and 3.3 percent next year. Fed officials "generally expected that strains in financial markets would ebb only slowly and hence that the pace of recovery in 2010 would be damped," according to the Fed documents.

Fed officials, however, predicted the economy would pick up speed in 2011, growing by as much as 5 percent, which would be considered robust.

Still, given all the economy's problems, there are risks that the Fed's forecasts could turn out to be too optimistic.

And a few Fed officials — none are identified — feared that it could take five or six years for the economy and employment to get back into a sustainable mode of health.

On the inflation front, the weak economy should mean that companies will keep a lid on price increases this year as they try to lure skittish consumers.

The Fed expects prices to rise between 0.3 and 1 percent this year, down from a projection of between 1.3 and 2 percent in the fall. Prices will pick up slightly in 2010 and 2011 as the economy strengthens.

For now, Fed officials are more worried about falling prices, than rising ones.

The Fed didn't use the word "deflation," which is a dangerous bout of falling prices, but officials noted "some risk of a protracted period of excessively low inflation."

Falling prices sound like a gift at first — at least to consumers. But a widespread and prolonged decline can wreak more havoc on the economy, dragging down Americans' wages, and clobbering already-stricken home and stock prices. Dropping prices already are hurting businesses' profits, forcing them to slice capital investments and lay off workers.

America's last serious case of deflation was during the Great Depression in the 1930s. Japan was gripped with a period of deflation during the 1990s, and it took a decade for that country to overcome those problems.

http://news.yahoo.com/s/ap/20090218/ap_on_bi_ge/fed_economy

Roubini tells Geithner to nationalise US banks

Roubini tells Geithner to nationalise US banks
Tim Geithner must nationalise some of America's biggest banks and take the total toll of the US bail-out to around $2 trillion, according to one of the world's most prominent economists.

By James Quinn Wall Street Correspondent
Last Updated: 1:12AM GMT 16 Feb 2009

Nouriel Roubini – the man feted with having foreseen the financial crisis before almost any of his peers – has warned that the US Treasury Secretary must go significantly further than his detail-light bail-out plan delivered last week, and argues that the Obama administration should move swiftly to take public ownership of those major US banks which are failing.

Professor Roubini, who worked with Mr Geithner in the Clinton administration, told The Daily Telegraph: "Many US banks are insolvent, even the major ones." While nationalisation is "a politically- charged decision" which needs to handled carefully, he said it needs to take place "sooner rather than later" for the sake of the wider economy.

Professor Roubini calculated that, on top of the existing $700bn (£491bn) of American taxpayers' money allocated to solving the banking crisis, Mr Geithner may need to ask the US Congress for between $1,000bn and $1,250bn in extra funds. "Sooner rather than later, they'll need more money," he added.

Prof Roubini, professor of economics and international business at NYU Stern, New York University's business school, is highly critical of Mr Geithner's bail-out plan, which he unveiled to much market chagrin last Tuesday.

The New York-based academic believes that although his former boss (the two worked together when Mr Geithner was under-secretary of international affairs at the Treasury in the dying days of the Clinton era) is moving in the right direction, he is either unwilling or unable to be direct enough when it comes to taking the tough decisions.

Prof Roubini also has some stern advice for the British government, itself facing yet another banking crisis this week as it considers whether to increase its ownership of Lloyds Banking Group.

"In the UK, the government has taken over those banks in distress through a number of measures. But the question now is whether they want to go from de facto ownership to de jure?

"It's necessary and I think that's the way we're going in the UK," he continues, saying he would be "supportive" of such a decision. Politicians "might not want it," he adds "but it is strong in action," before going on to explain that it is better for markets that governments nationalise banks quickly, resolve problems whilst in public ownership, before returning them to the market.

Prof Roubini argues that the UK is very similar to the US in terms of its economic position due to its analogous problems – both suffered housing and consumer credit bubbles – but is even more concerned about Germany, which produced dismal gross domestic product figures at the end of last week.

"Germany did not have the same excesses as the UK, but even the German banks had significant exposure to other types of excesses in lending, and they're weak," he says.

http://www.telegraph.co.uk/finance/financetopics/financialcrisis/4634398/Roubini-tells-Geithner-to-nationalise-US-banks.html

Too few details in Bailout 2.0

Feb 11, 2009
Too few details in Bailout 2.0

WASHINGTON - THE new bank rescue plan landed with a thud on Wall Street.
Worried that the revamped financial bailout was far too short on details, especially on how to clean up the books of the banks, investors drove the Dow Jones industrials tumbling more than 380 points.

Treasury Secretary Timothy Geithner announced a plan that could send as much as US$2 trillion (S$3 trillion) coursing through the banking system and the broader economy and stressed the government would act to stop 'catastrophic failure' of financial institutions.

But investors fretted that the government was nowhere near untangling the crisis that has paralysed the financial system and hammered the economy. Wall Street suffered its worst day since Dec 1.

'The good news is they are going to spend a trillion dollars,' said James Cox, managing partner at Harris Financial Group. 'The bad news is they don't know how.' The administration called it the Financial Stability Plan, abandoning the old TARP, or Troubled Asset Relief Program. And while it may have a new name, investors were also quick to point out a whole new set of problems.

Besides worrying the plan is too light on details, Wall Street seemed concerned it does not solve the problem of how to get the soured mortgage-backed assets off banks' books - the heart of the crisis.

Asked about the negative investor response, President Barack Obama told ABC News that Wall Street 'is hoping for an easy out on this thing, and there is no easy out.' For now, the Obama administration says it does not need more than the second US$350 billion chunk of the bailout fund, but it concedes that may change.

'We are going to have to adapt our program as conditions change. We will have to try things we never tried before,' Mr Geithner said.

'We will make mistakes. We will go throughout periods in which things get worse and progress is uneven or interrupted.' The new approach aims to use both public and private cash to buy soured assets off the books of the banks. But the plan provides almost no detail on how the assets would be priced - only that it would be left to the private sector. Pricing the bad assets is key, in part because pricing them too low would force banks to take devastating writedowns.

It's far from clear that the government approach, using federal loans to entice private buyers to take the soured assets, will work.

'Most fund managers see these assets and don't want to touch them,' said Christopher Whalen, managing director of Institutional Risk Analytics. 'They can't sell them.' The government will also use some of the bailout cash to try to kick-start as much as US$1 trillion in lending - hoping that getting the private market for bundled loans humming again will unlock credit in the rest of the economy.

Mr Geithner also wants to put all banks with more than US$100 billion in assets through a 'stress test' to determine whether they can handle the losses that could come from an extended economic downturn.

But details on that part of the plan were sketchy, too, and some observers worried that the process would be messy. It also raises legal questions about what would happen to banks that refuse to participate.

'Let's say they do a stress test and conclude that a bank is insolvent. The bank could say, 'No, that's not the case and we're going to challenge you,'' banking analyst Bert Ely said. 'There's a potential for a lot of litigation.' Banking industry officials reacted with caution.

'There are a lot of details that have not been provided yet, and the devil is in the details,' said Scott Talbott, senior vice president of government affairs for the Financial Services Roundtable.

Critics of how the Bush administration handled the first half of the bailout say it doled out money to banks with few strings attached and failed to get banks to resume more normal lending.

It will be at least a week before the Obama administration provides details of how it plans to help homeowners. Mr Geithner did say the government will use $50 billion of bailout money for that, and suggested it would help reduce mortgage principal and lower mortgage rates.

Even so, 'There's not a hell of a lot here to get a sense of,' Democratic Sen. Robert Menendez told Mr Geithner in an appearance later on Tuesday before the Senate Banking Committee.

Republican Senator Richard Shelby of Alabama faulted Geithner for 'a conceptual plan with many details yet to be filled in.' Mr Geithner said the administration was laying out the 'broad architecture' for the program with more details to come as the new plans are designed. He stressed the urgency of moving boldly, given the troubles facing the economy and the financial system.

Details of the new bailout plan came as the Senate passed Obama's $838 billion economic stimulus plan, clearing the way for talks with the House on a compromise measure.

In his speech outlining the plan, Geithner stressed the huge US$1 trillion figures represented loans that would ultimately be repaid.

And he said the cost of doing nothing would be far higher.

'The complete collapse of our financial system would be incalculable for families, for businesses and for our nation,' Geithner said.

Consumer advocates, who had unsuccessfully pressed the Bush administration to help individual borrowers, saw some of the changes as welcome.

'Certainly the flavor has changed and that's encouraging, but we need the meat on the bone here,' said John Taylor, chief executive of the National Community Reinvestment Coalition, a consumer group in Washington. -- AP


http://www.straitstimes.com/Breaking%2BNews/Money/Story/STIStory_336900.html

How she owed more than her home was worth?

No Good Deed Goes Unpunished
by Laura Rowley

Posted on Wednesday, January 28, 2009, 12:00AM

Eve Pidgeon, communications director for a nonprofit credit counseling service in Michigan, says she'll never forget the day she realized she owed more than her home was worth.
"I was at work, saying, 'Can you believe I can't refinance my house?'" recalls Pidgeon, who had made timely payments on her 30-year mortgage for nine years and has a credit score over 800. "Then a [colleague] said, ‘You're upside down -- like our clients.' I thought, ‘My God -- I am?' I thought that happened to people who had $50,000 on credit cards and refinanced into adjustable-rate mortgages."
A Canadian immigrant who became a U.S. citizen, Pidgeon bought her home in 1999. Her mortgage broker said she qualified for a $240,000 loan -- on her then-salary of $33,000 per year and her husband's volatile income as a freelance photographer.
Passing Up the Big, Fabulous House
"Calculations for insurance, escrow for property taxes -- none of that was considered," recalls Pidgeon, who has two children. "Of course we wanted a big, fabulous house, but when I crunched the numbers, I thought, 'If the cost of any one thing in our [budget] goes up, we're going to be in a deficit every month.' It put a lot of pressure on my marriage because my husband said, ‘You're terrible at math; this is a professional who knows what he's doing, and we should get this house.'"Instead they bought a quaint 1918 Victorian for $135,000. Pidgeon, who eventually divorced and navigated a job layoff without ever missing a mortgage payment or accumulating high-interest credit card debt, has refinanced twice -- from 8 percent to 6.8 percent, and then again to 6.3 percent, always locking in for 30 years. She wanted to refinance again when rates slipped under 5 percent, but widespread foreclosures have depressed her home's value; comparable dwellings are selling at or below the $117,000 she still owes.
Pidgeon is emblematic of the financial insecurity afflicting millions of Americans who are being punished despite doing all the right things with their money. Hard work, steady savings, and thoughtful sacrifices haven't protected their jobs, nest eggs, or home values from an economy twisted by fraud and stupidity, coldly indifferent to responsibility and productivity.
Homeowners Underwater
By one estimate, 12 million homeowners -- one in six -- are underwater on their mortgages. In 20 major metropolitan areas, home prices dropped an average 18 percent in November compared to the year-earlier period, according to the S&P/Case-Shiller Index, released earlier this week.
Unemployment rose in all 50 states in December and surpassed 10 percent in two -- Rhode Island and Pidgeon's home state of Michigan. Moreover, in the year following October 2007 -- the stock market's peak -- more than $1 trillion of stock held in 401(k)s and other defined-contribution plans evaporated, according to the Center for Retirement Research at Boston College.
"The new insecurity doesn't look like the old insecurity -- grainy Dorthea Lange photos of Depression-era men and women, their weathered faces projecting despair and helplessness," writes Yale political scientist Jacob Hacker in his book ‘The Great Risk Shift'. "Those who experience it have homes, cars, families, degrees. They've usually tasted the fruits of success, if sometimes only fleetingly. They very rarely end up on the streets or in shelters. For most, insecurity is a private experience, hidden away behind closed doors, felt in quiet despair."
A Fair Question in Unfair Times
Consider a reader's comment last week following my column on the difference between optimism and magical thinking. The poster wrote that he was a computer programmer who had been employed for 25 years, worked hard, lived frugally, and was now laid off. His 401(k) had lost half its value and his home equity had declined sharply.
"Please tell me again why you believe I should be optimistic?" he wrote. "Is it that you expect folks (suckers) in my situation to get up, brush off, and once again toil to accumulate wealth that will be seized from me in one way or another?"
That's a fair question in unfair times. At the very least, we can mitigate the risks of having our hard-earned cash seized in the future by asking ourselves a series of questions:
1. Do you live within your means? How long could you live without your current income if you lost your job? Do you know exactly how much money comes in and where it goes each month? What areas of your budget could you slash immediately? What expenses can you cut back for the next year and reallocate toward a cash cushion?
2. If you consistently ratchet up your lifestyle to match rising income, can you divert half of any raise, bonus, or other increase you receive into savings instead?
3. Have you considered a strategy to obtain severance or other benefits in the event you're laid off? How up-to-date is your resume and network of contacts, and what would be the first five steps you would take to find a new position? Have you investigated your options for continuing or obtaining health insurance?
4. If you are living on two incomes, how can you shift your lifestyle and spending to rely on one for needs and the other for wants?
5. How well do your insurance policies protect you and the people you love? Have you shopped around for the lowest premiums?
6. If you carry high-interest, revolving debt, what is your plan for eliminating it, and how long will it take?
7. Do you have written goals -- short-, medium- and long-term -- for your money that reflect what you value most, with specific dollar amounts and time frames? Do you know how fast the cost of your goal is rising?
8. Do you understand how your money is invested, how much risk you're taking, and what expenses and fees you are paying? Do you understand the tax implications of your financial decisions (and your geographic choices)? If not, are you making an effort to learn about these critical areas of your portfolio?
9. Are you taking good care of your health to reduce the risk of financially devastating medical costs?10. Do you give as much energy to your family and friends as you do to your finances? (Losing your shirt is a lot more painful when you go through it alone.)
The Risks We Face
"Studies consistently suggest that we are good at some kinds of risk assessments and very bad at others," Hacker writes. "And unfortunately, the kinds of risks that we face today -- diffuse, interwoven, mounting, uncertain -- are precisely those we are most likely to overlook. Economic losses for families are often like system failures in engineering -- they cascade from seemingly small events into major crises. Yet few of us worry much about the small events that can set off the chain."
Pidgeon says she never imagined she'd be in her first home nearly a decade after she bought it, but she is focused on the positive. "If I could [refinance], I could gain a few hundred dollars in my monthly surplus and use it to stimulate the sagging local economy," she says. "But my priority was to move to the States and make the most of my education and my career, and raise a wonderful family in a safe, comfortable, and loving environment. Whether I'm paying 6.3 percent or 4.5 percent, I feel very proud that I accomplished that."

http://finance.yahoo.com/expert/article/moneyhappy/137398;_ylt=ArMJDpteaSKgQNT6eQGJXB27YWsA

Russia and China Blame Crisis on Debt Binge

Russia and China Blame Crisis on Debt Binge
Topics:Stock Market Banking European Central Bank Credit Economy (U.S.) Economy (Global)
By: Reuters 29 Jan 2009 02:20 AM ET

China and Russia blamed debt-fueled consumption on Wednesday for massive financial collapse and called for global cooperation to repair the world economy.

"The existing financial system has failed," Putin told business and political leaders holding their annual World Economic Forum in this Swiss ski resort.
Growth was based on greed where one center printed money without respite and consumed wealth, and another manufactured cheap goods and saved money, he said.
His clear swipe at the United States was echoed by Chinese Premier Wen Jiabao, who said the bad macroeconomic policies and unsustainable growth models of some countries "characterized by prolonged low savings and high consumption" were primary reasons for the crisis.
Wen also blamed the "blind pursuit of profit."
Despite the criticism of Western policies, both China and Russia pledged their support for open markets, refuted protectionism and called for the Group of 20 major economies to work swiftly toward a global regulatory system that would put world markets and financial institutions on a safer footing.
Certainly government solutions are in the driver's seat at meetings of business leaders and politicians in the Swiss mountain resort, a reversal from the usual gathering where Wall Street tycoons rule.
European Central Bank chief Jean-Claude Trichet joined the call for profound reforms to drag the economy back to health and said the G20, whose leaders hold a summit in April, was doing "good work" on policies.
"Everybody can see the present system is too fragile, and we have to reintroduce an element of resilience ... and we need to do that without any consideration of any kind of vested interest," he told Reuters Television.

Grim Mood
Crisis-hit bankers are thin on the ground at the meeting, and the few who did express concerns that governments would stretch too far on the regulatory front and stifle growth got scant hearing. They were promptly reminded that governments are bailing many of them out.
The mood among business people was grim. The International Monetary Fund forecast the world economy would slow to a near standstill this year, warning that deflation risks were rising.
A poll by PricewaterhouseCoopers of more than 1,100 CEOs found that just 21 percent of CEOs said they were very confident of growing revenue in the next 12 months, down from 50 percent a year ago.
Most business leaders said they expected no more than a slow and gradual recovery over the next three years.

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"There are no silver bullets. My sense is 18 to 24 months of a very tough economic environment," Maria Ramos, chief executive of Transnet, South Africa's rail and logistics company, told Reuters.
Stephen Roach, Morgan Stanley's Asia chairman, agreed it would be "a long slog" over the next three years.
"Forty percent of the world's wealth was destroyed in the last five quarters. It is an almost incomprehensible number," said Stephen Schwarzman, chairman of the leading private equity company Blackstone Group. "Business will be very different."

Currency Row
Before Wen's speech, a row intensified over Beijing's exchange rate policy after new U.S. Treasury Secretary Timothy Geithner branded China a currency manipulator last week, using a term the previous administration avoided for years.
A Chinese diplomat said Washington had enough evidence to know China does not manipulate its exchange rate.
"I don't think it's fair all of a sudden to change the position of the U.S. government," the diplomat said in London, one of the European capitals Wen will visit after Davos.
Wen did not address the row directly in his speech, although his comment on the low savings rate was an indirect reminder that China is financing the United States.
Slideshow: Who's Who in Davos
He expects China to post 8 percent growth this year -- not much different from 2008 but down from 13 percent in 2007. The China slowdown coupled with recession in the major developed economies has pushed the global economy into severe recession.
That grim scenario has left sovereign fund Dubai International Capital wary of making big long-term investments even though it sees asset prices at reasonable levels.
"We're still very nervous about making some big bets -- we see the financial crisis getting worse. There's not going to be a magic wand solution to the problem," Chief Executive Sameer al-Ansari told Reuters.
Copyright 2009 Reuters.

http://www.cnbc.com/id/28901277

US: More Pain Ahead

APLayoffs spike, housing tumbles; outlook worsens

Thursday January 22, 4:42 pm ET
By Jeannine Aversa, AP Economics Writer

Worse-than-expected reports on jobless claims, housing further dim outlook, challenge Obama

WASHINGTON (AP) -- The number of newly laid-off Americans filing jobless claims and the pace of home construction both posted worse-than-expected results in government data released Thursday, lending urgency to the economic recovery plan President Barack Obama and Congress are scrambling to advance.
The latest batch of economic news cemented fears that the recession, already in its second year, will drag on through much of 2009.
The reports "paint a bleak economic landscape ahead," said Stuart Hoffman, chief economist at PNC Financial Services Group.
And the furious pace of layoffs continued Thursday, with Microsoft Corp. saying it will slash up to 5,000 jobs over the next 18 months. Chemical maker Huntsman Corp. will ax 1,175 jobs this year and will get rid of an additional 490 contractors. Those -- as well as other employers -- have seen customer demand wane and are cutting costs to survive the fallout.
"The corporate sector is rolling over, and we probably have not yet seen many job losses stemming from the sudden collapse in international trade," warned Ian Shepherdson, chief U.S. economist at High Frequency Economics. "The labor market remains a disaster area."
Wall Street ended a volatile trading day sharply lower following the worse-than-expected economic data, concerns about the nation's banks and disappointing results from Microsoft. The Dow Jones industrial average lost more than 105 points.
On Capitol Hill, House Democrats rolled up their sleeves to nail down pieces of Obama's $825 billion stimulus package -- a blend of tax cuts and increased government spending that includes boosting unemployment benefits-- with the goal of a floor vote next week.
And the Senate Finance Committee cleared Obama's nomination of Timothy Geithner to be Treasury secretary -- despite what the nominee called "careless" and "avoidable" tax mistakes. The full Senate still must clear Geithner, president of the Federal Reserve Bank of New York, before he can take office.
Already Geithner is helping shape the Obama administration's new plan to bust through the debilitating credit and financial crises that are aggravating the recession. The package -- likely to be unveiled in a few weeks-- may include a program to mop up bad mortgages and other toxic assets so banks would be in a better position to lend money more freely.
On the layoffs front, first-time applications for unemployment benefits jumped last week by 62,000 to 589,000, the Labor Department reported. That was much more than the 540,000 tally economists expected. It left claims matching a 26-year high reached four weeks ago, although the work force has grown by about half since then.
Part of the rise was blamed on a backlog of claims that piled up in recent weeks as several states experienced computer crashes from a crush of filings, a government analyst said.
The number of unemployed people continuing to draw jobless benefits soared by 97,000 to 4.6 million. That figure, too, was above analysts' expectations, and was up considerably from a year ago, when 2.7 million people were receiving such aid. The pickup shows that those out of work are having trouble finding a new job.
Some economists believe the number of people continuing to draw unemployment benefits could rise to 5.5 million -- possibly more -- this year even if a new stimulus package is enacted.
On top of the 4.6 million covered by the regular unemployment insurance program, another 2 million Americans requested benefits under an emergency extension authorized by Congress last year. But the 2 million figure is not seasonally adjusted and is volatile.
Obama's stimulus package -- which is running into Republican resistance -- includes plans to extend and boost unemployment benefits, give states $87 billion to deal with Medicaid shortfalls and help unemployed people retain health care. Tax credits for workers, tax cuts for businesses and money for public works projects, such as road and bridge construction, also are being put forward.
Meanwhile, the miserable state of the U.S. housing market was in full view Thursday, and the outlook remains dim.
The Commerce Department reported that new-home construction plunged 15.5 percent in December to an annual rate of 550,000 units, an all-time low, capping the worst year for builders on records dating back to 1959. Last month's performance was weaker than economists expected, and shattered the previous record low set in November.
"The extent of the decline was breathtaking," said Joel Naroff, president of Naroff Economics Advisors. "Home builders were simply sitting around watching the grass grow, and conditions are not likely to change soon."
For all of last year, the number of housing units that builders broke ground on totaled just over 904,000, also a record low. That marked a huge 33.3 percent drop from the 1.355 million housing units started in 2007. The previous low was set in 1991.
The report also showed that applications for building permits -- considered a reliable sign of future activity -- sank to a rate of 549,000 in December, a 10.7 percent drop from the previous month.
Rising defaults, tighter lending standards and fear about the housing market's future have sidelined buyers, an absence felt acutely by homebuilders such as D.R. Horton Inc., Pulte Homes Inc. and Centex Corp.
The collapse of the once high-flying housing market has been devastating to the United States' economic health.
Its spreading fallout has contributed to big pullbacks by consumers and businesses alike, plunging the economy into a painful recession now in its second year.
The Obama administration wants to ramp up efforts to stem skyrocketing home foreclosures, which have dumped even more properties on an already crippled market.
The Federal Reserve has taken a number of extraordinary steps with the hope of providing some relief. It is buying certain types of mortgage securities and has slashed a key interest rate to a record low of between zero and 0.25 percent. To help brace the economy, the Fed is expected to hold rates at that level at its meeting next week and probably for the rest of this year.
In other housing-related news, rates on 30-year mortgages climbed above 5 percent this week, ending a five-week streak at record low levels. Average rates on 30-year fixed mortgages rose to 5.12 percent this week, from 4.96 percent last week, which was the lowest since Freddie Mac started its survey in April 1971, the mortgage giant reported.
Builders and economists are skeptical about the prospects of a housing turnaround. Unemployment last month hit a 16-year high of 7.2 percent and is expected to march upward this year -- a situation that can put stresses on existing home owners and make it less likely new buyers will stream into the market.
Against this backdrop, Patrick Newport, economist at IHS Global Insight, summed up the outlook: "More pain ahead."

http://biz.yahoo.com/ap/090122/economy.html

US looks at fresh bank investment after $26bn losses

US looks at fresh bank investment after $26bn losses
The US government is investigating new ways of addressing continued dislocation in the US banking sector, contemplating a second round of investment in the hope of reducing banks' exposures to "toxic" illiquid assets.

By James Quinn, Wall Street Correspondent

Last Updated: 11:35PM GMT 16 Jan 2009


Officials from within the Bush administration – in their final days ahead of President-elect Barack Obama's inauguration on Tuesday – are looking at a wide range of options to tackle the crisis in the country's major banks.
High on the list is understood to be a plan to roll out guarantees to back-stop further losses, the like of which have already been granted to Citigroup and Bank of America (BoA).
Another option would be to create some form of vehicle to remove assets from balance sheets once and for all, similar to outgoing Treasury Secretary Hank Paulson's original intention for the $700bn (£474bn) bank bail-out fund.
The discussions, which are understood to involve members of Obama's transition team, have been continuing for a number of weeks, as it has become increasingly clear that the problems in the banking sector have not been stopped by the $125bn round of capital injections into the country's nine major banks.
In addition to the impact the dislocation in the housing market has had on US banks' balance sheets, there is a growing threat from the deterioration in consumer credit, with car loans, unsecured personal loans and credit cards all showing signs of increasing default.
The problems within the US banking market were exemplified in the last few days by a batch of dismal financial results from some of the major banks, with heavy losses sending shares plummeting as concerns that 2009 may yet be as bad a year for financials as 2008 surfaced.
Shares in all the major banks fell yesterday, with BoA closing down 14pc, Citigroup off 9pc and JP Morgan Chase ending the day 6pc lower.
The falls came after Citigroup reported a post-tax loss of $8.29bn in the fourth quarter, its fifth consecutive loss, albeit within the $6bn-$10bn range analysts had been forecasting.
Alongside the results, chief executive Vikram Pandit outlined his plan to split the bank into two units;

• Citicorp, its core banking business with assets of $1,100bn; and


• Citi Holdings, which will essentially be made up of its troublesome brokerage and asset management business, with assets of $850bn.

Meanwhile, BoA continued to stumble, reporting its first loss since 1991, a quarterly post-tax loss of $2.39bn. This figure did not include Merrill Lynch's $15.31bn loss for the fourth quarter, because the purchase was only completed on January 1.
Nevertheless, Merrill's losses continue to weigh heavily on its new parent, which yesterday revealed it is to receive a fresh $20bn capital injection from the US Treasury and a guarantee from the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) back-stopping the losses on $118bn of Merrill's most toxic assets.
In return, the bank will have to issue $4bn of preferred shares yielding an 8pc coupon, as well as paying 8pc-a-year on the $20bn, issue further warrants and cut its dividend and place a cap on executive pay and bonuses.
BoA chairman Ken Lewis, who has come under fire for going ahead with the Merrill deal in spite of the dismal state of its finances, said that in December he looked into backing out of the deal, but that government officials told him to do so could create "serious systemic harm".

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/4274591/US-looks-at-fresh-bank-investment-after-26bn-losses.html