Three possible futures for the economy in this recession and the consequences for investors.

Three futures…
This article sees three possible futures for the economy in this recession, and discusses the consequences for investors….

Three futures

Posted on March 12, 2009 by Richard Beddard
Filed Under Investing, Markets |


Two out of three ‘aint bad

From the desk of James Montier:

In a research note earlier this month, Mr Montier postulates three futures:

1. The optimistic path, in which government stimuli create inflation,
2. A Japanese style protracted work out with low growth and low inflation, and a…
3. Great Depression modelled on the 1930’s.

He concludes:

In the first two outcomes, value should do well. In the third, holding any equity is likely to be a poor decision. Since I don’t know which of these paths is more likely, I continue to believe that a slow steady deployment of capital into deep value opportunities in the face of market weakness is the most sensible option.

How value investing, buying shares in companies on low price to book (net asset value) ratios, would have worked in Japan:

Investors who bought and held would have earned a 3% annual return versus a market return of -4%. Investors who sold the most expensive stocks short, would have earned a return of 12%.

But in the Great Depression, cheap stops and expensive stocks both lost badly and buying shares was, quite simply, a bad idea.

The difference was the severity of the economic crises. In Japan, growth has been flat. In the 1930’s in the US, industrial production declined by 50% peak to trough.

His strategy, to buy value stocks gradually:

…Represents a regret minimisation approach - I end up with some exposure, and I’m dollar cost averaging down if this turns out to be the Great Depression 2. Alternatively, if the stimulus works, or the US follows the Japanese example, then as Jeremy Grantham says, “If stocks look attractive and you don’t buy them and they run away, you don’t just look like an idiot, you are an idiot.”

Category: Investing, Markets

http://blog.iii.co.uk/three-futures/

Welcome to the Oracle of Omaha’s “Long, Deep Recession”

Warren Buffett Investing: Welcome to the Oracle of Omaha’s “Long, Deep Recession”

by Alexander Green, Chairman, Investment U

Investment Director, The Oxford Club

Friday, May 30, 2008: Issue #801

Warren Buffett opined that the United States is already in recession, even if it’s not in the sense that economists would define it: two consecutive quarters of negative growth, in an interview with the German magazine Der Spiegel on Saturday. Furthermore, Buffett argues the recession “will be deep and last longer than many think.”

Sounds pretty ominous. After all, Buffett is now the world’s richest man - he recently surpassed Microsoft chairman Bill Gates - and is easily one of the planet’s most successful investors. If Buffett himself thinks the economic outlook is lousy, the average punter thinks, maybe I should get out of the market.

If you have money in the stock market that you will need in the next few months ahead, you should. (Not because the market is about to go down - although it may - but because money earmarked for short-term expenditures shouldn’t be in the market in the first place.) (Comment: The largest market losses, as you would expect, are in the beginning of any recession.)

However, if you own stocks to meet your long-term financial objectives, stay put. And look for fresh opportunities, too. After all, that’s what Buffett himself is doing… (Comment: The largest gains come from staying invested through the entire period. The numbers show market timing would have given you an 8% gain at best and a -3% loss at worst. )

Warren Buffett’s Global Investment Opportunities

One of the reasons Warren Buffett was in Germany is that he shares our view that you should search worldwide for the best investment opportunities. Right now Buffett would like to put Berkshire Hathaway’s cash war chest to work in a few well-managed German family-owned businesses.

But why would Buffett buy companies if the economic downturn is likely to be deeper and last longer than generally expected? (Ooops. Same comment: The largest market losses, as you would expect, are in the beginning of any recession. The largest gains come from staying invested through the entire period. The numbers show market timing would have given you an 8% gain at best and a -3% loss at worst. )

Because he knows that nobody can accurately or consistently predict something as big, diverse, and dynamic as the global economy. (Work like this is better left to the experts: you know, palm readers and Ouija boarders.)

Warren Buffett knows that even if you somehow knew what was going to happen in the economy, you still wouldn’t necessarily know what was going to happen in the stock market. Stocks fall during good times. They often rally during bad times. Money manager Ken Fisher doesn’t call the stock market “The Great Humiliator” for nothing. (Same comment again: The largest market losses, as you would expect, are in the beginning of any recession. The largest gains come from staying invested through the entire period. The numbers show market timing would have given you an 8% gain at best and a -3% loss at worst. )

Buffett knows that the stock market is a discounting mechanism. It takes the news and reflects it into stock prices immediately. Who in their right mind would sell their stocks today because he realizes the economy is slowing down. We’ve known that for months already. (And again: The largest market losses, as you would expect, are in the beginning of any recession. The largest gains come from staying invested through the entire period. The numbers show market timing would have given you an 8% gain at best and a -3% loss at worst. )

And, finally, Buffett knows that nothing beats the long-term returns available in equities. Where else can you put your money to work today? In real estate that is in a death spiral? In bonds that pay less than 5%? In money markets yielding 2%?

Warren Buffett’s Investment Strategy

In the same interview with Der Spiegel, talking about his investment strategy, Warren Buffett said “If the world were falling apart I’d still invest in companies.” In other words, he gets it. There is no superior alternative to common stocks. The long-term returns of every other asset class pale by comparison.

In an interview in the April 28, 2008 issue of Fortune, Buffett said “I think we’ve got fabulous capital markets in this country, and they get screwed up often enough to make them even more fabulous. I mean, you don’t want capital markets that function perfectly if you’re in my business. People continue to do foolish things… and they always will.”

Realize that when other investors sell too cheap or buy too dear, it creates opportunities for those of us on the other side of their trades.

Buffett ends his Fortune interview by saying, “Stocks are a better buy today then they were a year ago. Or three years ago… The American economy is going to do fine. But it won’t do fine every year and every week and every month… The only way an investor can get killed is by high fees or by trying to outsmart the market.” (And again the same comment: The largest market losses, as you would expect, are in the beginning of any recession. The largest gains come from staying invested through the entire period. The numbers show market timing would have given you an 8% gain at best and a -3% loss at worst. )

Amen. They don’t call him the Oracle of Omaha for nothing.

Good investing,
Alex

Alexander Green’s recommendations have beaten the Wilshire 5000 Total Market Index by more than 3 to 1 over the past five years. To get access to a steady stream of the companies he expects to outperform this year, consider joining The Oxford Club, our premium service. You’ll have access to all of Alex’s growth-stock recommendations in a matter of minutes. Learn more.

http://www.investmentu.com/IUEL/2008/May/warren-buffett-investing.html

How To Tell When The Economy's Getting Better

How To Tell When The Economy's Getting Better
Rick Newman
Friday February 13, 2009, 8:19 am EST

The stimulus package is finally finished. President Obama is promising a tough new bank-rescue plan to boost lending and limit outrageous pay. Troubled homeowners may even get some relief. All told, the government could spend more than $3 trillion to help end the recession.

So now all we have to do is sit back and watch the economy grow like a beanstalk, right?

If only. One risk of the unprecedented government intervention is that it won't do all that much to hasten the end of the recession. Another risk is that consumers, expecting a magic-bullet fix, could fail to prepare for tough times that still lie ahead. "This is going to be a difficult year," Obama himself said at his first press conference. "If we get things right, then starting next year we can start seeing some significant improvement."
[Read 4 myths about Obama's bank-rescue plan.]

Next year? Afraid so. Most economists agree that it will take that long, at least, before the biggest problems - mounting layoffs, the housing bust, the banking crisis, and plunging confidence - start to turn around. Here's what to watch for to tell whether the stimulus package is actually working, and when the economy might start to mend.

An improvement in the unemployment rate.
Of all the economic indicators, this is probably the single most important. But you might want to avert your eyes for awhile.

Obama has talked about creating 3 to 4 million new jobs, and if the stimulus plan works, it might come close to that - over several years, combined. But it's almost certain that through this summer and into the fall, there will be a net job loss, not a gain. Most economists expect the unemployment rate, now 7.6 percent, to hit at least 9 percent by the end of this year. That represents up to 2 million more lost jobs. Many of those cuts are already in the works - just follow the recent layoff announcements from companies like Caterpillar (20,000), Boeing (10,000), SprintNextel (8,000) and Home Depot (7,000). But the pink slips haven't all gone out yet, so the layoffs haven't shows up in the official numbers.
[See 15 companies that might not survive 2009.]

The first sign of an improvement will be...corporate silence. As in no more draconian job-cut announcements. Once that happens (or doesn't), the unemployment rate will plateau. Then, companies might start hiring again, and a couple of months after that, the unemployment rate will start to fall. Three straight monthly declines would be a good sign that the economy is really on the rebound. That probably won't happen until 2010.

If you're wondering what's the point of the stimulus package if it won't do much to help workers in 2009, look to 2010. And 2011. That's where the plan will make a bigger difference. Moody's Economy.com estimates that by the middle of 2010, the unemployment rate will start to drift back toward 8.5 percent. But without any stimulus plan, it would have hit 11 percent. Viva la government.

More stable home prices.
The real estate boom and bust is what torpedoed the economy in the first place, and the economy won't start to recover until the housing bubble fully deflates. The good news is that housing prices have already been falling for more than two years, with prices down more than 20 percent nationwide. And we might be more than halfway toward the bottom: Moody's Economy.com predicts that housing prices should stop falling nationwide by the second half of 2009. Overall, the forecasting firm predicts a 30 percent drop in home values from the peak values of 2006.
[See why the feds rescue banks, not homeowners.]

Others think it will take longer, but whenever it happens, an end to the housing slide will mark an important turning point. Hardly anybody thinks that prices will shoot back up or there will be another buying binge. But a boomlet, maybe. Once prices stabilize, buyers will stop worrying that they could be purchasing a costly asset that's falling in value. As they buy, other kinds of consumer activity - like shopping for furniture and kitchen upgrades - will follow. Slowly.

A consumer confidence rebound.
Since consumer confidence closely tracks the job market, the dismal numbers of the last few months probably won't improve by much until late in 2009, or 2010. Homeowners have lost more than $3 trillion worth of value in their homes over the last three years, and investors have seen their stock portfolios shredded. So even people who feel secure in their jobs are dour.
[See how Wall Street continues to doom itself.]

A turnaround in the housing or stock markets would break the gloom and help some people feel better off. So would easier lending by banks, which would help solvent consumers buy a few more cars, appliances, and other goods. But consumer confidence won't really start to improve until workers start to feel more secure about their jobs and income. Think 2010.

A less volatile stock market.
Every investor hopes that beleaguered stocks will come roaring back in 2009 and regain some of the ground lost since the peak in 2007 - when the S&P 500 stock index was nearly 50 percent higher than it is today. But a better indicator of economic health would be a steady recovery - without the manic swings that seem to come from every hint of undisclosed trouble at some big bank or rumor of new government intervention.

The stock market is harder to predict than most other parts of the economy, since it's deeply dependent on psychology and other intangibles. The market could bounce back by mid-summer. Or it could remain stagnant for years, like it did for most of the 1970s. The experts can't be any more sure than you or I.
[See why "Wall Street talent" is an oxymoron.]

One hopeful sign would be less market sensitivity to events in Washington. The biggest market mover these days is the federal government, since fortunes stand to be won or lost - mostly lost - depending on how deeply the government intervenes in the activities of megabanks like Citigroup and Bank of America, and how much federal spending will be available to stand in for plunging consumer spending. The markets will be back to their old selves when earnings reports, IPO announcements, and M&A deals are what send stocks up or down, and utterings from Washington amount to little more than an echo. Since the government seems to be the only institution spending money so far in 2009, it could be awhile before Wall Street returns to form.

Economic growth turns positive.
By economic standards, the current downturn has already lasted longer than the typical post-World War II recession. Yet there's still a lot more pain to endure. A recent survey of economists by the Wall Street Journal found that the majority think the economy will continue to contract for the first half of 2009, with growth turning positive in the second half of the year. That outlook is much worse than a few months ago, and even when growth turns positive the economy could sputter along without many new jobs or bold moves in the private sector.
[See why lousy unemployment numbers are no surprise.]

It's always possible that impatient consumers will get sick of holding back, and start running up their credit card balances once again (if the banks let them). The bank-rescue plan might spur more lending than expected, goosing businesses and consumers alike. Or the stimulus plan might spread goodwill and optimism throughout the land. If you get the urge to spend, that might be the strongest indicator of all. Call the economists.

http://finance.yahoo.com/news/How-To-Tell-When-The-Economys-usnews-14351762.html


Also read:
Best of Flowchart
How to Tell if You're Rich
Greenspan vs. Buffett
4 Myths About Free Markets—and Their Demise
The Need for Greed
5 Upsides of $4 Gas
Economic Recession, Consumer Depression
Why More Saudi Oil Could Harm American Consumers
Economic Upswing? Ask Again in a Year
What Springsteen Can Teach CEOs
6 Myths About Oil Speculators

Investments for a Recession

Investments for a Recession
By Selena Maranjian February 12, 2009 Comments (2)


Are you ready for a prolonged recession, a downturn in the stock market and economy? What can you do to prepare for it? Well, a bunch of things. One strategy that has received a lot of attention lately is investment in exchange-traded funds (ETFs), which focus on stocks outside the U.S. and on "defensive," or recession-resistant, industries.

Global ETFs
There are a variety of ETFs that invest globally. For instance, the Vanguard All World ex-US (VEU) ETF has half of its assets in Europe and another third in Asia. Of course, foreign companies and economies are still affected by what happens in the U.S., so you won't completely avoid the effects of the current recession. But with more than 2,000 holdings, including Nokia (NYSE: NOK), Toyota Motors (NYSE: TM), and BP (NYSE: BP), you'll at least get plenty of diversification.

One area many people think of as a defensive industry is the consumer-staples sector. Many companies in the sector, such as Procter & Gamble (NYSE: PG), Altria (NYSE: MO), and Coca-Cola (NYSE: KO), are often thought to be as close to recession-proof as you can get. Still, don't expect miracles. Inflation and the rising cost of raw materials can put pressure on these companies' profits, too.

Looking for income
Dividend stocks are another place to turn when you have recession on your mind. The iShares Dow Jones Select Dividend Index (DVY) ETF can help you out. It offers bits of about 100 dividend payers, such as Merck (NYSE: MRK), for the price of one. Many of these companies tend to be in defensive industries, such as the aforementioned consumer staples, pharmaceuticals, and utilities, although some are also in the recently beleaguered financial sector. This ETF's yield is almost 7%.

Putting some bonds in your portfolio can add a healthy dose of diversification, too. Some municipal bonds currently yield more than comparable Treasury bonds do, even though they pay tax-free income. But remember that in the long run, stocks have usually trounced bonds, so don't go nutty with them unless you're in or nearing retirement. And be especially careful of esoteric securities like emerging-market debt, because the risks can be extremely high.

Keep in mind
Of course, safety in a recession involves more than just having the right investment mix (and I wouldn't even argue with those who advise not changing your mix at all, but just sticking with your convictions and waiting out the recession). For example, you should also:
Have an emergency fund in which you aim to keep between three and six months' worth of living expenses in short-term investments. These can be critical if you suddenly lose your job (hey, it happens, and more often in a recession) or encounter other unexpected big-ticket expenses (an operation or a new roof). Get more guidance in our savings area.

Develop a healthy perspective on recessions.
Welcome them, because they tend to bring bargains in the stock market. While others panic and sell, review your watch list regularly with a box of tissues nearby to help contain your drooling.

Learn more in these articles:
An Opportunity We Haven't Seen in 50 Years
The Best Stock to Own
The 10 Best Dividend Stocks of the Past Decade

http://www.fool.com/investing/dividends-income/2009/02/12/investments-for-a-recession.aspx

Recession-Proof Your Portfolio

Recession-Proof Your Portfolio
by Eric Petroff (Contact Author Biography)

While it would be utopian to have the economy grow at a stable rate, economic recessions are a fact of life and are as unavoidable as the setting of the sun. Like the sun, the economy goes through periods of rising (growth and expansion) and periods of setting (decline and recession).

In this article, we will look at how to properly invest as the economy moves through the setting phase - recession.

What is a Recession?

A recession can be defined as an extended period of significant decline in economic activity including negative gross domestic product (GDP) growth, faltering confidence on the part of consumers and businesses, weakening employment, falling real incomes, and weakening sales and production. This is not exactly the environment that would lead to higher stock prices or a sunny outlook on stocks.

Other aspects of recessionary environments as they relate to investments include a heightened risk aversion on the part of investors and a subsequent flight to safety. However, on the bright side, recessions do eventually lead to recoveries and follow a relatively predictable pattern of behavior along the way. (To read more about this, check out Recession: What Does It Mean To Investors?)

Keep an Eye on the Horizon

The real key to investing before, during and after a recession is to keep an eye on the big picture, as opposed to trying to time your way in and out of various market sectors, niches and individual stocks. Even though there is a lot of historical evidence of the cyclicality of certain investments throughout recessions, the fact of the matter is that this sort of investment acumen is beyond the scope of the ordinary investor. That said, there's no need to be discouraged because there are many ways an ordinary person can invest to protect and profit during these economic cycles. (To learn more about investing in cycles, read Understanding Cycles - The Key To Market Timing.)

To begin with, consider the macroeconomic issues of a recession and how they affect capital markets. When a recession hits, companies slow down business investment, consumers slow down their spending, and people's perceptions shift from being optimistic and expecting a continuation of recent good times to becoming pessimistic and uncertain about the future. As such, people get understandably frightened, become worried about prospective investment returns and rationally scale back risk in their portfolios. The results of these psychological factors manifest themselves in a few broad capital market trends.

Within equity markets, the results are pretty obvious. As people become uncertain about prospective earnings, they perceive a greater amount of risk in their investments, which broadly leads investors to require a higher potential rate of return for holding equities. Of course, for expected returns to go higher, current prices need to drop, which occurs as investors sell their higher risk investments and move into safer securities including government debt. This is why equity markets tend to fall, often precipitously, prior to recessions as investors shift their investments.

Recessions and Specific Investments

In fact, history shows us that equity markets have an uncanny ability to serve as a leading indicator for recessions. For example, the markets started a steep decline in mid-2000 before the economic recessionary period between March 2001 and November 2001. But even in a decline, there are pockets of relative outperformance to be found in equity markets.

Stocks

When investing in stocks during recessionary periods, the relatively safest places to invest are in high-quality companies with long business histories, as these should be companies that can handle prolonged periods of weakness in the market.

For example, companies with strong balance sheets, including those with little debt and strong cash flows, tend to do much better than companies with significant operating leverage (or debt) and poor cash flows. A company with a strong balance sheet/cash flow is better able to handle an economic downturn and should still be able to fund its operations as it moves through the weak economic times. In contrast, a company with a lot of debt may be damaged if it can't handle its debt payments and the costs associated with its continuing operations. (To learn how to read these documents, see What Is A Cash Flow Statement? and Breaking Down The Balance Sheet.)

Also, traditionally, one of the safe places in the equity market is consumer staples. These are typically the last products to be removed from a budget. In contrast, electronic retailers and other consumer discretionary companies can suffer as consumers hold off on these higher end purchases. (To learn more, read Cyclical Versus Non-Cyclical Stocks.)

Fixed Income

Fixed-income markets are no exception to this line of reasoning. Again, as investors become more concerned about risk, they tend to shy away from it. Practically speaking, this means investors steer clear of credit risk, meaning all corporate bonds (especially high-yield bond) and mortgage-backed securities because these investments have higher default rates than government securities.

Again, as the economy weakens, businesses have a more difficult time generating revenues and earnings, which can make debt repayment more difficult and could lead to bankruptcy as a worst case scenario.

Moreover, as investors sell these assets, they seek safety and move into U.S. Treasury bonds. In other words, the prices of risky bonds go down as people sell (or the yields increase) and the prices on Treasury bonds go up (or the yields decrease).

Commodities

Another area of investing you want to consider in the context of a recession is commodity markets. The general rule to understand about these investments is to keep in mind that growing economies need inputs, or natural resources. As economies grow, the need for natural resources grows, and the prices for those resources rise. Conversely, as economies slow, the demand slows and prices go down. So, if investors believe a recession is forthcoming, they will sell commodities, driving prices lower.

However, commodities are traded on a global basis, and U.S. economic activity is not the sole driver of demand for resources such as oil, gas, steel, etc. So don't necessarily expect a recession in the U.S. to have a direct impact on commodity prices, at least not as strong of an effect as we have seen in the past. At some point in time, the world's various economies will separate from the U.S., creating a demand for resources that is increasingly less sensitive to U.S. growth in GDP.

If you expect a recession, positioning your portfolio is quite simple. Shift assets away from equities, especially the riskiest equities like small stocks. You should also move away from credit risk in fixed-income markets and into Treasuries.

Investments and Recovery

So, what to do during a recovery? It sounds too simple, but investing for an economic recovery entails doing the exact opposite of what was described earlier.

Why?

Again, keep an eye ton the macroeconomic factors. For example, one of the most often used tools to reduce the impact of a recession is monetary policy that leads to a reduction in interest rates with the purpose of increasing the money supply, discouraging people from saving and encouraging spending. This helps to increase economic activity.

One of the side effects of low interest rates is they tend to creates demand for higher return, higher risk investments. So, as recessionary expectations bottom out, pessimism fades away and optimism works its way back into people's minds. Moreover, investors re-examine opportunities for riskier investments in the context of what is usually a low interest rate environment. They also embrace risk.

As a result, equity markets tend to do very well during economic recovery. Within equity markets, some of the best performing stocks are those that use operating leverage as part of their ongoing business activities, especially as these are often extremely undervalued after being beat up during the market downturn. Remember, leverage works great during good times, and these firms tend to grow earning faster than companies without leverage, but they also face real risks during weakening times. Moreover, growth stocks and small stocks tend to do well as investors embrace risk during an economic recovery. (To learn more about operating leverage, read Operating Leverage Captures Relationships.)

Similarly, within fixed-income markets, increased demand for risk manifests itself in a higher demand for credit risk, meaning the corporate debt of all grades and mortgage-backed debt tends to attract investors, driving prices up and yields down. Logically, U.S. Treasuries tend to go down in value as investors shift out of these assets and yields go back up.

The same logic holds for commodity markets in that faster economic growth means higher demand for materials, driving prices up. However, remember that commodities are traded on a global basis, and U.S. economic activity is not the sole driver of demand for resources.

Will the Sun Come Out Tomorrow?

To conclude, the best advice to investing during recessionary environments is to focus on the horizon and manage your exposures. It is important to minimize the risk in your portfolio and maintain your capital to invest in the recovery. Of course, you're never going to time the beginning or end of a recession to the day or the quarter, but seeing a recession far enough in advance isn't as hard as you might think. The real trick here is to simply have the discipline to step away from the crowd and shift away from risky, high-returning investments during times of extreme optimism, wait out the oncoming storm, and have an equal discipline to embrace risk at a time when people are shying away from it to get ahead of the cycle.

To keep reading about market recessions, check out Panic Selling - Capitulation Or Crash? and The Greatest Market Crashes.

by Eric Petroff, (Contact Author Biography)Eric Petroff is the director of research of Wurts & Associates, an institutional consulting firm advising nearly $40 billion in client assets. Before joining Wurts & Associates, Petroff spent eight years at Hammond Associates in St. Louis, another institutional consulting firm, where he was a senior consultant and shareholder. Prior to Hammond Associates, he spent five years in the brokerage industry advising retail clientele and even served as an equity and options trader for three of those years. He speaks often at conferences and has published dozens of articles for Investopedia.com and the New Zealand Investor Magazine.

http://www.investopedia.com/articles/08/recession.asp

Whose recession is this, anyway?

Whose recession is this, anyway?
For some people, bargain prices and new workplace advantages make the economic downturn a time to profit.
By Catherine Holahan, MSN Money

Stephen Lasher reads all the dire economic forecasts declaring this recession the most worrisome since the Great Depression. But life doesn't seem so bad to Lasher. In fact, his horizons have never looked brighter.

Last year, the 33-year-old Columbia Business School grad landed a great job at media company NBC Universal. Now his spending money stretches further than before, thanks to retail store sales. Last month, he closed on his first home: a one-bedroom waterfront condo in a complex with a gym, pool and doorman.

"I am feeling good," Lasher says. "The housing prices were out of control before. . . . Now I was not only able to get a good price, but I was also able to get a mortgage interest rate well below what I thought would have been possible."

Lasher's neighbor James Tortorella agrees that the recession has afforded him some opportunities. He bought his condo in November. "I found a great deal," says Tortorella.

Scoring a bargain condo

So the economic crisis isn't hurting all Americans.

True, the combination of plummeting home prices, steep stock declines and rising unemployment has proved disastrous for many, particularly those new to the job market or nearing retirement. Nationwide, unemployment reached 6.7% in November, according to a Dec. 5 report from the U.S. Bureau of Labor Statistics. The rate jumps to more than 11% when the bureau adds workers who have ceased looking for employment and former full-time employees forced to reduce their hours.

No jobs for grads?

But the same weakness in the economy has helped others, providing many young and midcareer professionals with new purchasing power and giving some a boost up the corporate ladder.
"Middle-career people have the opportunity to do things they were never given exposure to before," says Kathleen Downs, a recruiting manager at Robert Half International, one of the world's largest business staffing and consulting firms. As companies trim their staffs, she explains, midcareer people get an earlier shot at jobs once held by more-expensive, more-experienced workers.

"It's a good time to be positioning themselves," she says of the younger workers.
For people with relatively secure jobs and cash in the bank, it's also a good time to shop. The Consumer Price Index, a measure of the average price of common household goods purchased by urban consumers, fell 4.4% in the past three months, according to the Bureau of Labor Statistics. In that period, transportation costs fell more than 26% because of steep fuel price declines. Apparel dropped prices 2.4%. Year over year, the S&P/Case-Schiller home price index is down 16.6%, according to data released Nov. 25.

Lasher -- and doubtless many like him -- see the price declines as a welcome dose of reality, placing homeownership, vehicle purchases and even blue-chip company stock within reach of a new generation.

"I personally was waiting for a market correction," he says.

Price drop puts homes within reach

Welcome, indeed. A year ago, Lasher was ready to give up on the idea of owning a home near his New York City job. The going rate for one-bedroom condominiums near the city was simply too high.

"I thought I was going to have to move farther away from New York City," Lasher says.
But as the housing market got worse, things got better for Lasher. In recent months, condominiums on the New Jersey side of the river, once prohibitively expensive, began to look affordable. Lasher watched as prices fell about 25% from their peak.

He had been renting an apartment near the New Jersey commuter ferry on the Hudson River, but in November, he pounced on a one-bedroom condo at The Hudson Club, a waterfront complex overlooking Manhattan and just a short walk to the ferry. He locked in a fixed-rate mortgage at 5.875% interest. Lasher isn't discussing precisely what he paid, but here's an idea: a two-bedroom condo in the same complex is now listed for sale at $569,000.

"I don't expect 20, 30 or 40% increases," Lasher says of the condo's value. But he is confident that the purchase price makes his unit a good investment for the future.

Lasher knows he and his peers are not immune to the effects of recession. Some business school buddies who went into the banking business have been laid off.

The national statistics confirm that midcareer professionals have not escaped the downturn unscathed. Unemployment for people ages 25 to 34 rose to a 10-year high of 6.9% in November. That's up from 4.7% a year earlier. Employees ages 35 to 44 also saw record, albeit lower, unemployment rates: 5.4% in November, compared with a 3.5.% rate 12 months earlier. Those figures don't include the more than 33,000 additional job cuts announced this December.

As companies lay off more-senior employees, many midcareer workers are forced to assume additional management responsibilities without receiving pay increases.

"What we are not seeing is the pay increases that would often come in a very strong economy," says Robert Half's Downs.

It may be quite a while before those pay increases return. Consumer spending rose just 2.6% in 2007 from the previous year, according to Bureau of Labor Statistics figures released Nov. 25. Though spending kept pace with inflation, growth was significantly weaker than the 4.3% seen a year earlier. And consumer confidence is still near record lows, though it has risen slightly from its worst levels, according to The Conference Board. A majority of consumers still rate business conditions as "bad" and jobs as "hard to get."

Hard to gain entry at this level

That's how Andy Fisher sees the situation. Fisher is a New York University senior majoring in journalism and history. He thinks his future employment prospects are far less certain thanks to the downturn. Entry-level journalism and publishing jobs seem scarce, he says.

"I am currently in an internship, and, if anything, they are firing, not hiring," Fisher says. "The chances of getting a job at the publishing houses I had hoped to work for seem pretty slim."
In terms of unemployment rates, the recession is hitting recent and soon-to-be college grads hardest. Nearly 11% of 20- to 24-year-olds were unemployed in November, according to the statistics bureau. That's up from 8% a year ago. The increase is due to hiring freezes at major companies and slowdowns at large employers such as Google. It doesn't help to have a glut of older, more-experienced workers in the marketplace willing to downsize careers in return for a steady income.

"It is pretty safe to say that all levels of hiring have slowed," says Michael Erwin, a senior career adviser for online job site CareerBuilder.com.

The recent grads who do land jobs find the process is taking longer. On average, recent college grads are searching an additional six weeks before securing a job, compared with last year, according to a recent CareerBuilder study. Erwin recommends that students set to graduate in the spring begin looking for jobs now. He suggests graduates be prepared to accept positions in fields other than their preferred field, for less pay than they may have targeted previously.
Fisher is weighing whether he should switch to a different career.

"It's pretty troubling," he says. "I basically just have to hope that somebody will pay me for something and keep myself marketable to as many different fields as possible."

'Experienced' translates as 'expensive'

One bright side for younger workers who obtain jobs is they are less likely targets for layoffs. The same can't be said of older workers. In this recession, businesses facing cuts are more likely to buy out or fire expensive, experienced workers whose total compensation, including salaries and health care costs, is more material for the bottom line.

"One way that people try to trim down their work force is by buyouts -- it is usually a first resort for companies trying to shed workers," says Andrew Eschtruth, the communications director at Boston College's Center for Retirement Research.

Buyout offers can present tough decisions for older workers whose retirement savings have been depleted. Many older workers now think they have no choice but to remain on the job and try to rebuild their resources, says Steve Sass, the associate director at the Center for Retirement Research and a co-author of "Working Longer: A Solution to the Retirement Income Challenge."
Sass suggests that even conservative investors -- those who had only 30% of their nest egg in the stock market -- are now contemplating losses of 10% to 15%.

"If you had to save to cover that loss, it is enormous, and it is pretty onerous," Sass says. "If you had to work to overcome that, you're talking another year and a half to two years."

The unemployment rate for workers ages 55 to 64 rose to 4.6% in November. That may sound OK compared with the rates affecting younger workers, but it's a 70% increase for that group from a year ago.

"Previous recessions tended to hit younger workers hard and not so much for older workers," says Richard Johnson, a principal research associate for retirement issues at the Urban Institute, a nonprofit think tank in Washington, D.C. "But what we're seeing this fall is a rather steep increase in the unemployment rate for those 55 and older and those 65 and older."
Employment professionals are all about opportunity, so they try to put a positive spin on all this. They suggest that, for now, employers are in the driver's seat, able to lay off workers and keep salaries down. But their leverage will vanish when the economy turns around, and the leverage will pass to employees who have added responsibility during the downtown with no significant increase in salary. When that happens, it's time to ask for a fat raise, they say.

"There is some light at the end of the tunnel," CareerBuilder's Erwin says.

Produced by Darragh Worland
Published Dec. 5, 2008

http://articles.moneycentral.msn.com/Investing/StockInvestingTrading/Whose-recession-is-this-anyway-msnmoney.aspx?page=all

Recession Survival Guide

Your 2009 Recession Survival Guide
by Kimberly Palmer, James Pethokoukis, and Luke Mullins



Tuesday, December 2, 2008


So you think it's bad news that a recession has been "officially declared"? (Turns out, it started back in December of last year.) Puh-lease. First of all, it shouldn't be news to anyone that the economy has been in the tank for a while. Unemployment has been climbing (from 4.4 percent in March 2007 to 6.5 percent now), and the stock market has been plummeting (down roughly 40 percent so far this year). Ouch!


Second, the recession announcement by the National Bureau of Economic Research can be a handy catalyst for action. Now that there's not a shadow of a doubt that the economy is terrible, you can look ahead to 2009, make smart plans to weather the downturn, and--if you're savvy--figure out how to take advantage of the tough times we'll be facing all next year:


The Economic Outlook


Oh, it's going to be nasty out there. Not so nasty that your great-grandparents will quit telling those Great Depression stories, but bad nonetheless. For a while, economists thought we might luck out and get away with a downturn no worse than the 1990-91 recession. That one lasted eight months, with back-to-back quarters of negative GDP growth of 2.9 percent and 2 percent. Unemployment rose from 5.2 percent to 7.8 percent. But now it looks as if the 1981-82 downturn is the better comparison. It lasted 16 months, had several quarters where the economy shrank 3 percent more, and saw unemployment rise as high as 10.8 percent. So what about the recession of 2008-2009?


Weakening big picture.



There have been two quarters so far during the recession where the economy has gotten smaller, each time by less than 1 percent. Those days are over. "We are currently forecasting a 4 percent decline in real GDP in the fourth quarter, placing it among the worst quarters for economic growth in the postwar period," says Jason Trennert of Strategas Research. The first three months of next year could be just as bad. And even once the economy begins to grow again, the overhang from the credit crisis will probably crimp significant growth until until 2010.


Worsening unemployment.



It's the sharp jump in job losses that really pushed the NBER to make its recession call. And things only seem to be getting worse. "Current conditions in the economy are terrible," notes IHS Global Insight economist Brian Bethune. "Employment continues to go south, the unemployment rate is ramping up sharply, and households are seeing their net financial worth evaporate before their eyes on a daily basis." Economists say that an 8 percent unemployment rate is likely--and 10 percent is not out of the question. Even worse, more people without jobs will make it that much tougher for the housing market to rebound anytime soon.


Sickly stock market.



The stock market often begins to perk up about three to six months before the end of a recession. But economist Michael Darda of MKM Advisers says the time to buy has yet to arrive. "We don't expect the current recession to end until late 2009, which means equities may not put in a durable bottom until the first half of 2009."


Tight credit.



Since the housing bubble started to unravel, credit card companies have been cutting credit limits and, in some cases, raising interest rates, partly because they fear more consumers will default as financial stress spreads. "We haven't hit bottom yet in terms of credit card companies trying to protect themselves," says Justin McHenry, president of IndexCreditCards.com. Even if the Federal Reserve continues to hold down interest rates, McHenry says credit card companies will probably raise rates and cut credit limits through early 2009. That means people who have credit cards with decent rates should hold onto them, because they might not find a better deal elsewhere.


Food prices may drop.



After spikes in the prices of milk, eggs, and other staples earlier this year, shoppers may be in for some relief in 2009. The price increases were partly caused by the high price of gasoline, which is used to transport much of our food. Now gas prices are dropping, leading some analysts to expect lower supermarket prices. But it won't happen overnight, because the cost of diesel is still high, and farmers need to recover from the high input costs they faced over the summer.


How to Weather the Storm


Even though you can't control the economy, you don't have to just sit there and be buffeted by these big economic forces. You can do stuff!


Live below your means.



Some people are shopping for this year's holiday gifts while still paying off their 2007 purchases, says Gail Cunningham of the National Foundation for Credit Counseling. Now's the time to re-evaluate those habits, she says, before piling on even more debt. You can make sure you pay as little as possible for gifts by using online comparison websites. Another option is taking advantage of layaway programs at retailers that let you pay off purchases before you bring them home. That way, you avoid paying high interest rates to credit card companies.


Bolster that emergency cushion.



Even in flush times, financial advisers say consumers should have about six months' worth of expenses in their bank account to guard against job loss or other emergencies. Now, with the unemployment rate headed toward 7 percent, it's more important than ever.


Toughen up your portfolio.



It doesn't matter how smart your investing strategy is if you won't stick with it. And the roller-coaster stock market is sure making that tough to do. Jittery investors might want to think about stashing somewhere between 30 and 40 percent of their portfolio in less risky investments, such as bond funds, treasury bills, or money market funds. But don't overdo it. Investors who are decades away from retirement should keep the bulk of their portfolios in stocks. If you want to dial down your risk, look to stock funds that have been bucking the bear, such as Apex Mid Cap Growth and Reynolds Blue Chip Growth. Also, exchange-traded funds, which look like mutual funds but trade like stocks, give you more diversified exposure to a particular sector or industry than betting on individual issues.


Save for a down payment.



Unlike in the housing-boom days, borrowers will have to be able to make a sizable down payment to qualify for the lowest mortgage interest rates. So if you're looking to go bargain hunting in real estate, begin setting aside a little bit of cash each paycheck to put toward a down payment. When you begin to feel better about your job security, you'll be ready to take the plunge.


How to Take Advantage of the Bad Times


Time to stop surviving and shift to thriving. It's an ill wind that doesn't blow some good, and you need to make the most of the opportunities that are out there.


Energize your career.



Don't just worry about keeping your job--make it better. Lean times present an opportunity for niche employees to put other skills to work and rebuild their reputations as go-to multitaskers. Employees should actively try to pick up the work of their departed peers. Also, volunteering to take on new responsibilities can pave the way for a negotiation in six to eight months, when an employee can prove that the job has evolved and is now worth more on the market. A new outlook and approach like this will help you hold on to your current job, or pave the way to your new career.


Refinance your home.



Recent Federal Reserve announcements intended to ease the financial crisis have sharply reduced 30-year fixed mortgage rates, to 5.5 percent at the start of the week vs. 6.2 percent just two weeks earlier, according to HSH Associates. "Recession equals lower Treasury rates, which equals lower mortgage rates, which equals a great opportunity to refinance," says Mike Larson, a real estate analyst at Weiss Research.


Buy a home.



Home prices nationally have already fallen more than 20 percent from their 2006 peak, and in certain boom-and-bust states the declines have been even more precipitous. So if you've got a stable job, good credit, a down payment, and a strong stomach, there are certainly buying opportunities out there for you. "I can point to properties here in [Florida] that are off 40 to 50 percent from their peak bubble levels," says Larson, who is based in Florida. "This is creating an opportunity."


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Visit the Banking & Budgeting Center


Look for the next great stock investments.



Not only can you pretty much count on next year being one of lousy economic growth, you can for sure count on Barack Obama being president. And there are a few stocks out there that could get a boost from an Obama administration, including Chesapeake Energy (natural gas) and AeroVironment (aerial vehicles for Afghanistan). Also, keep an eye out for "growthy" (high earnings growth) small stocks, especially techs, which often are the first ones to rise when a new economic expansion nears. Hey, the recession can't last forever, right?


Forget about keeping up with the Joneses.



Since almost everyone's budgets are strained right now, cutting back is en vogue. Pollster John Zogby has found that a growing segment of the population has become more focused on spiritual fulfillment than on material success. Similarly, futurist Faith Popcorn's research shows that the concept of "frugality" has taken hold among families, with parents increasingly teaching their children to reconsider how much they consume and whether they could do with less. The "new frugality" movement, as she calls it, will usher in a new set of values for the next generation, she says.


Negotiate almost everything.



From credit cards to clothes, companies are open to making deals as they struggle to keep customers. "If you're a good customer, [credit card companies] may be more apt to negotiate your rate because they don't want to lose you," says McHenry of IndexCreditCards.com. At farmers markets and clothing boutiques, simply asking, "Can I get a discount?" can lead to a lower price. Paying with cash increases the chances of making a deal because it allows retailers to avoid credit card transaction fees.


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