Has the economy turned?

Has the economy turned?
One swallow does not make a summer. But we have now had a veritable flight of the passerine birds, writes Harry Wallop.

By Harry Wallop, Consumer Affairs Editor
Last Updated: 3:11PM BST 02 Apr 2009

After 18 months of relentlessly falling house prices, the most severe financial crisis since the 1930s and the start of what is shaping up to be a brutal recession, a few green shoots have poked their heads out of the ground.

A blip? Probably, but the figures come just a few days after the Bank of England said mortgage approvals had jumped during February.

Estate Agents have been saying for months that buyers have started to come back through their doors. It's just that they don't have any funding to buy a property.

Well, maybe it's the spring weather – or maybe it's the billions of pounds of taxpayer money pumped into the system finally filtering through to consumers – but mortgage companies have started to trim their rates.

There are now a number of deals for under 3 per cent. Okay, this is six times the Bank Rate, and you will still need a big deposit to get the loan, but money is available for many people who need it, and at far cheaper rates than six months ago.

To cap it all, the FTSE 100 has climbed back above 4,000 for the first time since February.

The problem is it is sometimes difficult to tell, at this time of year, whether the shoots are your first spring peas, or a new, virulent weed.

Decisions made by consumers last year are only now hitting businesses. Job losses will continue to mount, which in turn will lead to repossessions and lower house prices.

And the tens of thousands of jobs that have been announced every week this year – even if they stopped today – will continue to cause repercussions for a good 12 months to come.

Yes, the bad news has become less relentless, but the best that can really be hoped for is that we have hit the bottom. Not that things are improving.

http://www.telegraph.co.uk/comment/5094693/Has-the-economy-turned.html

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Earnings Concerns Push Shares Lower

Earnings Concerns Push Shares Lower

By JACK HEALY
Published: April 6, 2009

Wall Street took losses on Monday after four consecutive weeks of wins as traders hunkered down for a rough corporate earnings season.

Technology shares fell on reports that the computer giant I.B.M. had withdrawn its $7 billion offer to buy Sun Microsystems, which makes computer software and servers. Shares of I.B.M. fell 0.7 percent to $101.56, while Sun fell 22.5 percent to $6.58 a share as investors raised questions about the next step for the company.

The Dow Jones industrial average finished down 41.74 points, or 0.5 percent, at 7,975.85. The wider Standard & Poor’s 500-stock index fell 0.8 percent, or 7.02 points, to 835.48. The Nasdaq declined 15.16 points, or 0.9 percent, to 1,606.71.

The losses ate into last week’s 3 percent gains in the Dow and the S.& P. 500.

Financial companies fell about 3 percent, according to Standard & Poor’s financials index after a report from the banking analyst Mike Mayo, who recently joined Calyon Securities after leaving Deutsche Bank. Mr. Mayo, who is known for his bearish but independent analysis, predicted that banking loan losses this year compared with their total loans would “increase to levels that exceed the Great Depression.”

He rated 11 major and regional banks as sell or underperform. Shares of Bank of America, JPMorgan Chase and Citigroup fell slightly.

Defense companies including Lockheed Martin, Northrop Grumman and Raytheon rose as investors speculated that they would fare well under an overhauled Pentagon budget. On Monday, the Defense secretary, Robert M. Gates, outlined broad proposed changes in how the military spends.

With the major indexes up more than 20 percent since their March lows, analysts say earnings season could pose an important test of investor confidence in the stock market.

On Tuesday, the aluminum maker Alcoa will report its quarterly earnings after the market closes, reprising its role as the first major company to do so.

“What investors want to hear from executives — and what they may not get — is that things improved through the quarter,” said Jeffrey N. Kleintop, chief market strategist at LPL Financial. “The worry is we may not get that tone, that they might continue to take down guidance in the coming quarters.”

The price-to-earnings ratio on the S.& P. 500 is about 12 to 13, making stocks look cheap compared with the days when stocks sold for 20 times earnings, or more. But some analysts argue that while stock prices may look cheap, expectations of profits and revenues do not reflect the true scope of the global economic downturn.

Stock markets were lower in Europe. The FTSE 100 in London, the DAX in Frankfurt and the CAC 40 in France were all down just less than 1 percent.

The Treasury’s 10-year note fell 10/32, to 98 17/32. The yield, which moves in the opposite direction from the price, rose to 2.92 percent, from 2.89 percent late Friday.

Following are the results of Monday’s Treasury auction of three- and six-month bills:

http://www.nytimes.com/2009/04/07/business/07markets.html?_r=1&ref=business

Buffett's Biggest Mistake (Swing the Bat)

Buffett's Biggest Mistake
By Rich Greifner April 6, 2009 Comments (5)


It doesn't happen often, but it does happen. Once in a blue moon, even the great Warren Buffett makes a mistake.

In his latest annual letter to his Berkshire Hathaway (NYSE: BRK-A) shareholders, Buffett lamented "some dumb things" he did in 2008. He apologized for his ill-timed investment in ConocoPhillips (NYSE: COP), as well as a smaller stake in two Irish banks, which he dubbed "unforced errors."

And those were far from the first flubs Buffett has made during his illustrious investing career. His purchases of shares in Pier One and US Airways were poor investments, and he compounded his ill-fated acquisition of Dexter Shoes by using Berkshire shares instead of cash as currency. In fact, Berkshire itself was a poor investment -- Buffett greatly underestimated the capital requirements and competitive pressures endemic to the textile industry.

The greatest mistake of all

But when prompted for his greatest investing miss in an interview last year, Buffett didn't mention any of those gaffes. In fact, Buffett's biggest mistake wasn't a bad investment at all -- it was a good investment that could have been great.

"There have been a few things where I've started to buy them and then they've moved up," Buffett said. But instead of adding to his position in these great businesses, Buffett "stopped at a tiny fraction of where we should have gone."

Buffett specifically cited his failure to purchase additional shares of Fannie Mae in the early '80s and Wal-Mart (NYSE: WMT) in the mid '90s. "Both of those deals would have made us as much as $10 billion, and I managed to absolutely minimize the profits," he said.

The Oracle was similarly wistful about Costco (Nasdaq: COST): "We own a little at Berkshire, but we should have owned a lot," Buffett lamented. He blamed his failure to buy more shares on "temporary insanity."

Don't be insane -- swing the bat!

Buffett often likens investing to a game of baseball, where every potential investment is a new pitch, and there are no called strikes. Patient investors can sit back and wait for the perfect pitch, ready to deposit that 2-0 fastball into the centerfield bleachers. But before you step in the batter's box, you must first identify what your perfect pitch looks like.

Buffett likes to swing at easily understandable businesses "whose earnings are virtually certain to be materially higher five, ten, and twenty years from now." After taking too shallow a cut on companies like Costco, he learned that "over time, you will find only a few companies that meet these standards -- so when you see one that qualifies, you should buy a meaningful amount of stock."

Finding your perfect pitch With the stocks of many great companies trading at significant discounts to intrinsic value, experienced gurus like Buffett are swinging for the fences right now. But many individual investors are standing with their bat on their shoulder, letting these perfect pitches float on by. Look at these three great opportunities available today:

Company
(Average P/E Ratio, Last 5 Years )
(Current P/E Ratio )

PepsiCo (NYSE: PEP)
24.2
16.3
Target (NYSE: TGT)
17.7
12.3
Yum! Brands (NYSE: YUM)
23.1
15.2
Data from Capital IQ, a division of Standard & Poor's.

Each of these companies is an easily understandable business whose strong brands mean their earnings are very likely to be materially higher five, 10, and 20 years from now. But while their future growth prospects remain strong, their share prices are the cheapest they've been in years. In such a volatile market, there's a chance these companies could fall farther, but I believe they're much closer to the bottom than the top.

Ready to swing?

Rich Greifner is convinced that this is the year for his beloved Chicago Cubs. Rich owns a Mark Grace rookie card, but none of the stocks mentioned in this article. The Motley Fool owns shares of Berkshire Hathaway. Berkshire, Costco are selections of both Motley Fool Stock Advisor and Inside Value. Wal-Mart is an Inside Value recommendation. PepsiCo is an Income Investor pick.
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http://www.fool.com/investing/general/2009/04/06/buffetts-biggest-mistake.aspx

Did You Miss the Best Week to Buy Stocks?

Did You Miss the Best Week to Buy Stocks?
By Todd Wenning March 30, 2009 Comments (20)

Ten years from now, we very well may look back and say that the first week of March 2009 was the best week to buy stocks in more than a generation.

That Monday, the U.S. government announced another bailout of AIG, and the Dow Jones Industrial Average fell 4% to 6,736 -- below 7,000 for the first time since 1997 and marking a full 50% drop from the October 2007 highs.

Breaking that psychological barrier of Dow 7,000 was apparently too much for many investors to bear.

Over $22 billion was pulled out of equity-based mutual funds over the following week, and if you flipped through some of the news stories, they were rife with capitulation from analysts. My favorite lines included:

"It's like an unending nightmare."
"Why should I step out in front of a train?"
"This is the time for hysteria."

Even the slightest contrarian investor had to perk up at such blatant bottom talk. If there was ever a time to buy when there was blood in the streets, that was the week to do it.

Pigs get slaughtered
Fast forward just three weeks and the Dow is up 17% off its March 6 lows of 6,443, and over 80% of S&P 500 members are up more than 10% over the same period. Among the biggest winners are:

Company
Price % Change (3/6/2009 to Present)

NYSE Euronext (NYSE: NYX)
26%
Corning (NYSE: GLW)
34%
Schwab (Nasdaq: SCHW)
33%
Caterpillar (NYSE: CAT)
31%
Adobe Systems (Nasdaq: ADBE)
27%
CME Group (NYSE: CME)
34%
Source: Capital IQ, a division of Standard and Poor's.

Since that first week in March, we've seen a number of positive signs from the market, including tech bellwether Oracle (Nasdaq: ORCL) beating analyst estimates and announcing its first dividend. There have also been numerous economic reports that seem to indicate an end to the free fall of prior months.

But let's not get too excited
Yes, this is only a four week period, and yes, we could certainly see more dips in the market in coming months. But this simple example is a stark reminder to remain rational and patient while those around us lose their heads.

With a little fortitude and a little cash, you can take advantage of tremendous long-term buying opportunities like we saw the first week in March. If you missed the chance to buy during the first week of March, don't panic. If this market's taught us anything, it's that we'll have another shot if we just remain calm.

To get started, begin compiling a list of stocks you'd be happy to own for the next five years and beyond. Ideally, these will be companies …

Built to last 100 years or more.
Dominating growing industries.
Helmed by committed and proven management teams.
Governed by the highest corporate values.
Consistently increasing shareholder value.


Todd Wenning shorts herd behavior, but has no position in any stock mentioned. NYSE Euronext is a Motley Fool Rule Breakers recommendation. Charles Schwab and Costco are Stock Advisor recommendations. Costco is also an Inside Value pick. The Fool's disclosure policy can get you where you need to go.

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http://www.fool.com/investing/general/2009/03/30/did-you-miss-the-best-week-to-buy-stocks.aspx

Skills to Learn, to Restart Earnings

Skills to Learn, to Restart Earnings
Tyrone Turner for The New York Times
ANOTHER DAY Faye Milbourne, a former Verizon worker who went back to school to become a teacher, waits for students to arrive at an elementary school in Virginia Beach. More Photos >

By JOHN LELAND
Published: April 1, 2009

JUSTIN WILLIAMS worked as an engineer at Honeywell International for 31 years, and when he retired last April, he knew he could not afford to stop working. His home in suburban Maryland, on which he had spent his 401(k) savings, was losing value, and his pension did not replace enough of his former income.

Back in School Again Mr. Williams, 65, took stock. He did not want another job in engineering. In past years he had volunteered in public schools, helping young children learn reading and math.

Then he did what increasing numbers of older Americans are doing, especially as the economy sours — he enrolled in community college.

“I realized there was a need for educators,” in large part because so many teachers are retiring, he said of his choice, an accelerated program in early education at Prince George’s Community College in Largo, Md. “I saw things I could do as well or better.”

The impact of the economic and stock market declines on retirees and workers about to retire has been especially pronounced. While younger workers have time to recover some of their losses, many older workers and retirees have to follow Mr. Williams’s example and remake themselves for the job market.

In many cases, they find that their skills, experience and contacts are not enough. So they send themselves off to community colleges or training programs, where they are often surrounded by people far younger, and they have no realistic expectation that whatever new job they might find will produce income comparable to their previous one. In all, it’s daunting.

“Major professionals we’re seeing are going back to work for lower salaries” and often downplaying their accomplishments on their résumés, said Margo Brewer, senior educational director at National Able Network, a nonprofit counseling, placement and training service based in Chicago that receives public and private financing. “The upper-income jobs just are not as available as they once were. And a lot of companies are hesitant to hire full-time staff,” so they are instead creating temporary jobs.

Many community colleges have started to cater to older people, offering incentives that include free tax preparation and valet parking, said Susan Porter Robinson, vice president of lifelong learning at the American Council on Education. Often employers in an area work with community colleges to develop curriculums geared toward actual job needs, sometimes providing scholarships or promises of jobs after graduation.

Coursework tends to be focused and practical, and tuition well below that of universities, Ms. Robinson said.

“Older adults tell us they’re interested in certificate training that will be quick,” she said. “They don’t have two years. What they may be missing are what I call skill-ettes. Right now there’s pressing needs for people in fields like teaching and the health sciences, so that’s where a lot of the classes are.”

The hot fields for older workers are the same as those for younger ones: health care, alternative energy and education, and the economic stimulus program is expected to create jobs with the federal government, said Charlene M. Dukes, president of Prince George’s Community College.

Both employers and schools are recognizing older workers as an untapped resource, said Laura A. Robbins, director of the program on aging in the United States for the Atlantic Philanthropies, which provides grant money to community colleges and other programs for retraining workers over age 50. “You can get community colleges, universities, volunteer networks and employment agencies all in a unified network like a wheel with spokes. But I can’t tell you that there’s a silver bullet right now.”

Like others interviewed for this article, Dr. Dukes said available job opportunities were clustered around the national median household income of $51,000. The school discourages six-figure expectations, she said.

“There’s not currently a lot of pathways to help older adults go to the next thing,” Ms. Robbins said. “It’s not just a short-term emergency problem.”

For Mr. Williams, the path began at a friend’s birthday party, where he learned that the community college provided nearly free tuition to students over age 60 and that it had a one-year program leading to an associate’s degree in early education.

Now back in school, Mr. Williams and his wife, Cookie, are providing day care in their home, which they hope to expand to a day care center and eventually a private school.

“I enjoy going back to school more than I did in the early days,” he said. “It’s a pleasure, though I’m usually the oldest person in the class.”

He said he was happy to be active and building a business — one not at all related to his previous professional experience. “I never saw retirement as laying back on a beach,” he said. “It can’t replace the money I made at Honeywell, but my lifestyle is such that I don’t need to replace it all.”

For job-seekers of any age, the market is tight but not impossible, said Ms. Brewer of National Able Network. “It appears there are jobs everywhere but in limited numbers,” she said. “It’s a matter of matching skills.”

One retiree who came through Ms. Brewer’s program is Rae Lynn Schneider, 61, of Chicago.

Ms. Schneider taught in Chicago’s public schools for 34 years and retired in 2003 with full benefits. She thought her pension and savings would provide enough for her to live comfortably, including travel overseas. But now her annuity no longer looks certain because it’s invested in the stock market.

She did not want another teaching job, in part because she wanted to work close to her home, so she took an eight-week class in basic computer skills and earned a certificate in customer service.

With that in hand, Ms. Schneider found a seasonal job at an American Girl store near her home, and she discovered that her skills as a teacher transferred well to retail: she was used to being on her feet, she was a good communicator and comfortable speaking in public, and she was punctual and orderly.

“In this job market, I said, ‘How am I going to get in?’ ” she said. On the advice of friends and job counselors, she dyed her gray hair blond.

She said the training she got at National Able Network gave her self-confidence, as well as contacts.

“The group I was in really bonded, just in studying the material, which was not easy,” she said. “It was mostly women in their late 50s and early 60s. We have similar problems.”

Ms. Schneider’s job ended in January, but she is hoping to be rehired this summer. Though the income is below what she earned as a teacher, it is a welcome supplement to her pension, she said. And when the economy recovers, she may be in a good position to earn more, she said.

Peter Cappelli, director of the Center for Human Resources at the Wharton School of the University of Pennsylvania, said he did not recommend retraining for workers who had successful careers. Instead, he suggested that they consider part-time or contract work in their fields, where they can use their experience and skills to their advantage.

“If someone has I.T. experience but they haven’t programmed in a while, it might make sense to take a couple classes,” he said. “Or if a C.P.A. has mainly been in management, he could go back and get his accounting skills up to date. But if you’re an accounting guy and you want to go to school to learn marketing, then you’re not making use of the skills you acquired over the years. You’re going to be competing in the job market without a competitive advantage.”

The good news for older workers, he said, is that they may be more flexible about taking part-time or seasonal work, unless they have to replace a large income. In surveys, older workers and retirees say they want jobs without the time demands or pressures of their old career tracks.

“Until the economy is strong, companies are not going to be looking for full-time workers,” Professor Cappelli said. “Project work or contingent work often suits older workers. If you want benefits, I’m not sure how great that is. But temp work generally pays 30 to 40 percent more per hour than full-time work.”

For Sally Stevens and Mark Noonan, who both live in Portland, Ore., pursuing their old career fields was not an attractive option. Ms. Stevens, 58, was a social worker specializing in outpatient alcohol and drug treatment when methamphetamine hit.

“I didn’t think that worked as outpatient treatment, so I felt totally unsuccessful,” she said.

Mr. Noonan, 56, worked as a technology manager, a job that consumed 60 hours a week and demanded he be available by BlackBerry at all hours. Through Life by Design, an Oregon program that offers training workshops sponsored by a consortium of institutions — a community college, a university, nonprofit groups, an employment agency, AARP and several public agencies — Mr. Noonan and Ms. Stevens decided to train for new careers: in gerontology.

“I decided gerontology was a real growth career,” Mr. Noonan said. “It reminded me of when I first got into high tech.”

Both he and Ms. Stevens enrolled in Life by Design through Portland Community College, which, like many community colleges, offered an online degree program, relieving Mr. Noonan’s fear of being stuck in a roomful of 20-year-olds. Ms. Stevens chose more traditional classroom courses, but with supplementary peer mentoring and online study groups.

“I had a snobbish attitude about community colleges,” she said. “I thought that’s where people go who don’t have much intellectual ability. It’s not that way anymore.”

Now Ms. Stevens works as a case manager for older adults. Mr. Noonan designs programs for Elders in Action, a nonprofit advocacy group in Portland. Both took significant hits in their earnings but said they expected greater opportunities in a few years. “The hardest part was that I was used to knowing my job,” Ms. Stevens said. “I had to go back as a newbie, having to ask questions of someone who’s 24. It’s good for me, though. It humbles you.”

Even when older workers need the money, many say they are more concerned about the value of their work, said Pamela Tate, president of the Council for Adults and Experiential Learning, a nonprofit group in Chicago.

“What they need to do is pay more attention to what would make them feel interested and like they were making a contribution, rather than old-fashioned career advancement,” she said. “That’s a young person’s approach. Now you need to think, ‘what are you giving back to society or your company?’ It’s a shift from personal ambition to social ambition.”

For Faye Milbourne, training for a second career meant realizing, “I don’t need the attaboys and the kudos I needed when I was a career person,” she said.

Mrs. Milbourne, 57, previously worked for the company that became Verizon — “31 years, 2 months and 24 days,” she said — before taking an early retirement package in 2006. While at the company, she earned a bachelor’s degree in psychology and a master’s in urban education. She had no plans to kick back in retirement.

“A friend said, ‘You need to learn to do something you would do for free,’ ” Mrs. Milbourne said. So she enrolled in Career Switcher Programs at Old Dominion University in Norfolk, Va., and Regent University in Virginia Beach designed to bring people from various fields into the teaching profession. Now she is a permanent substitute teacher in Virginia Beach, working for a fraction of her old salary.

Though her retirement funds have taken “a half-million downslide” in the last year, she said she was still secure financially and found the work more rewarding than her past career. “For the first time in my life I feel I’m doing something I love to be doing,” she said.

Yet even this career is threatened by the economy, she said. She hopes to find placement as a student teacher in the fall, then advance to a full-time teaching job. But many school districts, including hers, have been forced to cut back.

“If that doesn’t happen, I’ll continue to substitute,” she said. “And if nothing else, I can always be a mentor.”



http://www.nytimes.com/2009/04/02/business/retirementspecial/02reskill.html?ref=business

Who’s Most Indebted? Banks, Not Consumers

Who’s Most Indebted? Banks, Not Consumers

By FLOYD NORRIS
Published: April 3, 2009

FIFTY years after executives at Bank of America had a clever idea — issue credit cards to ordinary consumers — the leveraging of America may finally be over. The amount owed by consumers, in relation to the entire American economy, has started to fall.

Multimedia
Graphic
The Leveraging of America

But it is not consumers whose willingness to take on debt was most notable during the half-century. It is the financial sector itself. The banks that made the loans proved to be much more willing to borrow than their customers, whether corporate or consumer.

And that debt has not begun to recede, despite Wall Street bankruptcies and widespread efforts by financial firms to reduce their own debts.

At the end of 2008, according to the Federal Reserve Board, total debt in the financial sector came to $17.2 trillion, or 121 percent of the size of the gross domestic product of the United States. That was $1 trillion more than a year earlier, when the total came to 115 percent of G.D.P.

Half a century earlier, the financial sector debt was $21 billion, which came to just 6 percent of G.D.P.

Household debt, by contrast, stood at $13.8 trillion at the end of both 2007 and 2008, allowing the debt as a proportion of G.D.P. to fall to 97 percent from 98 percent.

Peter L. Bernstein, an economist and financial historian, drew attention to that trend last month in his publication “Economics and Portfolio Strategy.” He says he thinks households will choose to continue cutting debt even after the economy begins to recover. Even if they want to keep borrowing, he wrote, “The free and easy days of reckless borrowing from 2000 to 2007 are hardly likely to repeat.”

He added that such a decline in debt would reflect “a sustained reduction in the appetite for consumption, which has been the driving force of growth in the economy over the past 15 years or so.” And that, he said, will “be a powerful drag on economic activity for an indefinite period of time.”

Debt levels of nonfinancial businesses rose during a period of high profits earlier in this decade and kept growing last year. The high levels of debt left some companies ill prepared for the combination of recession and tight credit markets that developed in 2007 and 2008.

Government borrowing has soared over the last year and seems likely to continue doing so as the bailouts grow. But over the longer term, the changes have been minimal. In 1958, the total debt of governments, from the federal level down to the smallest town, came to 60 percent of G.D.P. Half a century later, the proportion was just about the same.

Put another way, in 1958, of every $100 in loans in the country, governments accounted for $44 of the borrowing. At the end of last year, government borrowing accounted for only $17 of each $100, while the proportion borrowed by companies and consumers was far higher.

The changes reflect the rapid changes in the American financial system over those years. Not only did consumer credit become much more widely available, as the Bankamericard became Visa and drew competition from other credit cards, but the ways banks financed their loans also changed.

In 1958, 75 percent of financial sector debt was on the books of traditional financial institutions — banks, savings and loans and finance companies. Now the proportion is 18 percent.

Over the half-century, a myriad of financial products and institutions were created to borrow money and own assets, so that one loan to a consumer could create a myriad of debts as it was bundled into a pool that issued securities to buyers that, in turn, borrowed money to finance their purchases. That created a mound of debts that enhanced profits in good times but left financial institutions vulnerable if the value of their assets began to fall.

One of the major questions of the current financial crisis is how many of those innovations will endure and how much they will be changed. It seems likely that the result will be a contraction of financial sector borrowing, but so far that does not show up in the statistics.

Floyd Norris’s blog on finance and economics is at nytimes.com/norris.

http://www.nytimes.com/2009/04/04/business/economy/04charts.html?ref=business

US unemployment rate surged to 8.5 percent

The Labor Picture in March

No End in Sight to Job Losses; 663,000 More Cut in March
Published: April 3, 2009

The American economy surrendered 663,000 more jobs in March as the unemployment rate surged to 8.5 percent, its highest level since 1983, the government reported Friday.

(March 21, 2009) The latest snapshot of accelerating decline in the national job market lifted to 5.1 million the number of jobs lost since the recession began in December 2007. More than two million jobs have disappeared over the first three months alone.

The severity and breadth of the job losses — which afflicted nearly every industry outside of education and health care — prompted economists to conclude that an agonizing plunge in employment prospects was still unfolding, with no clear turnaround in sight.

“It’s really just about as bad as can be imagined,” said Dean Baker, a director of the Center for Economic and Policy Research in Washington. “There’s just no way we’re anywhere near a bottom. We’ll be really lucky if we stop losing jobs by the end of the year.”

The pace of retrenchment has prompted calls among some economists for another wave of government stimulus spending to buttress the $787 billion already in the pipeline.

In January, as the Obama administration drafted plans for the current round of stimulus spending, it assumed the unemployment rate would reach 8.9 percent by the last three months of the year.

“We’re clearly looking at a worse downturn than they had been anticipating when they planned the stimulus,” Mr. Baker said. “We’re going to need some more.”

But others — not least, decision-makers inside the Obama administration — deem such talk premature. The jobs report, while dreadful, landed amid tentative signs of improvement in some areas of the economy, with recent snippets of data lifting stock markets and sowing cautious hopes that the beginnings of a recovery might be taking shape.

The pace of decline in auto sales, while still falling, has slowed. Houses have been selling in much greater numbers in important markets like California and Florida, albeit at substantially reduced prices. Consumer spending, while far from vigorous, appears to have leveled off after plummeting over the last three months of 2008.

Meanwhile, a surge of government spending is just beginning to work its way through the federal and state bureaucracies, aimed at spurring demand for American goods and services. This spending is expected to support jobs in construction and related industries later this year. The administration is distributing more than $3 billion in aid to states to train laid-off workers for new careers in so-called green industries, like manufacturing solar- and wind-power equipment, and in health care.

“We’re attacking this in a very aggressive way,” the labor secretary, Hilda L. Solis, said Friday in an interview, arguing that it was too early to consider another round of stimulus spending. “We will revisit that once we expend all the money that we have accrued.”

Much of the recent indications of potential economic improvement reflect temporary seasonal factors rather than a sustainable trend, some economists argue. Housing construction, for example, has looked more robust in large part because January’s construction activity was slowed by bad weather.

The crucial factors assailing the economy remain in force, with tattered banks reluctant to lend, and even healthy households and businesses averse to borrowing and spending in a time of grave uncertainty and fear.

The very perception that millions more will lose jobs and housing prices will fall have turned such outlooks into reality: As businesses scramble to cut costs in the face of gloomy sales prospects, many are shrinking work forces, removing more paychecks from the economy and further eroding spending power.

“There’s a lot of survival job-cutting going on throughout American business,” said Stuart G. Hoffman, chief economist at PNC Financial Group in Pittsburgh. “There won’t be any job growth at all this year. The economy is far, far from being out of the woods.”

Still, Mr. Hoffman is among those inclined to wait for a few more months and hope for improvement before unleashing a new wave of stimulus spending.

The Treasury has recently outlined plans for an expanded bank rescue aimed at lowering borrowing costs for businesses and households, this generating fresh economic activity and jobs.

In London, leaders of the world’s major economies left a summit meeting this week with a promise to bolster the finances of the International Monetary Fund by $500 billion, lending support to troubled economies from Eastern Europe to Southeast Asia, perhaps increasing now plunging global trade and thus demand for American-made goods.

“It’s a little soon to conclude politically, and I’d argue economically, that we need some more stimulus,” Mr. Hoffman said. “You don’t just double the dose if the patient doesn’t immediately improve.”

Friday’s report catalogued the myriad ways in way American working people remain under assault. The number of unemployed people increased by 694,000 in March, reaching 13.2 million. Those on unemployment for longer than six months reached 3.2 million.

“Almost everyone’s being touched in some way,” said Mark Zandi, chief economist at Moody’s Economy.com. “It seems like every business in every industry in every corner of the country has a hiring freeze. They’re just not in the mood or position to hire. They’re not taking résumés. They’re not looking for people.”

Manufacturing again led the way down, shedding 161,000 jobs in March. Employment in construction declined by 126,000, and has fallen by 1.3 million since it peaked in January 2007. Professional and business services employment fell by 133,000, with more than half the losses in temporary help services — a sign that companies that have already shifted from relying on full-time workers to temporary people are feeling compelled to cut further.

In the suburbs of Atlanta, Meg Fisher, 46, has been looking for work since she lost her job as a legal secretary in the middle of February. Her husband’s hours at his pharmacy job were scaled back. All told, their previous annual income of about $79,000 has been sliced to $20,000.

Ms. Fisher is planning to apply for food stamps, while seeking out freelance work as a seamstress and knitting instructor.

“It’s not going to replace my salary,” she said. “It’s not even going to come close, but it’s better than sitting around.”

The report reinforced the reality that the pains of the downturn have spread far beyond the jobless. The number of those working part time because their hours have been cut or they are unable to find a full-time job climbed by 423,000 in March to reach 9 million.

In New Jersey, Henry Perez, 34, and his family are now living in the basement of his sister’s house and struggling to find work.

A refugee of sorts from the real estate collapse in Las Vegas, where Mr. Perez once lived and bet big, he has more recently worked in online commerce and as a marketer at an office furniture company. But after being laid off at the end of last year, he has found nothing, even as he has sharply dropped his expectations, applying for jobs at restaurant chains like Panera Bread and Quizno’s.

“We’re just sitting here all day long looking for jobs on the computer, frustrated and scared as hell,” Mr. Perez said. “I’m looking for anything.”

http://www.nytimes.com/2009/04/04/business/economy/04jobs.html?_r=1&ref=business&pagewanted=all

Key habits of successful investors

Key habits of successful investors
Published: 2009/03/04

Four key habits an investor might want to adopt are:

1. Preserve capital and minimise risk taking;
2. do homework before investing;
3. have an investment philosophy and system; and,
4. be patient.

IT IS a fact that the local market condition is very hard to predict since it is affected by both global and local factors. As an investor, it may not be possible to predict what is going to happen next, but there are certainly ways to learn from people who have succeeded in riding the waves of good and bad times throughout the years.

In the book "The Winning Investment Habits of Warren Buffett & George Soros", Mark Tier listed out 23 winning habits based on the habits of these two of the world's richest and most successful investors. Summarised below, are four main key habits that you might want to adopt as the fundamentals to successful investing.

Successful investor habit 1: Preserve your capital and minimise risk taking

All successful investors preserve their capital as a foundation and they do this through risk minimisation. Most investors have the perception that in order to make profits in the market, there is a need to take high risks and it is right to say that risk and return come hand in hand.

However, in order to ensure a long-term success, you should not just simply take any risks, but only calculated risks. This requires you to analyse the situation thoroughly as to be confident that the chances of having a good result on your side is high.

With that in mind, you would only end up investing in what Warren Buffett calls "high probability events", where the risk of loss is at the lowest and you are almost certain to make money. Always remember Warren Buffett's 'Investing Rules: "Rule No. 1: Never Lose Money! Rule No. 2: Never Forget Rule No. 1"

Successful investor habit 2: Do your homework before you invest

There are nearly one thousand companies listed in our stock market. Which one should you invest in? Having Habit No.1 as the foundation, you will know that the safest companies to invest in should be companies or industries that you are most familiar with, as you can only make good judgments if you have in-depth knowledge and understanding.

This means that you will have to do your own homework and research through all available sources, such as company annual reports, industry reports or public announcements, in order to obtain the facts on the industry, the company of your interest and its competitors.

This is necessary to ensure that you can draw good conclusions on the company's performance and future prospects. Therefore, time and hard work are the two essential elements in turning yourself into an informed and knowledgeable investor. In practicing this, you will also need to be selective and focused on certain industries in which you the have most interest and experience.

Successful investor habit 3: Have your own investment philosophy and system

What is an investment philosophy? An investment philosophy is a set of beliefs that you use as the foundation in developing your personal investment system for buying and selling investments. This will make sure you are fully aware of the reasons behind every investment decision you make. As a beginner in the investing world, you could probably start by following the investment philosophies and systems of some of the great investors that come closest to your heart.

However, along the way, you should tailor your investment system to suit your personality, goals and unique circumstances so that you can practice this entire system without stress and worries.

If you have the discipline to practice the right system religiously, you will not be easily influenced by the voices or rumours in the market and will not be tempted to simply follow the crowd. Hence, the chances of your making the wrong decisions will be minimised.

Successful investor habit 4: Be patient!


There is a Spanish proverb that says "The secret of patience is doing something else in the meantime". If you somehow managed to inculcate the above 3 habits, you will know exactly what you are looking for and as such, will be well equipped with the patience to wait for the right moment to buy or sell your stocks. Both Buffett and Soros stressed the fact that the secret of their success is having the patience to wait. Use your free time to explore and strategise other new opportunities as there are so many companies listed in the market. Always remember that identifying the right candidates does require time and patience.


On a last note, try to adopt the above habits now! Remember, good strategies will only be successful when executed with the right mindset!


This article was written by Securities Industry Development Corporation (SIDC) to educate investors on smart investing. The information provided in this article is for educational purposes only and should not be used as a substitute for legal or other professional advice.


SIDC, the leading capital markets education, training and information resource provider in Asean, is the training and development arm of the Securities Commission, Malaysia. It was established in 1994 and incorporated in 2007.

http://www.btimes.com.my/Current_News/BTIMES/articles/SIDC5/Article/index_html

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Sell the losers, let the winners run

Why selling is a common problem
Published: 2009/02/04


Most investors tend to agree that the decision to sell a stock is one of the most difficult to make. Sometimes it is more difficult to decide when and what to sell than to buy. Ever wondered why?

* People tend to sell winners too soon and hold on to losers too long

You will find that regardless of whether the market is running hot or is coming down, there are still a lot of people out there who either sell their stocks too early only to realize that the prices continue to soar, or hold on to losers for too long only to see them continue to bleed further.

From a behavioural finance standpoint, this phenomenon is held by Hersh Shefrin and Meir Statman (1985) as the "disposition effect". This was discovered from their research entitled, "The disposition to sell winners too early and ride losers too long: theory and evidence".

Based on research, individual investors are more likely to sell stocks that have gone up in value, rather than those that have gone down. By not selling, they are hoping that the price of the losers will eventually go back to their purchase price or even higher, saving them from experiencing a painful loss.

In the end, most investors will end up selling good quality stocks the minute the prices move up and hold on to those poor fundamental stocks for the long term, while the performances of these stocks continue to deteriorate.

* People tend to forget their original objectives

In stock market investment, there are two types of investment activities, trading versus investing. Trading means "buy and sell" while investing means "buy and hold". The stock selection criteria for these two types of activities are entirely different.

Most of the time those involved in trading will choose stocks based on factors which will affect the price movement in short term, paying less attention to the companies' fundamentals whereas those involved in investment will go for good quality stocks which are more suitable for long-term holding.

However, you will find that many people get their objectives mixed up in the process. They get distracted by external factors so much so that some panic when the market goes in the direction that is not in line with their expectation, and as a result, end up selling the stocks that they find too expensive to buy back later.

On the other hand, some force themselves to change the status of the stocks that were originally meant for short-term trading into long-term investment as they are unable to face the harsh fact that they have to sell the stocks at a loss, even though they know that the stocks are not good fundamental stocks that can appreciate in value.

So, when to sell then?

There are few different schools of thoughts on this. Based on the advice from the investments gurus, like Benjamin Graham, Warren Buffet and Philip Fisher, when you buy a stock, you need to make sure that you understand the companies that you are buying, and these are good fundamental stocks, which will provide good income and appreciate in value in long term.

Therefore, you will be treating your stock purchase as a business you bought, which is meant for long term. You should not be affected by any temporary price movement due to overall market volatility.

You will only consider selling the company if the growth of the company's intrinsic value falls below "satisfactory" level or you find out that a mistake was made in the original analysis as you grow more familiar to the business or industry.

However, if you find that your investment portfolio is highly concentrated on one single company, then you might want to consider diversifying your portfolio and lowering your risk.

Any single investment that is more than 10 per cent to 15 per cent of your portfolio value should be reconsidered no matter how solid the company performance or prospect is, suggested Pat Dorsey of Morningstar.

Last but not least, if you find that by selling the stock, you can invest the money in a better option, then that is a good reason to sell.

In summary, successful investing is highly dependent on your self-discipline, taking away the emotional factors and not going with the crowd. It should always be backed by sound investment principles.

Always remember there is no short cut in investment, only hard work and patience.

Securities Industry Development Corp, the leading capital markets education, training and information resource provider in Asean, is the training and development arm of the Securities Commission. It was established in 1994 and incorporated in 2007.

http://www.btimes.com.my/Current_News/BTIMES/articles/SIDC2/Article/index_html

Understanding effects of economic indicators on stock market

Understanding effects of economic indicators on stock market
Published: 2009/02/25

When the economy slows down and the market is on a downward trend, it is not necessarily bad as this could be a golden opportunity to spot some good stocks at a bargain

IF YOU have been following the news on a daily basis, you surely would have heard the repeated news on the fall of the US and European markets that are currently spreading gloom across the globe.


With the risk of global recession on the increase, global stock markets are not left unscathed by the predicament the world's economic giants are in. Stock markets worldwide are left to face strong selling pressures that are wiping out their asset values.


As a result, you might be wondering whether your portfolio (albeit confined to the local business environment) is strong enough to weather the adverse external shocks that are causing jitters in markets across the globe.


Why do you need to understand and monitor the economic situation?


A company's earnings and future prospects depend largely on the overall business and economic climate. No matter how strong a company's fundamental is, if the economy is down, the performance of a company will inevitably be affected somewhat. Cyclical stocks will probably face a larger impact compared to non-cyclical or defensive stocks.


Meanwhile, the stronger companies will be able to weather the harsh economic situation better than the weaker or less well managed ones.


Therefore, as an investor, it is important for you to understand the macro picture of the economy, not just the sector/industries or stock/company that you are interested in investing in.


What is an economic indicator

An economic indicator is in simple terms, the official statistical data of a certain economic factor that are published periodically by the government agencies, which an investor can use to gauge the economic situation. It allows investors to analyze the past and current situation and to project the future prospects of the economy.


There are three basic indicators that matter to investors in the stock market, namely inflation, gross domestic product (GDP) and the labour market.


* Inflation


Inflation is important for all investments, simply because it determines the real rate of return that you get from your investment. For instance, if the inflation rate is 5 per cent and the nominal return is 8 per cent, this means that your real rate of return is 3 per cent as the 5 per cent has been eaten by inflation.


Inflation's impact on the stock market is even more complicated. A company's profit will be affected by higher inflation. Its input cost will increase and the impact of the increase will depend on how much of the incremental cost the company is able to pass on to its consumers. The amount that the company will have to absorb will reduce its profits, assuming all else being equal.


The stock market will suffer further negative impact if it is accompanied by increased interest rates as the bond market is seen as a cheaper investment vehicle compared to stocks. When this happens, investors will sell off their stocks to invest in bonds instead.


The most commonly used indicator for the measurement of inflation is consumer price index (CPI). It consists of a basket of goods and services commonly purchased by consumers, such as food, housing, clothes, transportation, medical care and entertainment.


The total value of this basket of goods and services will be compared with the value of the previous year and the percentage increase will be the inflation rate.


On the other hand, where the value drops, it will be a deflation rate. A steady or decreasing trend will be favourable to the overall stock market performance.


* Gross Domestic Product


Another important indicator is the GDP measurement. It is the total value of goods and services produced in a country during the period being measured. When compared to the previous year's reading, the difference between these two readings indicates whether a country's economy is growing or contracting. GDP is usually published quarterly.


When the GDP is positive, the overall stock market will react positively as there will be a boost in investor confidence, encouraging them to invest more in the stock market. This will in turn boost the performances of companies.

When the GDP contracts, consumers tread cautiously and reduce their spending. This in turn will affect the performance of companies negatively, thus exerting more downward pressure on the stock market.


* Labour market


The unemployment rate as a percentage of the total labour force will basically indicate the country's economic state. During an economic meltdown, most companies will either freeze hiring or in more severe cases downsize, by cutting costs and reducing capacity. When this happens, the unemployment rate will increase, which in turn, creates a negative impact on market sentiment.


Bottom line


By understanding the economic indicators, you should be able to gauge the current state of economy and more importantly, the direction in which its headed. Pooling this knowledge together with the detailed research on the companies that you are interested in, you should be well equipped to make sound investment decisions.


Bear in mind that when the economy slows down and the market is on a downward trend, it is not necessarily bad as this could be your golden opportunity to spot some good stocks at a bargain that are worth buying.


Malaysia's economic indicator data can be obtained from the Department of Statistics website at www.statistics.gov.my



Securities Industry Development Corp, the leading capital markets education, training and information resource provider in Asean, is the training and development arm of the Securities Commission. It was established in 1994 and incorporated in 2007.


http://www.btimes.com.my/Current_News/BTIMES/articles/SIDC4/Article/index_html

» RELATED STORIES
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****What causes stock prices to move?

What causes stock prices to move?
Published: 2009/03/25

Knowing the answer to this will enable you to buy and sell at the right time.

STOCK investing is perhaps the most talked about form of investing. Stocks create hype because they are volatile and sensitive to various factors. With the current economic landscape and dismal performance of bourses worldwide, we can observe that stock prices are affected on a much larger scale than usual. So, if you are wondering what makes stock prices go up or down, read on to find out.

Knowing the answer to this will enable you to buy and sell at the right time. Unfortunately, there is no one definite answer to this simple question. Various factors influence stock price movements. However, certain primary factors have a major impact on the movement and as an investor, you need to pay attention to these factors as guidance in making the right call to "buy" or "sell".

Demand and Supply

This golden rule of economics holds true even when it comes to the stock market. When demand for stocks is greater than supply, stock prices will go up. This happens when everyone starts to chase after stocks but only very few are willing to sell. This in turn, pushes the prices of stocks up further. On the flip side, when supply is greater than demand, everyone rushes to sell off their stocks, but only a few buyers are interested. This results in stock prices being depressed.

Bearing this in mind, you then need to know what causes the demand or supply to go up or down.

* Economic situation

* Economic situation
Stock market performance is actually a leading indicator of our economic situation. This means that the stock market will reflect the market expectations of our economy a few months down the line. As such, if the market expects the economy to boom, you will start to see stock prices increasing much earlier than the actual boom and the opposite applies when recession hits. Bearing this in mind, as investors, you need to be sensitive to signs that provide any form of indication on the future direction of the economy.

For example, when inflation rate creeps up; there is a possibility that the interest rate will go up as well to help cool the economy. The stock market in turn, will react negatively given such an expectation. On the other hand, when the economy is at the bottom of its cycle and the interest rate is lowered to stimulate economic activity, you will see that stock market will react positively to it. This positive reaction is attributed to the expectation that the economy is on the road to recovery.

* Company performance

* Company performance
Logically, the stock price of a company should go up if its financial performance is good, and vice versa. However, you will notice that most of the time, when the financial results are announced, as long as they reflect analysts' expectations, regardless of whether the reports bear good or bad news, stock prices will usually not show much movement. It is only when the results come as a surprise to the market that you will see a blip in the price. Basically, this is because the existing stock prices already reflect the current market expectation. This tells you that you need to pay attention to the company's business fundamentals, as this is the critical factor that is going to influence the company's stock price in the long run. As an investor, you should be mindful of the company's business direction and projects that it is involved in, that have the potential of bringing growth to the business. You have keep a watchful eye on its financial performance and management's strength, in order to make a good investment decision.

* Market rumours

* Market rumours
This is a major contributor to the stock market's short term volatility. There is a famous saying in the stock market, 'buy on rumours, sell on facts'. Investors tend to over-react or react hastily to the slightest market rumours. Often times, they will panic and rush to sell on negative rumours, resulting in the drop of the stock price. Investors could take the opportunity to buy at that particular time if they know that the company is fundamentally strong and the likelihood of the negative rumours being accurate is low; or the situation is not as bad as it is made out to be. By carefully scrutinising market rumours, you are able to make sound investment decisions instead of just following the crowd, that could lead to dire consequences.

* Political instability

* Political instability
Naturally, if a country is experiencing political unrest, the stock market will inevitably have to deal with some setbacks. In cases of instability, foreign investors react by pulling out their funds which may trigger panic selling from all parties. You will need to assess whether the unrest is just a short-term event or carries with it a longer lasting impact. This is crucial in assessing your risk should you choose to continue holding on to your position, as opposed to taking quick action to leave the market.

The above are only a few major drivers that will cause the stock prices to move. However, most of the time, the investor psychology effect of over reacting makes market movement more prominent than it should be. One of Benjamin Graham's investing principles encourages us to look at market fluctuations as our friend rather than our enemy, as market movements sometime create buying opportunities for true investors. Therefore, as an informed and knowledgeable investor, avoid getting into "panic mode". Always remember, understand and evaluate the situation by using your own judgement to ensure that you make intelligent investment decisions.


This article was written by Securities Industry Development Corporation to educate investors on smart investing. The information provided in this article is for educational purposes only and should not be used as a substitute for legal or other professional advice.

Securities Industry Development Corporation, the leading capital markets education, training and information resource provider in Asean, is the training and development arm of the Securities Commission, Malaysia. It was established in 1994 and incorporated in 2007.

http://www.btimes.com.my/Current_News/BTIMES/articles/SIDC8/Article/index_html

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Why investors behave the way they do

Why investors behave the way they do
Published: 2009/04/01

Learning from other market players’ mistakes; analysing how and what they think, can help an investor emerge as a winner in the market

In recent years, behavioural finance has been gaining grounds in trying to explain the financial anomalies in the stock market. These anomalies, which cannot be addressed by traditional financial theory such as the market efficiency theory may sound purely theoretical, but you cannot brush aside the need to understand the psychology of investors as it plays a big part in driving the stock market.

What is Behavioural Finance?


Behavioural finance is the study to explain the financial behaviour from the psychological aspect. Over the years, market psychologists have discovered that the two primary emotions that drive investors' risk-taking behaviour are hope and fear. There are a few key behavioural concepts that will help us to understand why some of us behave in certain ways when it comes to making investment decisions. In this article, we talk about four of such concepts:

* Regret theory


Regret, a simple enough concept to understand by any layman, refers to the emotional experience that one goes through when confronted with the wrong decision that he or she has made. It manifests itself in the form of pain when one feels responsible for not doing the right thing. When you look back at your investment history, try to recall the state you were in when you missed the chance to cut losses or missed the opportunity to buy a stock that you knew you should have bought because it was considered a good buy. Try and remember how you felt when the price of that particular stock that you did not buy increased subsequently. This emotion often becomes embedded in someone's mind in such a way that it regulates his or her future actions and decisions.

As a result, most investors make it a habit to avoid selling a loss-making stock and instead hope that the price will rebound eventually - all this, to avoid the feeling of regret. They would much rather make a paper loss than admit that they have made a mistake. In some cases, where the bad decisions happen to be recommended by their financial advisers, investors will put the blame on the advisers to avoid regret.

* Prospect theory

Prospect theory developed by Daniel Kahneman and Amos Tversky (1979), states that "we have an irrational tendency to be less willing to gamble with profits than with losses". Kahneman and Tversky found that when confronted with the choice between accepting a sure loss and taking a chance, most people will choose the latter. This phenomenon is called "loss aversion", which basically means that in general, people hate to lose. So, when faced with a situation involving loss, they become risk takers; they take the chance even if there is only the slightest hope of not having to lose.

On the other hand, when presented with a sure gain, they usually become risk-averse. Investors who behave this way tend to mark their stocks to the price that they originally paid to secure them and not to market. As such, they aim to get even before closing out a position. This type of investors usually ends up holding on to their loss-making stocks for far too long, which may very well prove detrimental to them in the end.


* Overconfidence

It is human nature for us to over-estimate our abilities and shower ourselves with a little too much confidence, i.e, overconfidence. Studies show that investors are often overconfident when it comes to their ability to predict the market's direction. Oddly enough, this is something that is more prominent among novice investors. Compared to experienced investors, those who are new to the market tend to set higher return expectations and end up being overwhelmed by the unfavourable outcome. As a result of overconfidence, some investors tend to trade too frequently only to get unsatisfactory returns or worse yet, losses. With the convenience of online trading, some even quit their full-time jobs to do day trading, thinking that they have the ability to predict the market and earn fast money. These are the people that usually end up getting burned if they do so without proper understanding of what they have been buying and selling, especially when the market is highly volatile.


* Anchoring


This is a behavioural phenomenon in which people tend to extrapolate the past into the future, putting heavier weight on the recent past. At times, when there are new announcements from companies, analysts fail to adjust their earnings forecast for the companies to reflect the latest information due to the anchoring effect. As a result, they land themselves with a few surprises when positive news become more positive and vice versa.

What has been discussed above are a few common behavioural phenomena experienced by investors that are useful to know. By understanding the psychology behind investors' behaviours, you can learn to recognise mistakes and avoid making such mistakes yourself. Learning from other market players' mistakes; analysing how and what they think, can help you emerge as a winner in the market.

Securities Industry Development Corp, the leading capital markets education, training and information resource provider in Asean, is the training and development arm of the Securities Commission, Malaysia. It was established in 1994 and incorporated in 2007.

http://www.btimes.com.my/Current_News/BTIMES/articles/SIDC9/Article/


» RELATED STORIES
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G20 summit: Leaders target bankers

G20 summit: Leaders target bankers
World leaders will agree unprecedented global restrictions on pay and bonuses for bankers at the G20 summit in London.

By Andrew Porter, Robert Winnett and Christopher Hope
Last Updated: 12:07AM BST 02 Apr 2009

In future, bankers will be prevented from receiving multi-million pound cash bonuses for speculating on the stock market.

Their remuneration will instead be based on the risks they take over the long term. Bankers deemed to be making risky investment decisions will only be paid in shares that can be cashed in after several years.

Sarkozy and Merkel demand tough market curbs The multi-million-pound bonuses paid to bankers have been blamed for encouraging them to take the "reckless" decisions that triggered the global financial crisis.

The Daily Telegraph has learnt that the remuneration deal was thrashed out over the past few days following intensive diplomatic efforts by Nicolas Sarkozy, the French President, and Angela Merkel, the German Chancellor. The measure did not appear in a draft communiqué that was leaked at the weekend.

The European leaders were understood to have pushed for an exact monetary limit on banking pay but were prepared to sign up to the new, strongly-worded agreement.

Regulators in each of the G20 countries will impose the new restrictions, which cover both private banks and those owned both wholly and partially by the state.

The agreement will be the most eye-catching part of the communiqué, which is expected to be released by G20 leaders at the summit in London's Docklands on Thursday.

On Wednesday, violent clashes took place in the capital between police and anti-capitalism protesters ahead of the talks. In the City of London, a branch of Royal Bank of Scotland was attacked and looted as violence flared during a 6,000-strong protest, which resulted in 32 arrests.

A man died after he collapsed at the scene of protests near the Bank of England last night.

A protester called the police after they saw the man collapse and stop breathing in St Michael’s Alley, near Birchin Lane just off Cornhill shortly before 7.30pm.

Two police medics broke through the cordon and carried the man to a clear area in front of the Royal Exchange where they gave him CPR.

The ambulance arrived six minutes later and took him to hospital just before 8pm, where he was pronounced dead.

A Scotland Yard spokesman said: “The officers took the decision to move him as during this time a number of missiles - believed to be bottles - were being thrown at them.”

It is believed that the man died of a heart attack.

The Directorate of Professional Standards at both the MPS and City of London Police have been informed. The IPCC is also being told.

Meanwhile, frantic negotiations between the teams of G20 officials continued and there were more than five draft versions of the final agreement in circulation.

Other measures to rein in offshore tax havens, regulate hedge funds and offer new trade credit to the developing world are also expected to be announced.

The International Monetary Fund will increase its funding by hundreds of billions of dollars. The money will be used to bail out countries whose economies face financial meltdown.

However, critics of the G20 summit were expected to point to the lack of a new co-ordinated fiscal stimulus package, something that Gordon Brown, the Prime Minister, and President Barack Obama had originally hoped would be included.

Mr Brown and Mr Obama said that the new financial system to emerge from the crisis would have to be different from that which led to the economic collapse of last year. However, both leaders expressed optimism that the crisis could be tackled this year. Mr Obama urged the world not to "short change the future" because of fear over the current economic crisis. At a joint press conference with Mr Brown at the Foreign Office, the President said people needed to plan for a recovering economy.

He said: "Despite the current hardships, we are going to get through this. So you should plan sensibly in anticipation that this economy is going to recover.

"Young families are going to want to buy new homes and sooner or later that clunker of a car is going to wear out, so people will buy new cars. I would ask people to have confidence about their futures and that may mean in some cases spending now as investments for the future. Don't short change the future for fear of the present."

In words that echoed Franklin D Roosevelt, the US president at the time of the Great Depression, Mr Obama said: "Basing decisions around fear is not the right way to go."

Mr Brown also called for global action. "It will get worse if we do not act. The option of doing nothing is not available to us," he said. "I believe that the degree of international co-operation that we can get will determine how quickly all our economies can recover.''

Downing Street was confident that a G20 agreement was close following public posturing from the French and German governments.

Earlier this week, Mr Sarkozy, the French president, threatened to walk out of the summit if firm commitments were not made.

On Wednesday, he staged a joint press conference with Angela Merkel at which they insisted there were "red lines" which were not negotiable.

The two European leaders have called for tough global regulation of the financial system, rather than vague pledges.

Mrs Merkel said there was no option to go back for a third summit if decisions proposed in Washington at the end of last year resulted in only a vague statement of intent in London.

The German Chancellor said: "The day after tomorrow will be too late. The decisions need to be taken now, today and tomorrow." She added: "We should not be content with generalisation ... Speculation must be regulated and there must be a framework for pay at the banks."

Mr Sarkozy also said that remuneration paid to traders must be controlled. "It's not a question of morality, all of this is a red line. The problems must be clearly resolved."

British officials believe that the emerging bank pay agreement will help temper European concerns.

The Prime Minister will hail the move as the first time that governments have agreed to regulate the risk-and-reward culture that many leaders blame for the banking collapse.

The G20 leaders will agree to sign up to a new set of principles which can curb, if not cap, bankers salaries. The aim is to ensure that there is no chance that the system of remuneration can ever get out of control again.

It is understood that a report by Lord Turner, the chairman of the Financial Service Authority, which made recommendations on bankers pay, will help to guide the new principles that are also endorsed by the Financial Stability Forum, a global coalition of regulators and watchdogs.

In future, each bank will have to judge the risks taken by individual traders or executives. Only those taking average, or below average risks, will receive cash bonuses.

Those taking more risk, will be paid in shares or other financial instruments which cannot be cashed in for several years. Banks could only circumvent the rules by setting aside large amounts of extra capital to reflect the extra risks being taken.

The French president, threatened to walk out of the summit if firm commitments were not made.

On Wednesday, he staged a joint press conference with Mrs Merkel at which they insisted there were "red lines" which were not negotiable.

The two European leaders have called for tough global regulation of the financial system, rather than vague pledges.

Mrs Merkel said there was no option to go back for a third summit if the measures proposed in Washington at the end of last year resulted in only a vague statement of intent in London.

The German Chancellor said: "The day after tomorrow will be too late. The decisions need to be taken now, today and tomorrow."

She added: "We should not be content with generalisation . . . speculation must be regulated and there must be a framework for pay at the banks."

Mr Sarkozy also said that remuneration paid to traders must be controlled. "It's not a question of morality, all of this is a red line. The problems must be clearly resolved."

British officials believe that the emerging bank pay agreement will help temper European concerns.

The Prime Minister will hail the move as the first time that governments have agreed to regulate the risk-and-reward culture that many leaders blame for the banking collapse.

The G20 leaders will agree to sign up to a new set of principles which can curb, if not cap, bankers' salaries. The aim is to ensure that there is no chance that the system of remuneration can ever get out of control again.

Mr Brown said: "We are within a few hours, I think, of agreeing a global plan for economic recovery and reform.

"Of course it is difficult and of course it is complex – we have a large number of countries – but I am very confident that people not only want to work together but we can agree a common global plan for recovery and reform."

It is understood that a report by Lord Turner, the chairman of the Financial Services Authority, which made recommendations on bankers' pay, will help to guide the new principles that are also endorsed by the Financial Stability Forum, a global coalition of regulators and watchdogs.

In future, each bank will have to judge the risks taken by individual traders or executives. Only those taking average, or below average risks, will receive cash bonuses.

Those taking more risk, will be paid in shares or other financial instruments, which cannot be cashed in for several years.

Banks could only circumvent the rules by setting aside large amounts of extra capital to reflect the extra risks being taken.

http://www.telegraph.co.uk/finance/financetopics/g20-summit/5091306/G20-summit-Leaders-target-bankers.html