Consumer Reports Index: Economy Continues to Waiver With Worsening Job Outlook

/PRNewswire/ -- Consumer difficulties are declining, but the economy continues to waiver, with a worsening job picture and declining retail activity, according to the Consumer Reports Index for September.

The U.S. job outlook remains bleak, the September results for the Consumer Reports Employment Index marks a two-month decline, down in September to 49.1 from 50.2 in August. The share of Americans claiming to have started a new job in the past 30 days is 5.0%, versus 5.9% in August, and down from July's recent high of 7.8%. Job losses in the past 30 days were up, 6.9%, from August, 5.6%. Results show that younger Americans between the ages of 18-34 years have been hit the hardest by job losses (13.7%).

Americans are continuing to pull their purse strings tight. The Consumer Reports Retail Index for August continues to decline. The Past 30-Day Retail Index for September is at 9.8, down significantly from last month's 11.4. September marks an overall decline from a year ago when the Past 30-Day Retail Index was at 11.0, and is at its lowest level since November 2009 (9.0). September's Next 30-Day Retail Index is at 7.6, down from August (8.1), as well as a year ago (8.8). Per capita spending in the past 30 days is down to $185, from $286 in August.

The economy remains unsteady and Americans are cautious, but the Consumer Reports Trouble Tracker continues to show positive developments. It has declined to 53.7 from 56.6 in August, and has posted three months of declines from its recent high in June (63.5). The Trouble Tracker has improved from this time last year when it was at 68.7, a 15-point drop. Positive developments this month were led by a decline in consumers losing or facing reduced healthcare coverage, to 6.7% from 9.7% in August.

As the Trouble Tracker improves, Americans' outlook has yet to brighten. The Consumer Sentiment Index has gradually slipped over the past two months and is currently at 44.1, continuing a slide from July (45.2). This index has changed little since October 2008 when it stood at 45.3.

"The recovery faces serious challenges and is at risk of stalling," said Ed Farrell, a director of the Consumer Reports National Research Center. "Job creation remains the greatest challenge. The growth in the ranks of the employed remains anemic and will dampen consumer outlook moving forward. Americans have not seen any real improvement in their financial situation since the recession hit and this is reflected in our Sentiment Index, which has been in negative territory for the last two years."

The Consumer Reports Index report, available at www.ConsumerReports.org, comprises five key indices: the Sentiment Index, the Trouble Tracker Index, the Stress Index, the Retail Index, and the Employment Index. Here are the key findings:

Consumer Reports Sentiment Index: 44.1
-- Consumer Reports Sentiment Index has gradually declined from 45.2 in
July to 44.1 in September. The most optimistic consumers are between
the ages of 18-34 (49.9), along with households with an income of
$100,000+ (50.7). The most pessimistic consumers are between the ages
of 35-64 (42.3) or age 65+ (41.1), and households with an income less
than $50,000 (40.4).


The Consumer Reports Sentiment Index captures respondents' attitudes regarding their financial situation, asking them if they are feeling better or worse off than a year ago. When the index is greater than 50, more consumers are feeling positive about their situation. When it is below 50, more consumers are feeling worse. The Sentiment Index can vary from a high of 100 to a low of 0.

Consumer Reports Trouble Tracker Index: 53.7
-- The Consumer Reports Trouble Tracker Index has shown a decline this
month, pointing to fewer troubles for consumers, dropping to 53.7 in
September from 56.6 in August, and is down substantially from a year
ago (68.7).
-- Positive developments were led by a decline in consumers losing or
facing reduced healthcare coverage, to 6.7% from 9.7% in August; a
drop in the proportion of Americans unable to afford medical bills or
medications (13.6%), down from 15.4% in August, and a slight reduction
in the proportion of Americans that faced negative changes to their
credit cards, down to 7.2% from 8.9% in August.
-- The most common difficulties faced by Americans are:
-- Unable to afford medical bills or medications (13.6%), down from
15.4% in August
-- Missed payment on a major bill - not mortgage (9.3%), down from
10.2% in August
-- Credit card increased rates/fees, reduced credit line (7.2%), down
from 8.9% in August
-- Lower-income households, earning less than $50,000 a year, have been
disproportionately affected. In the past 30 days:
-- 22.4% Have been unable to afford medical bills or medications
-- 16.1% Missed payment on a major bill - not mortgage


The Consumer Reports Trouble Tracker focuses on both the proportion of consumers that have faced difficulties as well as the number of negative events they have encountered. The negative events include: the inability to pay medical bills or afford medication, missed mortgage payments, home foreclosure, interest-rate increase, penalty fees, reduced lines of credit or other changes in credit-card terms, job loss or layoffs, reduced healthcare coverage, or the denial of personal loans. The Consumer Reports Trouble Tracker Index is then calculated as the proportion of consumers that have experienced at least one of the negative events comprising the index multiplied by the average number of events encountered.

Consumer Reports Retail Index: Past 30-Day - 9.8, Next 30-Day - 7.6
-- Consumer Reports Past 30-Day Retail Index for September, reflective of
August activity, is at 9.8, down from the prior month (11.4). Per
capita spending for the past 30 days was down significantly for
September, reflecting August activity, to $185, from $286 the prior
month.
-- The proportion of Americans buying across categories in the past 30
days showed the greatest declines in small appliances (16.6%, down
3.7% points), personal electronics (21.4%, down 3.5% points), and
major home electronics (10.7%, down 2% points).
-- Among the non-index categories, past 30 day purchases, reflecting
August activity, were down slightly for new cars (1.7%) versus the
prior month (2.2%), but up for used cars (5.1%) from the prior month
(3.7%). Home purchases were up slightly in September (2.5%) relative
to August (1.6%).
-- Consumer Reports Next 30-Day Retail Index, reflective of planned
purchases for September, is at 7.6, down from the prior month (8.1) as
well as one year ago (8.8).
-- Among the non-index categories, next 30 day planned purchasing points
to new cars declining slightly, 2.5% versus 3.1% the prior month, and
used cars also moving downward to 3.5% from 4.3% for August. Planned
purchasing for homes in the next 30 days, reflecting September
activity, is on par with the prior month (1.5%).


The Consumer Reports Retail Index looks at consumer purchases in the past 30 days as well as the outlook for planned purchases in the next 30-days across several categories. The Consumer Reports Retail Index represents the proportion of respondents that made a purchase in the following categories: major home appliances, small home appliances, major home electronics, personal electronics, and major yard and garden equipment. The Retail Index is a weighted calculation. For example, a major appliance is of greater value than a small appliance. Because of their size and frequency, car and home purchases are tracked separately.

Consumer Reports Stress Index: 60.1
-- According to the Consumer Reports Stress Index, the level of stress
consumers feel they are under (60.1) is unchanged from the prior month
(59.4), but down from one year ago (65.4).


The Consumer Reports Stress Index captures attitudes regarding the amount of stress consumers feel compared to a year ago. It asks whether they are feeling more stressed or less stressed. When the Stress Index is more than 50, consumers are feeling more stress and when it is below 50 they are feeling less stress compared to a year ago. The index can vary from 100 (Total Stress) to a low of 0 (No Stress).

Consumer Reports Employment Index: 49.1
-- The Consumer Reports Employment Index is down in September (49.1) from
50.2 in August, dipping into negative territory.
-- Overall labor force activity has slowed considerably in the past
month, with significantly fewer Americans claiming to have started a
new job in the past 30-days, 5.0% versus 5.9% the prior month.
-- Job losses in the past 30-days (6.9%) were up from the prior period
(5.6%). Job loses have hit younger Americans age 18-34 the hardest
(13.7%).


The Consumer Reports Employment Index examines the change in employment of those that reported starting a new job versus those that have lost their job or were laid off in the past 30 days. An index below 50 indicates more jobs were lost than gained, while a score more than 50 indicates more jobs were gained than lost in the past 30-days.

For more information regarding the Consumer Reports Index visit www.ConsumerReports.org.

The Consumer Reports Index, conducted by the Consumer Reports National Research Center is a monthly telephone and cell phone poll of a nationally representative probability sample of American adults. A total of 1,257 interviews were completed (1,007 telephone & 250 cell phones) among adults aged 18+. Interviewing took place between August 26-August 29, 2010. The margin of error is +/- 2.8 points at a 95% confidence level. The complete index report, methodology, and tabular information are available. Contact: C. Matt Fields, 914.378.2454, cfields@consumer.org.

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Inept Repairs Leave Economy Stalling

When the Fed's Open Market Committee meets today (Aug 9), its economists will doubtless produce reams of data and theory aiming to explain why GDP growth is fading fast. But there is a very simple - and disturbing - reason why the recovery is sputtering out: The damage we did to our economy during the housing bubble and subprime crisis was far too severe to be fixed by the weak steps our government has taken in response. We tried to cheap out on the repairs to our economy, and they haven't held up.

The leading example is the bank bailout. Only one-third of the TARP funds even went to banks. Instead of using the money to clean the toxic waste out of bank vaults, the Treasury bought just enough bank stock to prop up their share prices. And the money came with almost no stipulations about how the banks could use it.

As a result, the banks aren't back to normal, judging by their anemic lending. Their balance sheets are still stuffed with decaying loans, and they nurse along existing borrowers instead of looking for new ones. Sure, the big banks have all paid back the TARP funds with interest, but so what? Ask the millions of creditworthy people who can't find banks willing to finance their homes or businesses whether the chump change that taxpayers made from TARP was worth it.

Because TARP didn't really fix the banks, the Fed had to step in and take over many of the credit markets they pulled out of, such as commercial paper and mortgage securities. This forced the Fed to use all its financial strength simply to prevent these financial markets from collapsing. That effort used up virtually all the Fed's capacity to do its main job: stimulate the economy.

And then there's the $800 billion stimulus package. Only about one-third of that was actually new spending, which is what it takes to get the economy moving. And this money is spread out over several years, further weakening the power of its economic punch. Another third of the stimulus was in the form of tax cuts, which didn't stimulate the economy because most households used the tax cuts to pay back old loans rather than buy new things. The remaining third mostly tried to replace spending that would have otherwise declined due to unemployment and falling state tax revenues. That is beneficial, but it's no stimulus.

And finally, there is the mortgage relief program. What mortgage relief program, you ask? Exactly. The government bumbled through a series of small and ineffective programs that have created more frustration and dashed hopes than real relief. One of the first steps the government took was to request a voluntary moratorium on foreclosures, which only pushed the foreclosures off to this year. During the moratorium, it tried a voluntary program that refinanced exactly one mortgage during its first six months. The successor program didn't even start until May 2009 and actually tries to avoid reducing the amount the borrower owes. It's no wonder that struggling homeowners would rather negotiate directly with their lenders - or play the default game and stall for time before foreclosure and eviction.

After the buy-now-and-pay-later economy crashed, we chose a buy-now-and-pay-later recovery. Well, it's time to pay. Unfortunately, we can't simply put the programs in place now that we should have implemented back in 2008, such as removing the toxic assets from the banks and passing a true $1 trillion fiscal stimulus. Consumers and firms have moved on, and the economy has changed.

But more importantly, government lost the initiative to take strong action. The Fed committed its resources to supporting the mortgage market. And public sentiment, exemplified by the tea party movement, has turned against further fiscal stimulus. Now we have to pay for the damage by living with lackluster economic growth - maybe years of it.

Will there be a double-dip recession? Probably not - but that would be one of the best things that could happen. The government would once again have reason to take bold action - and get it right this time.

By Connel Fullenkamp 

Connel Fullenkamp is director of undergraduate studies and an economics professor at Duke.

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US Real Estate Markets Moving Toward Recovery

/PRNewswire/ -- The US economy is recovering and it is beginning to show in job growth. The Bureau of Labor Statistics reported an increase of 290,000 jobs for April. The largest share, 27.5% was in professional and business services with 80,000 new jobs. The federal government followed with 66,000 new temporary workers to assist with the decennial census. Health care also grew, adding 20,000 workers and increasing its year-to-date total to 244,000. For the year, employment has expanded by 573,000 with 483,000 or 84% added to the private sector.

Meanwhile, unemployment increased from 9.7% to 9.9%, which oddly is a "good" sign. The increase is the result of people re-entering the employment market; meaning the economy is starting to recover in earnest. Thus far, the data is reflecting the traditional pattern of a slowly recovering economy.

Looking at past recessions the 1980s appears to be the most similar. It was capital constrained much like we are today. In the 1990s we were over-built and had the S & L crisis to resolve. The cry was "stay alive to '95." In early 2000 we had the dot com crisis and accounting scandals. Looking at the recession of the early 1980s as a guide, it may be 3 years or more before life begins to feel like "normal." The recession of the 1980s lasted 16 months running from July 1981 to November 1982. As a result of that downturn, unemployment peaked in November of 1982 at 10.8%. From that point it took 38 months for the economy to fully recover and for unemployment to fall below 7.0%. It was another 10 months before the economy was consistently below 7.0%. So, full recovery this cycle is likely 3 years away with an optimal selling period 3 to 4 years away at the earliest. Current signals suggest now is an optimal buying period.

Thus far, the current economy is consistent with expected patterns and our forecasts. Other data is also suggesting recovery. This is further illustrated in the most recently available quarterly data extracted from the National Council of Real Estate Investment Fiduciaries (NCREIF). Beginning in the second quarter of 2009, decreases in total returns began to steadily abate, and as of the most recent quarter turned slightly positive. This offers another strong signal that the market has reached bottom and is beginning to turn upward. This is also a strong signal that we are entering an optimal buying period.

With the use of our research Blumberg Capital Partners, our parent organization recognized this cyclical pattern early, and sold its assets between 2006 and 2008, near the cycle peak and closed its prior Fund. Now the trend is reflecting a market nearing bottom and moving toward recovery. In response, Philip Blumberg CEO of Blumberg Capital Partners is launching a new fund, the Blumberg Strategic Asset Fund and is again looking to acquire assets.
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New Study Released on the Non-Government Response to the U.S. Economic Crisis

/PRNewswire/ -- A new study shows America's foundations were swift, flexible and targeted in their response to the worst economic crisis since the Great Depression - using on-the-ground knowhow to make a significant impact. The study from The Philanthropic Collaborative (TPC) is the first of its kind to analyze the private-sector response to the crisis and shows that the federal government's response was not the only story.

"The ability of foundations to be swift and flexible in their response allowed them to modify their giving throughout the crisis and ensure the grants went to those most in need," said Doug Holtz-Eakin, author of the study. "During the U.S. economic collapse, we saw grant-making shift, expand and follow the larger unemployment and housing needs that developed and became acute in communities across the country. Even when foundations themselves faced financial stress from the very same crisis, our analysis shows a very clear shift in grant-making patterns to meet emerging economic needs."

The study analyzed a sample of 2,672 grants that totaled $472 million of foundation giving from 2008 to 2009, and early planned giving for 2010. In the area of preventing mortgage delinquencies and foreclosures, private and community foundations saturated their grant-making in states with higher than average delinquency rates. In 2009, for example, 95% of sampled grant-making, or $296 million, went to high-delinquency states. As unemployment became a larger economic problem between 2008 and 2010, the analysis shows foundations devoted more activity to states suffering higher unemployment.

"In the City of Detroit, we have found working with the foundation community has been beneficial for our community and our residents. The foundations allow the city to stretch current budget dollars to plan for the future while continuing to provide services to the residents," said Detroit Mayor Dave Bing. "The study by The Philanthropic Collaborative is representational of the impact foundations have on the City of Detroit," he added.

"Foundation grant-making is fundamental in helping to improve the lives of families during time of economic crisis," said Denver Mayor John Hickenlooper. "Private and community resources, when quickly targeted to local community needs, can play a major role in collective efforts to get local economies back on track. We have seen foundation giving in the Mile High City leverage positive social change with meaningful, measurable results."

"Some in our communities have been devastated by the economic crisis, which has taken a toll on municipal and state resources" said Providence Mayor David Cicilline. "While the responses from the federal and state governments are critically important, we cannot lose sight of the targeted and timely response from community foundations. Without their work, many more individuals and families would fall through the cracks in our system. Foundations are effective because they are part of our community, know the people, can bring aid to where it's needed most and act with speed and precision. They also embody another important attribute - they are able to provide assistance without the red tape and bureaucracy. This entrepreneurial approach is what makes them so effective and welcome in our efforts to ensure people have the means to weather this economic storm."

"I've said many times that government cannot do it all by itself. It must be a citizen movement," Toledo Mayor Michael Bell. "Organizations like to the Toledo Community Foundation and the Stranahan Foundation help provide aid during times of economic distress for people who may otherwise slip through the cracks. We have to be involved as a community and philanthropy plays a vital role in our ability to provide for our citizens."

"This study illustrates the critical role foundations are able to play in assisting Americans and communities in crisis," said John Tyler, Chairman of TPC. "As impressive and encouraging as this is, though, it is only part of the story because previous TPC research has told us that each dollar of grant support from these foundations can generate on average more than eight times that amount of value in direct, economic benefits," he added.

The study analyzed a sample of grants for the years 2008 to 2009, and early planned giving for 2010, obtained from the Foundation Center, which maintains the most comprehensive database of foundations' grant-making activities. The data provides information on the amount, activity and target audience of each grant. Grants averaged $176,608 but ranged from $500 to $5 million.

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Stimulus Programs Remain Untapped by Most Americans: AICPA Survey

/PRNewswire/ -- The overwhelming majority of Americans haven't taken advantage of the U.S. government's programs to stimulate the national economy, according to a survey conducted for the American Institute of Certified Public Accountants by Harris Interactive.

Nine out of 10 Americans (91 percent) said they haven't capitalized on the job stimulus plan covered under the American Recovery and Reinvestment Act, the housing stimulus tax credit of 2009 and Cash for Clunkers.

The AICPA commissioned the survey in recognition of April as Financial Literacy Month. In 2007 the Institute began conducting an annual survey of Americans to determine their attitudes toward their finances.

"The government's stimulus efforts and the hard financial challenges people have faced over the past year emphasize the essential role financial literacy plays in our lives," said Carl George, immediate past chairman of the AICPA's National CPA Financial Literacy Commission, which seeks to help Americans become financially astute and achieve financial well-being. "Individuals can't always control the events that affect their finances, but they can learn to control their finances. We want everyone to understand that financial literacy can and should be a major part of their lifestyle."

Four percent of the survey respondents said they've taken advantage of the housing tax credit to buy their first home. That figure represents 5.1 million Americans(1). The housing stimulus tax credit, which now includes homebuyers who've owned their previous residence for five years and are seeking a new principal home, expires on April 30.

Only 2 percent said they applied for jobs through the stimulus program, and another 2 percent received rebates when purchasing new cars through Cash for Clunkers, the 2009 legislation that encouraged citizens to replace their gas-guzzling cars with more fuel-efficient vehicles. The U.S. government reported creating 608,000 jobs in the fourth quarter of 2009. The government also reported that Cash for Clunkers resulted in the sales of 680,000 vehicles.

The CPA profession's financial literacy efforts encourage Americans to educate themselves and consider all financial decisions in the context of their individual circumstances, George said. "Americans potentially interested in a housing stimulus credit must consider basic questions: What does the program offer? How do the provisions relate to their own personal situations? Can they afford the mortgage payments even after the stimulus credit? What is the overall financial commitment? Does it make sense for them to apply?"

Sixty percent of Americans said they were delaying major decisions because of financial concerns. Interestingly, out of a list of nine, buying an automobile is the most common financial decision Americans are putting on hold (27 percent). Buying a home ranked fourth, behind "some other major purchase or decision" and medical procedures.

The National CPA Financial Literacy Commission oversees two programs to help Americans achieve financial well-being. The first, 360 Degrees of Financial Literacy (www.360financialliteracy.org), educates Americans on how financial issues affect them at 10 life stages, from childhood to retirement. The free Web site, devoid of all marketing and advertising, includes tools and articles on homeownership and financial considerations of a job search.

A second campaign, Feed the Pig (www.feedthepig.org), created with the Advertising Council, encourages Americans aged 25 to 34 to begin preparing for long-term financial security. Ad Council research has shown that individuals who have seen or heard a Feed the Pig public service announcement are more likely to change their financial behavior for the better.

Methodology

In an effort to understand how the economic crisis has affected behaviors and attitudes among the general public, the AICPA participated in the Harris Interactive March 2010 Harris Poll Quorum telephone omnibus study. The interviewing took place from March 17 to 21, 2010. The Harris Poll Quorum is a bi-monthly survey among 1,009 U.S. adults ages 18 and older.

(1) Based on a total of 129,065,264 housing units as reported by the U.S. Census Annual Estimates of Housing Units as of J uly1, 2008.

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The Consumer Credit Bureaus are Unraveling American Self-Reliance and Compromising Our Greatest National Assets: The Individual and Small Business

/Standard Newswire/ -- The Consumer Credit Reporting Bureaus, which purport to help lenders
evaluate risk, control the flow of credit and encourage fiscal responsibility, have instead played a significant role in destabilizing the economy and are impeding America's recovery.

It is a predatory system that seizes on financial hardships and turns short-term setbacks into long-term liabilities. For the small business owner, he risks losing not only his business but also his personal livelihood and often a lifetime of investment.

And the nation loses its critical buffer: the once-resilient small business, when 'big business' falters.

"The Consumer Credit Bureaus have been ruthlessly chipping away at small business and are now derailing America's economic recovery. We created the website
www.abolish-the-credit-bureaus.com (http://rs6.net/tn.jsp?et=1102862490430&s=13633&e=001-W_WIUx6oUMs-HrxjHW-kUMAKm-mqGf8-RqK0quO-dbijcIIobiKZ5H55jw28xFYz0vX66C5COpZBuxbiFlL30CbIO4k32wakPqjbtyOvY80th7xxAqN3_ozoDI3Pjaq1cd--vN5l44=), Video-short and Petition as vital tools for change; including examining recent comments by President Obama and Federal Reserve Chairman Bernanke," says small business owner, Deborah Fineout-Launey, of marketing firm LHH&F.

"Second mortgages, personal credit cards, large personal guarantees and the Consumer Credit Score should not be the tools for corporate lending. A national summit on small business is meaningless without lending reform," says Ms. Fineout-Launey.

When economic setbacks or downturns occur, many in the economy are affected - not because of
credit 'abuse.'

Yet, in this system, the small business owner, working in good faith to stabilize his business and
ride out the economy, finds that:

· A personal debtor's prison quickly arises;
· Leading to usurious fees;
· Loss of essential banking relationships;
· Credit defaults increase;
· Assets, personal and corporate, are stripped;
· Putting all parties' investments in escalating risk

The result is the unmerited loss of viable small businesses, loss of essential tax revenues, rampant unemployment, loss of real estate leases, healthcare, personal livelihoods, home foreclosures, and a dangerously weakened middle class.

"It is time to abolish the Consumer Credit Report and Score from small business lending and, frankly, in general. It reduces the small business owner's significant investment, and the investment of his lenders, to a gamble of epic proportions. It is a matter of moral conscience and economic necessity," she adds.

Robert Launey and Deborah Fineout-Launey are small business owners in New York, committed to drawing attention to the economic fallout created by the Consumer Credit Report and Score in small corporate lending.

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World Unlikely to Scrap Current Reserve System Despite Weak Dollar, Says CornerCap Investment Counsel

/PRNewswire/ -- Despite the recent credit crisis and headlines about the possible demise of the dollar as the world's dominant currency, it is unlikely that the world will scrap the current reserve system anytime soon, CornerCap Investment Counsel concluded in a recent report (go to http://www.cornercap.com/library/Newsletters/n2009fall.pdf for the complete report).

While the dollar will inevitably surrender some of its dominance, too many major players like China and OPEC have a vested interest in a financially strong U.S. to undermine the dollar's position too strongly, according to Cannon Carr, chief investment officer.

Instead, Carr anticipates an orderly transition to a post-dollar world, one that will take a decade or more, and probably with U.S. leadership.

"The dollar's position as the world's dominant currency has been key to our standard of living since World War II, and its standing plays a vital role in the U.S. recovery," Carr said. "Moving radically away from the U.S. dollar as the dominant currency would limit our return to economic growth, at a time when other countries need a healthy US to boost their own economies," he added.

However, high U.S. debt levels and deficits, when combined with a weak growth outlook, do increase the risk to a currency system tied to the dollar. With a sustained weak dollar, non-U.S. countries can find their exports expensive and their own economies influenced by poor policy choices by the US. So while other nations can tolerate a weak dollar, an irresponsibly sustained weak dollar jeopardizes their financial stability and could force them to seek more radical change to the reserve system.

What's more, without convincing economic growth (say 4% annually); the U.S. will have to balance national debt levels, deficits and government spending to manage the dollar's position. Special attention must be given to government spending (for growth, social programs, entitlements, or war), which is typically financed through taxation, borrowing, or inflation. Pushing too far in those areas would have serious ramifications for the dollar.

Carr believes the dollar's recent descent may reflect investors' increased risk tolerance rather than collapsing faith in the U.S. system. When fear reached its peak in October 2008, investors sought safety in U.S. Treasury instruments and the U.S. dollar. If fear returns, those two investment vehicles could be once again viewed as safe havens.

What does the dollar's outlook mean for investors? Pursuing radical strategies today are likely to yield sub-par investment results over time.

"We continue to believe deflationary forces may prevail for the immediate future but inflation has a higher probability in perhaps four to five years," Carr said. Predicting when that inevitable transition will occur is impossible, and CornerCap recommends diversified investment portfolios that balance the risk/reward across many uncertainties, including deflation, inflation, or a normal recovery.

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PricewaterhouseCoopers Outlook: Merger and Acquisition Environment to Be One of High Risk, High Reward for Remainder of 2009

/PRNewswire/ -- In the current credit market where access to syndicated loans to finance large transactions remains limited, one of the few places that deals are getting done in the U.S. is in the middle market, according to the Transaction Services group of PricewaterhouseCoopers. For the first half of 2009, 135 middle market deals were announced with an aggregate deal value of $39.2 billion. "As in the last recession, it's the smaller transactions that are getting financed because deals of that size don't require assistance from the capital markets or the structuring of highly leveraged loans," said Robert Filek, a partner in PricewaterhouseCoopers' Transaction Services practice.

Also on the deal horizon for the rest of 2009 will be a few large, bellwether transactions orchestrated by adventurous dealmakers willing to operate in a very high risk, high reward M&A environment, where rigorous due diligence will undoubtedly be integral. "There is no doubt that within the next 18 months, some of the deals that get done will be looked upon as the most lucrative, potentially in the last couple of decades," said Filek. "It's really an era for explorers, who are willing to try and navigate in unchartered territory, and great riches may await for those who venture there. However, as explorers have found for centuries, riches are difficult to find and many explorers never return."

Among the riskiest types of deal activity in this recessionary market are cross-border M&A transactions. In terms of outbound activity, PricewaterhouseCoopers does not expect that CEOs of U.S. companies will be very aggressive in looking outside of the borders. One exception for cross-border M&A will be extremely opportunistic situations or merger of necessity circumstances where a company's key suppliers are going out of business and they need to firm up their supply chain.

Different from previous recessions, PricewaterhouseCoopers believes this one will result in global restructuring, and in the process global economies are in the midst of a long period of slower, more volatile growth. Filek stated, "Because this recession has been global and because all of the government stimulus packages are not created equal, it is likely that emerging markets like China and India will accelerate more quickly than other economies. We would expect that we will see an increase in Chinese acquisitions of U.S. and European companies."

Expanding on acquisition activity in Asia, Greg Peterson, a partner in PricewaterhouseCoopers' Transaction Services practice observed that developing countries continue to pursue commodities. "If you look at acquisitions coming out of Asia they tend to be very strategic and centered around transport and commodities because both are critical to continued growth. China, in particular has the capital to pursue those areas aggressively," he noted.

As forecast in PricewaterhouseCoopers' initial 2009 M&A outlook release, the deal landscape has seen an uptick in distressed investments across several sectors, which Peterson expects will continue. "A number of private equity funds historically cut their teeth in distressed deals and morphed into private equity funds in previous cycles," he said. "You have a host of private equity players who know how to do distressed, and do it well. Overall the private equity funds have in excess of $1 trillion waiting to be deployed but it will not be done without discipline."

Peterson noted that standalone distressed funds have raised billions in capital that will be deployed by either going after equity or transactions, allocating it to upside down balance sheets or to buying debt as a means of gaining control of a company or a way to be in a lead position through bankruptcy. The number of U.S. businesses filing for bankruptcy totaled 14,319 for the first three months of 2009 compared to 8,713 filings for the first three months of 2008, according to the American Bankruptcy Institute. Peterson noted the lack of reliable DIP (Debtor-In-Possession) financing in this recession will lead to more companies and investors negotiating their re-financing packages out of court or, where unsuccessful, perhaps even moving directly to Chapter 7.

According to Thomson Reuters, announced U.S. deal value and volume through May 2009 totaled $248.7 billion and 2,507 deals respectively, down from $428.6 billion and 3,750 deals for the same period in 2008. Private equity accounted 5% of the U.S. deal value and 20% of volume for the first five months of 2009, compared with 26% and 17%, respectively, for the same period in 2008. With regard to new deal activity, Peterson noted from the private equity perspective that deal volume and pipeline will continue to be slow for the balance of 2009 because of uncertainty around leveraged markets assisting private equity in the short term, and a fall off in club deals... "There may be some exceptions such as high-profile opportunities where the government or seller would make financing available or there may be some bolt-on opportunities to existing portfolio companies, but the folks with the checkbooks and the currency right now seem to be the corporates."

Sectors that continue to present opportunities include...

-- Technology -This sector is poised for another wave of consolidation
with mature business models and healthy balance sheets.

-- Energy- The stabilized crude price and great cash flow prospects,
buttressed by continued opportunities to grow these businesses makes
this sector a consolidation hotspot.

-- Pharma/Healthcare-The healthcaresector will continue to be in the
spotlight, most notably pharmaceuticals with drug companies seeking to
fill their pipeline through acquisitions and focus on true core
competencies by selling non strategic divisions/operations. As the
Obama administration realigns the health care system, there are going
to be players who look to basically realign their business model to
take advantage of the emerging environment.

-- Financial services - Consolidation in this space will be rampant,
driven by mergers of necessity where companies combine because the
opportunity is compelling and the sellers have to exit, and in many
cases will be a distressed situation. Specifically in banking, there
will be a flight to quality, referring to banks performing in the
upper quartile and getting out from under TARP and heavy government
oversight.

Both Peterson and Filek are optimistic about an upturn in the deal market. "There are a growing number of dealmakers, including private equity firms, who want to get on track now for the market's ultimate return," said Peterson.

Similarly, Filek sees opportunities for companies on both ends of the spectrum - those that have been moderately affected by the recession and those that have been hurt badly. "While some companies will be compelled to make acquisitions only if it is key to their survival, others may believe that it is a good time to combine with a partner and prepare for the uptick in the economy. We are seeing early signs of restored confidence needed for the return of a robust M&A market, which can in part be attributed to stimulus activities beginning to take effect." Filek also noted that the "slower pace of deals getting done can be attributed, in part, to increased and more tightly controlled due diligence by both buyers and sellers, which is necessary in this environment."

*The accuracy of our previous forecast does not guarantee future accuracy.

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Volcker Says Full Economic Recovery is Years Away

/PRNewswire / -- Speaking yesterday to 500 Brooklyn Law School graduates at their commencement, Paul A. Volcker, Chair of the President's Economic Recovery Advisory Board, said a full economic recovery is years away, and the U.S. must eventually cut back on borrowing from abroad. Mr. Volcker is widely credited with taming runaway double-digit inflation in the 1980s when he served as Chairman of the Federal Reserve Board.

A transcript of the speech is available at the Brooklyn Law School Web site, www.brooklaw.edu

Mr. Volcker said the nation has long been spending beyond its means. The U.S. faces "an unimaginable budget deficit as far as one can see," he said. The recession, which began in December 2007, "is bound to be the longest recession since World War II and could turn out to be the deepest as well."

He said that new regulations are necessary to prevent another crisis. "In my view, as joined by many others, sweeping reforms are truly necessary, in banking, in markets, and in our regulatory institutions," Mr. Volcker said.

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IBM Survey Predicts New Financial World Order With Shift to Specialization, Transparency and Lower Overall Returns

/PRNewswire/ -- According to a survey by the IBM Institute for Business Value, 90% of financial markets executives and government officials believe the returns of the past are over. The study reveals that as the financial markets industry radically restructures, firms must adapt to a new lower-margin landscape where they will need to specialize around services that clients value rather than continuing to provide a full range of in-house offerings.

The new IBM study predicts significant consolidation in segments wrought with over-capacity such as investment banking, asset management, and wealth management. Enhanced regulation and transparency will also eliminate opacity, with previously high-margin activities becoming commoditized.

The study predicts three specific areas of specialization that are likely to emerge from the new economic condition:

-- Beta transactors: the majority of financial markets firms will
concentrate on utility services (trading, asset management, etc) that
provide the infrastructure required to facilitate market-making in the
same way that water companies provide the reservoirs, purification
processes and pipes required to deliver clean water.
-- Advisors: a smaller number of firms will concentrate on providing
advice - such as wealth management or mergers and acquisitions advice.
-- Alpha seekers: a handful of private equity firms, hedge funds and
boutique investment houses, none of which are 'too large to fail',
will focus on generating high returns from high-risk investments.


"The three trends - towards specialization, client orientation and improved efficiency - are triggering a restructuring wave on a greater scale then ever before, eroding margins and forcing all firms to reconsider their value propositions and their core business models," said Shanker Ramamurthy, Global Managing Partner for Banking & Financial Markets at IBM Global Business Services. "The new industry will not only lack some of the great brand names of the past, but will also lack many of its past characteristics - from excessive risk taking, opacity and leverage, to massively high returns."

For some time, firms found it all too easy to make vast profits by exploiting pockets of opacity in the market and did little to refine management or control systems, to improve transparency or to connect with their clients. Respondents to the IBM survey said that improved client service and efficiency will be critical for competitive survival in a new lower-margin financial order, a finding consistent with other more mature industries. In the future, firms will need 'smarter' systems that can continuously assess their risks and returns across each line of business and adjust their business mix accordingly. At the same time these systems will also enable firms to refine client service through improved understand of profitability by business line and product as well as by individual client.

"Banks have been used to a level of volatility and business cyclicality, and are currently slashing headcount and closing business lines in order to save money, just as they have done in previous downturns. However, in the current restructuring, radical efficiency improvements will be required for survival," added Ramamurthy. "Indeed IBM's analysis suggests that the current wave of redundancies and divestitures will provide insufficient savings and that firms will need to seek further efficiency improvements of 20% or more as they face the need for a level of transformation and radical business model reform not seen in previous downturns."

Although growth is expected to be sluggish through 2012; it will depend on a firm's ability to thrive in an increasingly transparent environment. For example, hedge funds (and their prime brokerage service providers as a result) will come under severe pressure as transparency reveals that the majority of funds are not delivering on their 'alpha promise'. Meanwhile flow businesses (derivatives in particular), passive investments and infrastructure providers such as custodians, clearing firms and exchanges will grow as a result of increased transparency and a movement away from risk assumption towards risk mitigation.

In one of the most extensive surveys of the financial markets industry ever undertaken, and at a time when the industry is facing its greatest period of turmoil, the IBM Institute for Business Value surveyed 2,754 industry participants, including 1,076 individual investors and 1,678 executives and public officials, to determine how financial markets firms should prepare for the future. In a report published today entitled "Toward transparency and sustainability - Building a new financial order", it found that respondents were in broad agreement on the need to eliminate complexity and excess and move to a more transparent, sustainable market. They also agreed on the need for effective regulation not only to avoid the mistakes of the past, but also to prevent new ones in the future - but they feared that poor regulation may hinder necessary innovation.

Further findings in the report (available at www.ibm.com/gbs/newfinancialorder) include:

-- Providers and clients are disconnected 79% of the time (what clients
actually value and will pay for vs. what providers think their clients
value and will pay for).
-- 80% of firms ranked themselves as moderate to poor in delivering on
their brand promises of client-centricity, agility and stability
(brand promises are for multiple stakeholders including clients,
governments and employees).
-- Over 60% of clients believe their provider isn't acting in the best
interest of the client; and nearly 60% of providers agree that they
are not acting in their clients' best interest.
-- The buy side understands client behavior to a greater extent vs. the
sell side - but there is still room for improvement even on the buy
side.
-- Over 90% of executives and government officials believe the industry
will unbundle; apparently 'wealth destruction leads to self
reflection' - the industry is specializing by thinking through 1) what
to do, 2) what not to do, and 3) how to specialize around what the
client values.
-- When asked about the new world order, financial executives and
government officials ranked as number one the need for greater
transparency, second the need to address capital and liquidity and
third the misalignment between firms' incentives and the needs of
governments and individual consumers.
-- 70% of executives are concerned that the government will 'overshoot'
and over-prioritize financial stability at the expense of innovation.

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Isakson, Conrad Praise Senate Passage of Legislation to Investigate Economic Crisis

Amendment Creates Bipartisan, Independent Commission

U.S. Senators Johnny Isakson, R-Ga., and Kent Conrad, D-N.D., today praised Senate passage of their amendment to fraud legislation being considered by the Senate that would create a Financial Markets Commission charged with fully investigating the causes of the current financial and economic crisis in the United States. The amendment passed by a vote of 92 to 4.

“When Enron and WorldCom failed at the start of this decade, Congress rushed to legislate and regulate without all the facts. We need to make sure we don’t repeat that reaction as we seek to recover from today’s financial crisis,” Isakson said. “The only way to get an objective evaluation of where mistakes were made is to create an independent commission of experts to ask what went right, what went wrong and what could we have done to prevent this. We need a forensic audit of the laws of the United States as it relates to the financial markets and our economy.”

“The American people – many of whom saw their retirement accounts take significant losses in recent months - demand and deserve to know what caused our financial system to spiral downward so far so fast. We must hold those responsible for this calamity to account,” Senator Conrad said. “The commission the Senate voted to create today will investigate wrongdoing and help establish rules to help shore up our national economy and ensure this never happens again.”

The 10-member, bipartisan Financial Markets Commission will be modeled after the 9-11 Commission, which thoroughly and independently investigated the failures leading up to the September 11, 2001, terrorist attacks and made sound recommendations on where we needed to improve to prevent another attack in the future.

Likewise, the Financial Markets Commission will have 18 months to investigate all the circumstances that led to this financial crisis. The panel will have the authority to refer to the U.S. Attorney General and state attorneys general any evidence that institutions or individuals may have violated existing laws. At the end of its investigation, the Commission will report to the Congress its recommendations for statutory or regulatory changes necessary to protect our country from a repeat of this financial collapse.

This bipartisan Commission will include two appointees each by the Speaker of the House and the Senate Democratic Leader as well as one appointee each from the House Republican Leader, the Senate Republican Leader, the Chairman of the Senate Banking, Housing and Urban Affairs Committee, the Ranking Member of the Senate Banking, Housing and Urban Affairs Committee, the Chairman of the House Financial Services Committee and the Ranking Member of the House Financial Services Committee.

The Speaker and Senate Democratic Leader will choose the commission’s chair. The Senate and House Republican Leaders will select the vice-chair. Members of Congress as well as federal and state employees are prohibited from serving on the Commission.

Isakson and Conrad originally introduced legislation to examine the causes of the current economic crisis in January 2009. Senator Chris Dodd, D-Conn., Chairman of the Senate Committee on Banking, Housing and Urban Affairs, is a co-sponsor of the amendment as are Senators Saxby Chambliss, R-Ga., Olympia Snowe, R-Maine, and Sheldon Whitehouse, D-R.I.
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Everything You Wanted to Know About the Economy But Were Afraid to Ask

Finance experts from Emory University's Goizueta Business School recently tackled questions from Emory Magazine readers about all aspects of the economy, from housing and retirement to boom and bust cycles.

The full article, and more economic coverage, can be found in Emory Magazine's 2009 winter issue.

Q: If bubbles and crashes are cyclical and (seemingly) inevitable, why do financial experts never anticipate them? Never mind accurately predict, but even expect the end of the latest expansion? Why is “this time” always different?

A: You seem to be asking two questions. The first is why experts can’t predict the timing of economic cycles. The answer is that no business cycle is like the last one, since the structure of the economy and exogenous events (say, weather or wars) are always changing. Until recently, a number of economists were arguing that the days of sharp economic cycles were gone forever!

Your second question seems to ask why experts (and others) often behave as though a downturn in the economy will never happen. Part of the answer to this question is connected to the first: if I don’t know when the end is coming, what am I supposed to do about it? Alan Greenspan’s famous “irrational exuberance” warning occurred in December 1996. If you had heeded his advice and sold then, you would have missed another 75 percent run-up in the Dow Jones Industrial Average. Like the clock that is right twice a day, his crash finally came in 2000—but the Dow still stayed above its level of December 1996.

—Assistant Professor of Finance Ray Hill



Q: I will be 65 tomorrow. In such a bad economy, I wonder about the merits of my selling a house vs. a “reverse mortgage” and staying here. The house is too large for me now. But should I wait out the turnaround we all hope for soon?

A: Have you considered renting? The rental market is really (really) heating up. People who would have been in a position to purchase a home are not having luck either selling their own home to acquire the equity needed to buy a new home or getting approval for loans—these people are turning to renting.

Obviously you understand that getting a reverse mortgage doesn’t help you unload the house—your responsibility to repay the “reverse” starts when you do sell the house. Given that the interest rates on a “reverse” are pegged to the rates of T-bonds (which are at or near zero), it is probably not a good time to use this instrument.

I recommend that you rent your house out, rent a smaller, more affordable condo, and talk to a tax accountant about the implications regarding the rental income. You might be able to take care of all your concerns—your house, a smaller living space, and some extra income.

—Assistant Professor of Finance Tom Smith



Q: Is it accurate for media outlets to speculate in real time why the Dow and NASDAQ rise and fall? They tend to attribute the rise and fall to other current headlines (political elections, U.S. automakers, past employment figures). It seems they are mixing up macroeconomic signals and microeconomic practices.

A: The media (and many stock traders) seem compelled to offer their audiences an explanation for every movement in the stock market indices. As you suggest, however, most of the time these “explanations” are simply unverifiable speculation about events that happened to occur at the same time as the rise or fall in the stock market.


Commentators usually couch their explanations in anthropomorphic language, as if the market was a single-minded person. Instead, the “market” is the sum of thousands (millions?) of investors, all processing information and forming expectations in different ways. When an event is significant, completely unanticipated, and its effect is obvious (say, the 9/11 attacks), the media’s explanations will probably be correct—but who needs an explanation from CNBC on those occasions?

—Assistant Professor of Finance Ray Hill



Q: How long do you think this financial slowdown will last? For baby-boomers who were relying on their investments in the stock market to help fund their retirements, and given the slowdown in the real estate market, what do you suggest now as investments for the coming years?

A: Most economists predict the slump will continue through 2009 with modest growth returning after that, but some of the worst-hit real estate markets may take longer to bounce back. Don’t be afraid to invest your long-term money in the stock market, however. Stocks have had a horrible year, but the stock market tends to improve before the rest of the economy, so you’ll miss out if you wait for good news.

A rule of thumb is to invest “100 percent minus your age” of your retirement money in stocks. If you are 60 and nearing retirement, you should have roughly 40 percent of your retirement money in diversified stock funds (with some exposure to international stocks) and the rest mainly in fixed income securities like bond funds. The idea is that at 60, most people will live for at least two more decades, and bearing the risk of stocks will provide added return in the years to come.

—Associate Professor of Finance Clifton Green


Q: Until recently we saw the U.S. dollar depreciate against the EUR, GBP and the JPY, among other currencies. The boost to exports resulting from a weaker dollar was considered one of the few opportunities to help the U.S. Recently, however, and perhaps as a result of the world financial crisis, the dollar has regained some of its value. What is your opinion regarding the strength of the dollar going forward and the impact that will have on the ability of the U.S. economy to grow by becoming more investment- and export-oriented, as opposed to mostly consumer-oriented?

A: The U.S. dollar fell in value at a strong and relatively steady pace from its high values from 2002 right up to September 2008. The weaker dollar meant that U.S. products, both goods and services, were now relatively inexpensive compared to the products produced by many of our trading partners. America gained competitiveness, boosting exports of products. Further, we could now better compete with imports coming into the U.S. market.
Importantly, U.S. exports were also boosted by a second factor—the increased demand stemming from rapid economic growth abroad, particularly in emerging markets (U.S. exports nearly doubled from the recession of 2001 until autumn 2008). This was a crucial spur to the American economy, as this increased demand for U.S. production offset the rapid decline in housing construction starting in the summer of 2006, enabling us to stave off recession until 2008.

Now, however, the crystal ball of U.S. exports is murky, at best. Recession abroad will curtail demand for U.S. exports. Roughly 70 percent of our Gross Domestic Product has been household consumption. Given the frightening job market and losses in both stock and real estate wealth, it is hard to see this sector restoring U.S. economic growth. The remaining solution is a massive fiscal stimulus package of government spending increases and tax cuts—it seems to be the one engine that can pull us out of recession. The good news is that, if this can spur U.S. economic growth, consumption and business investment will return to growth. Best of all, the U.S. can help lead the world to faster economic growth, and the beneficial growth trend in U.S. exports can resume.

—Associate Professor of Finance Jeff Rosensweig, director, Global Perspectives Program


Q: Everywhere you look, the cost of goods, services, and materials has risen during the past two years. Now with lower fuel costs that affect the transportation cost of the goods we purchase, will the mega-retailers, restaurants, and other companies reduce their retail prices or enjoy the additional profits?

A: If just fuel costs were going down, we might see lower prices and higher profits for retailers and restaurants. Since August of 2008, however, the consumer price index has either dropped or stayed constant each month so we have actually entered a period of general deflation (not just lower fuel costs). These declining prices are not an opportunity for higher profits in the retail and restaurant sectors (which are both highly competitive) but, rather, an indication that sales are down and their businesses are really suffering as we enter a recession. Rather than higher profits, we are seeing business failures in these sectors (e.g., Circuit City).

—Assistant Professor of Finance Ray Hill

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Companies See Prospect of Tax Audits as Governments Seek Revenue, According to Poll by Tax Governance Institute

/PRNewswire/ -- As governments seek additional revenue in the current tight economy, senior business professionals say the increased possibility of an audit by taxing authorities is the most significant tax risk facing their organizations today, according to a survey conducted by the Tax Governance Institute (TGI).

Some 30 percent of more than 500 respondents polled during a recent TGI webcast identified the possibility of a tax audit as their number one risk. Also, high on the list of anticipated tax risks were increased regulatory requirements (27 percent) and accuracy of tax provisions (26 percent).

"As countries and states seek additional revenue, corporate tax executives are bracing for a round of heightened regulatory scrutiny," said Hank Gutman, principal at KPMG LLP, the audit, tax and advisory firm, and executive director of the TGI. "Companies know they will need to have documentation in place and accessible to demonstrate compliance with the many domestic and international tax requirements they regularly address in today's global economy."

Companies are also seeking to improve cash-flow in the current economic climate, the survey found. In fact, identifying and increasing the potential use of tax refunds, credits and incentives has been the top tax area of focus by companies in the past six months, according to 37 percent of respondents.

"By being alert to both overpayment of estimated taxes and opportunities to claim credits or utilize incentives, companies can reclaim some much-needed cash, a valuable commodity in today's difficult marketplace," said Scott Vance, principal at KPMG and moderator of the webcast.

The survey also revealed that compliance and reporting has been the tax function most focused on by companies during the past six months, according to 44 percent of respondents, followed by enhancing tax savings (21 percent).

"In difficult economic times, tax professionals can play a critical, strategic role for their enterprises," said Gutman, "by both limiting compliance risks and effectively managing their refund and incentives opportunities."

Among other key findings:
-- During the past six months, most companies (47 percent) kept tax
department resources about constant, with 28 percent reporting a
decrease in their in-house tax resources.
-- A majority of companies (69 percent) view tax risk management as an
integral part of their organization's enterprise risk management
policy.
-- Most companies (51 percent) said that reporting by the company's tax
function to the board and audit committee has remained about the same,
while 18 percent said that such reporting has seen an increase over
the past six months.



The Tax Governance Institute currently comprises more than 14,000 members. Launched in early 2007, it provides a forum for board members, corporate management, stakeholders, and government representatives to share knowledge regarding the identification, oversight, management, and appropriate disclosure of tax risk.

The survey was conducted during the Institute's March 12 webcast, "Identifying and Managing Tax Risks in an Economic Downturn." A replay of the webcast can be accessed at the TGI Web site at www.taxgovernanceinstitute.com.

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Merrill Lynch Fund Manager Survey Finds Chinese Economic Optimism Fuelling Improved Growth Outlook

/PRNewswire/ -- Fresh optimism over China's growth prospects has led to a marked improvement in economic sentiment globally, according to the Merrill Lynch Survey of Fund Managers for February.

Investors are at their most hopeful about the year ahead since the credit crunch took hold in July 2007, with the number who forecast a worsening economy in the 12 months ahead falling to a net -6 percent. This compares with a net -24 percent in January. The majority recognises, however, that the world economy is in recession.

Fears of a prolonged slowdown in China appear to be fading. The number of investors who predict lower growth in China over the coming 12 months has fallen sharply, to a net 21 percent in February from a net 70 percent in January.

Similarly, severe pessimism about the outlook for corporate earnings has started to ease. A net 43 percent of respondents expect to see deteriorating profits over the coming year, significantly lower than the 63 percent who held that view in December. A net 49 percent of the panel predicts inflation will fall over the coming 12 months, compared with 64 percent in January and 82 percent in December.

"Fund manager expectations for Chinese economic growth rose dramatically to their highest levels since 2007, and faint global decoupling hopes now reside solely with China," says Michael Hartnett, chief Global Emerging Markets Equity strategist at Banc of America Securities-Merrill Lynch Research.

Commodities coming back as equity allocations shift into cyclicals

Commodities have enjoyed the sharpest pick-up in terms of changes to asset allocations in the past two months. Investors hold a net 15 percent underweight position in commodities, down from a net 32 percent underweight in December.

Bond weightings were trimmed while equity allocations fell back to a net 34 percent underweight - the same position as in December. Investors have been pruning back their allocations to traditional defensive sectors and moving into more cyclical sectors.

Weightings fell in Telecoms, Insurance, Staples and Utilities. At the same time investors increased positions in Technology, Energy, Materials, Industrials and Discretionary Spending.

"Higher risk appetite, rising commodity sentiment and a strong valuation case could encourage further investment in energy and materials sectors. We see this as best played out through sterling-denominated assets," said Gary Baker, Banc of America Securities-Merrill Lynch head of EMEA Equity Strategy.

U.S. in favour while Japan allocations fall

Appetite for U.S. equities has been reawakened in February, possibly boosted by poor market performance in January. The net overweight position in U.S. equities has risen to 15 percent this month, up from 7 percent one month ago. The U.S. benefits from having the best profits outlook, and 31 percent of respondents want to overweight U.S. equities in the next 12 months.

At the same time allocations to Japan have fallen starkly with investors who hold a net underweight position of 26 percent, compared to 15 percent in January. Traditionally, Japanese equities would benefit from a broad pick-up in sentiment. Japan also suffers from having an overvalued major currency, according to the survey.

For the first time, respondents view the yen as more overvalued than the euro. Pessimism over the euro has broadly moderated, while the region's macro-economic outlook is somewhat more favorable.

"Eurozone growth expectations picked up to the highest level in 12 months in February," said Baker. "But in contrast with the global picture, the number of European portfolio managers overweight cash spiked to the highest level since October 2001."

Survey of Fund Managers

A total of 212 fund managers, managing a total of US$599 billion, participated in the global survey from 6 February to 12 February. A total of 177 managers, managing US$372 billion, participated in the regional surveys. The survey was conducted by Banc of America Securities-Merrill Lynch Research with the help of market research company Taylor Nelson Sofres (TNS). Through its international network in more than 50 countries, TNS provides market information services in over 80 countries to national and multi-national organizations. It is ranked as the fourth-largest market information group in the world.

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Back to Basics: CornerCap's 10 Investment Principles to Follow, Whether Times Are Tough or Lush

/PRNewswire/ -- With so much volatility in the market and fears about the economy's outlook as the nation moves into a period of new national leadership, CornerCap Investment Counsel President James C. Carr outlined 10 Commandments of Investing he believes should ensure success, whether the times are 'tough' or 'lush'.

The full text of Carr's 10 Commandments, along with additional commentary on each, is published in the Winter edition of the firm's news letter. It is also available online and may be downloaded at no cost from www.cornercap.com/library/Newsletters/n2009win.pdf .

The 10 Commandments of Investing

1. The minimum investment horizon is 10 years. "If you don't stay in the market for 10 years, don't get into it at all," Carr says.

2. Have a disciplined and consistent investment philosophy and process.

3. The asset allocation in an investment portfolio controls most of the volatility in your investment returns. According to Carr, asset allocation has everything to do with personal goals, income needs, risk profile and the ability to accept risk. It has nothing to do with stock selection, market timing, or strategy to vary with market conditions.

4. Do not attempt to time the market or strategically allocate your investment mix because of what you think the market might do. "One thing is absolutely certain," Carr notes, "the market is dominated in the short term by hope, greed, and fear! There is commonly a disconnect between a company's valuation and the current market jawboning."

5. Don't tinker. "Stay with the plan once you have established your asset allocation and your investment horizon," Carr counsels.

6. Have a clear view of what financial success means to you.

7. Control your emotions. "Human emotions can cause you to do exactly the wrong thing at the wrong time," Carr advises.

8. The home repair industry gets most of its revenue from those at home who try to fix it themselves. Carr recommends getting an expert to help you implement your investment objectives. Know the four critical P's for selecting an investment advisor. They are People, Process, Philosophy and Performance.

9. Do not retain an investment advisor who doesn't fully agree with and implement the commandments set forth here.

10. Having done all of this, the key to success thereafter is benign neglect.

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Federal Home Loan Bank of Atlanta Awards $43 Million for Affordable Housing Development

/PRNewswire/ -- Federal Home Loan Bank of Atlanta (FHLBank Atlanta) announced today that it will award more than $43 million to fund 85 affordable housing projects in ten states.

Local community developers, in partnership with FHLBank Atlanta member institutions, will use $38.6 million of the funds to buy, build, or preserve 4,040 affordable housing units in seven states within its district including Alabama, Florida, Georgia, Maryland, North Carolina, South Carolina, and Virginia. Partnerships in three states (Tennessee, Texas and Louisiana) outside the Bank's district will receive funds totaling $4.4 million to develop 474 housing units.

FHLBank Atlanta has awarded the funds as part of its 2008 Affordable Housing Program (AHP) offering. In addition, the 2008 AHP funds will be combined with other funding sources to develop more than $330 million of affordable housing.

"Now more than ever, the private investment capital provided by our Community Investment Programs stimulates much needed growth in communities by revitalizing neighborhoods, creating jobs, and supporting economic development," President and Chief Executive Officer of FHLBank Atlanta Richard Dorfman said. "AHP funds leverage lending by our member banks and other financial partners during a time when credit availability has been limited. By focusing our resources on preserving existing affordable housing and financing new affordable housing, our aim is to be a critical resource in confronting the housing and economic challenges many communities within our region are facing during these difficult economic times."

FHLBank Atlanta-AHP awards range from $30,000 to $1 million and will be made in the following states in FHLBank Atlanta's district:

-- Alabama ($3,557,941 for 351 units)
-- Florida ($9,247,136 for 666 units)
-- Georgia ($12,430,908 for 1,359 units)
-- Maryland ($1,490,000 for 178 units)
-- North Carolina ($5,885,815 for 541 units)
-- South Carolina ($4,047,116 for 603 units)
-- Virginia ($1,947,810 for 308 units)



AHP is a competitive funding program that helps develop owner-occupied and rental housing for very low-, low-, and moderate-income families. FHLBank Atlanta awards the funds annually to member financial institutions and their community housing partners. AHP is a component of FHLBank Atlanta's affordable housing, economic development, and down-payment assistance initiatives. For the complete list of winners, visit www.fhlbatl.com/ahp.

Some of the statements made in this press release may be "forward-looking statements," which include statements with respect to the Bank's beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, intentions, and future performance, and involve known and unknown risks, uncertainties and other factors, many of which may be beyond the Bank's control, and which may cause the Bank's actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by the forward-looking statements.

The forward-looking statements may not be realized due to a variety of factors, including: future economic and market conditions; changes in demand for advances or consolidated obligation; changes in interest rates; legislative and regulatory changes; political, national and world events; and adverse developments or events affecting or involving other FHLBanks or the FHLBank System in general. Additional factors that might cause the Bank's results to differ from these forward-looking statements are contained in the Bank's annual and quarterly reports, available on the Bank's website at www.fhlbatl.com.

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Experts Who Predicted US Economy Crisis See Recovery in 2010

/PRNewswire/ -- International Institute of Management (IIM), today announced that its President, Med Yones, was recognized by World Finance Magazine as "One of the few who predicted the current US economic crisis before it happened. IIM challenged the US President's State of the Union Address in January 2007, the Federal Reserve Chairman and the popular opinion of US economists and media analysts at the time. IIM published a policy white paper outlining US economic risks and strategies for the next decade." The paper can be found at

http://www.iim-edu.org/u.s.economyrisks/

Following the publication of the policy paper, Med Yones was quoted in worldwide media including Reuters, Fox News, Financial Post Canada, Handelsblatt Germany, Le Point France, China Times, Malaysia Sun, and New Zealand Herald.

According to Fortune Magazine, the list of prominent experts and business leaders who missed the signs of the crisis includes Alan Greenspan, former Federal Reserve Chairman; Ben Bernanke, the current Federal Reserve Chairman; Hank Paulson, Treasury Secretary; the financial industry analysts of Moody's, Fitch, Standard & Poor's; Wall Street CEOs including Stan O'Neal, the CEO of Merrill Lynch; James Cayne, CEO of Bear Stearns; Chuck Prince, CEO of Citigroup; Zoe Cruz, CEO of Morgan Stanley; and Angelo Mozilo, CEO of Countrywide Financial.

According to Med Yones, "We warned most of them about 2 years ago, yet no one was willing to listen until the markets took their first big hit in early 2007. Since that time, the policy paper was viewed more than 250,000 times by researchers, media analysts, and investors. The 3 most common questions are: (1) How did we get here? (2) Why did our top experts miss it? (3) When do you think the economy will recover? The short answers are: (1) Spending on credit without enough production to pay it back (2) Groupthink mindset, and (3) We'll experience more volatility in 2009 on the way to the bottom of the correction cycle. A modest recovery will start in 2010/2011. The more detailed answers can be found at: http://www.iim-edu.org/news/topexpertswhopredicteduseconomiccrisis.htm .

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New Tax Law Changes Can Help Millions of Taxpayers Save Money

/PRNewswire-FirstCall/ -- As we near the final days of 2008, what continues to weigh heavy on the minds of many people is the slowing U.S. economy -- unemployment has reached the highest percentage in years at 6.7 percent*, layoffs and business closures continue and the housing market remains weak. This year, lawmakers have passed more than a hundred new tax law changes intended to help millions of individual taxpayers. Jackson Hewitt Tax Service(R) encourages taxpayers to find out how these new tax credits and deductions can help lower their individual tax liability and possibly put more money back in their pockets this tax season.

"With more than a hundred pro-taxpayer credits and deductions, many taxpayers will qualify for new benefits that may not have been available last year," said Mark Steber, vice president of tax resources at Jackson Hewitt Tax Service. "Taxpayers affected by these changes could see significant savings, and with the current recession, it is even more important that taxpayers get all of the tax benefits they deserve."

Tax Law Changes
Steber outlines some money-saving tax law changes for 2008, including:

-- Economic Stimulus Payment and Recovery Rebate Credit: This initiative
is a two-phased program consisting of the economic stimulus payment
and the recovery rebate credit. Phase one was the economic stimulus
payment which was an advanced payment of the projected amount of
recovery rebate credit available on the taxpayer's 2008 return. Phase
two is the 2008 component of the program, so taxpayers who did not
receive their full economic stimulus payment in 2008 may qualify for
the remainder as a Recovery Rebate Credit on their 2008 tax returns.
For example, Jane, a single taxpayer, filed her 2007 tax return in
February 2008. She filed single, without children, and received a
$600 economic stimulus payment. In November, Jane gave birth to a
baby girl. Because she had a child in 2008, Jane may be eligible for
an additional $300 credit when she files her 2008 tax return and
claims her child as a dependent.

-- Mortgage Debt Forgiveness Relief Act: Homeowners who experienced
foreclosure on their primary home can exclude the cancelled debt
amount from their taxable income. For example, a married couple
filing jointly with an adjusted gross income (AGI) of $35,000, and a
home foreclosure that includes $10,000 in cancelled debt, could
decrease their tax liability by $1,500 under this act. In the past,
the $10,000 of cancelled debt would have been considered taxable
income to the individual that owed the debt. The home must meet the
following criteria:
-- It must be the taxpayer's main residence
-- The amount of debt forgiven cannot exceed $2,000,000
-- The loan must have been used to buy, build or substantially
improve the home.

-- Housing Assistance Tax Act: Taxpayers who pay real estate taxes and
are not otherwise eligible to itemize deductions can increase their
standard deduction amount by the lesser of:
-- Real estate taxes paid in 2008 OR
-- $500 ($1,000 if married filing jointly)


For example, a married couple filing jointly with an income of $28,000 that did not itemize their tax return but paid $1,200 in real estate taxes in 2008 could increase their standard deduction amount by $1,000. This additional standard deduction would decrease their tax liability by $100.

-- Additional Child Tax Credit: The Additional Child Tax Credit is a
refundable credit. This year, the income threshold has been decreased
to $8,500 from $12,050, allowing certain taxpayers to qualify for up
to $533 more per child in a potential refund. For example, a single
parent with two children and an income of $15,000 would receive a
refund of $5,799. Before the change, the potential refund amount
would have been $5,266.

-- First Time Homebuyers Credit: Taxpayers who purchased a new home for
the first time after April 8, 2008, may qualify for a refundable
credit up to $7,500. Part of the American Housing Rescue and
Foreclosure Prevention Act, this refundable tax credit works like an
interest-free loan for all qualified taxpayers. The credit must be
paid back in equal parts over a period of 15 years beginning in 2010.

Extending expired tax benefits
Lawmakers also extended several expired tax benefits, including:
-- Tax-free charitable donations for taxpayers 70.5 or older who choose
to direct up to a $100,000 donation from a traditional or Roth IRA
directly to a charitable organization.
-- A two-year extension of the Educator Expense Deduction which allows
teachers an above-the-line tax deduction of up to $250 for
out-of-pocket classroom expenses.
-- A two-year extension of the Qualified Tuition Deduction which allows
students to directly deduct up to $4,000 of qualified tuition and fees
paid to a college or trade school.
-- A two-year extension to the sales tax deduction. Taxpayers can claim
the greater of their state and local income taxes paid or their state
and local sales taxes paid when itemizing deductions. This is of
particular interest to taxpayers that live in states with little or no
income tax and those that purchased high-ticket items during the year.


"These are just some of the changes in the tax laws this year," added Steber. "Taxpayers should consult a trained tax preparer this year in particular, to ensure they don't miss out on the benefits available as a result of these new credits and deductions or any other commonly overlooked deductions. Clearly it is even more important this year that taxpayers ensure they get back the money they deserve or keep more money in their pockets."

Unemployed in 2008

For those taxpayers who were unemployed in 2008, it is important to remember that unemployment compensation is taxable on federal and most state tax returns. Income tax is not automatically withheld from unemployment compensation, however, individuals can elect to have taxes deducted. If you did not have taxes withheld throughout the year, you may have a potential balance due when you file your 2008 income taxes.

For those taxpayers looking for a job during 2008, there are deductible costs they can claim if they itemize deductions, including:

-- Mileage costs accrued on a personal vehicle while job hunting
including trips to job interviews and to the unemployment office.
Between January 1, 2008, and June 30, 2008, taxpayers can claim 50.5
cents per mile. Between July 1, 2008 and December 31, 2008, taxpayers
can claim 58.5 cents per mile.
-- Costs for creating, printing and mailing a resume
-- Costs for a headhunter or job placement agency
-- Transportation costs such as a bus, taxi, train or plane to an
interview
-- Meals and lodging if out of town for an interview
-- Parking and tolls when driving to an interview
-- Long distance or mobile phone call charges directly associated with a
job search
-- Business research services
-- Physical exam expenses if required by a potential employer


If a taxpayer accepted a new job which required relocation, he or she may be able to deduct qualified moving expenses not reimbursed by the new employer. Taxpayers should keep receipts related to all moving expenses in order to substantiate these expenses.

For more information, including a list of the most commonly overlooked deductions, credits and updates on recent tax changes, visit www.jacksonhewitt.com.

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What's Ahead for U.S. Financial Institutions?

When Barack Obama is sworn in as the 44th U.S. president on January 20, he will inherit a weak economy that has helped to effectively put some Wall Street companies out of business while driving bank failures to the highest level in more than a decade.

From Knowledge@Emory

At the very least, financial institutions can expect increased government scrutiny, according to faculty from Emory University’s Goizueta Business School. The challenge, they add, will be to refrain from strangling the financial system with over-regulation.

The number of failing financial institutions is sobering, and includes the wind-down of Lehman Brothers, Merrill Lynch’s rushed sale to Bank of America, Bear Sterns’ sale to JP Morgan Chase and the failure of 22 banks as of November 21, to 22, according to a running tally kept by the Federal Deposit Insurance Corp. Numbers like that have not been seen since 1993 when 50 banks fell, according to FDIC records.

“In the past few years Wall Street made an incredible amount of money by taking on enormous leverage,” says Jeffrey A. Busse, a professor of finance at Goizueta. “But it is now clear that the risk they took on was not fully understood.”

In the wake of the current financial disaster, there’s likely to be a lot less appetite for the kind of high-leverage merger and acquisition deals that helped pave the way for an eventual credit crunch, adds Busse.

“Along with the pullback in leverage, we’re likely to see stepped-up government regulation of banks and other financial institutions,” he says. “When companies ask for federal bailouts, they’ve got to expect the funds will come with some strings attached.”

Some banks in particular initially benefitted from issuing sub-prime and other exotic loans, but suffered significant losses as the housing market collapsed, Busse notes.

“Even after this crisis subsides, banks are likely to record lower revenue as a result of tighter lending standards,” he says. “Further, this credit crunch may last for some time, and more loan restrictions will likely lead to slower growth in the economy over the long term. That might not be so bad, though. Years of easy-money policies meant that too many people got used to living beyond their means. They didn’t realize that you can’t do that forever.”

Financial markets and institutions are changing in significant ways, observes Tarun Chordia, a chaired professor of finance at Goizueta.

“With the decision by Morgan Stanley and Goldman Sachs to reorganize as bank holding companies, there are essentially no more standalone investment banks,” says Chordia. “That means their proprietary trading desks will not be as active and we’ll see a disappearance, or at least a significant curtailment, of the huge bets on markets that once characterized Wall Street.”

Chordia says banks are likely to face stiffer capital requirements, especially as the government pumps public money into financial institutions.

“Banks are likely to be required to watch their liquidity very carefully, and derivative markets will also face more scrutiny,” he says. “For instance, we are likely to see more transparency in the credit default swap market which is more likely to move towards an exchange market with appropriate constraints on counterparty risk.”

However, he notes, the financial crisis has led to a “suspension of the debate” about the appropriate level of regulation of markets and institutions.

“Risk taking by banks is likely to undergo some significant tightening,” Chordia adds.

”More regulation is coming and maybe some of it is necessary but too much regulation can also be harmful to the economy. It is important to strike the right balance so as not to endanger the innovativeness and the creativity of the U.S. economy. The optimal rate of bank loan defaults is not zero.”

As a society, says Chordia, there is a question of whether there should be tighter constraints on the ability of financial institutions to take on risk. Too much regulation can drive activity to other international markets and harm America’s standing as an international financial center, he observes.

“The economy would have suffered if over-regulation had strangled Silicon Valley,” warns Chordia. “Let us remember that Google, Apple, Cisco and countless other firms were started in the U.S. and the risk taking ability of the financial institutions was an important ingredient in their creation.”

Chordia is somewhat concerned about solving that conundrum. “We need some regulation,” he says. “The trick is to strike the right balance, and I believe that [U.S. Federal Reserve Chairman] Bernanke and [U.S. Treasury Secretary] Paul Paulson seem to understand the situation. However, I am concerned that with one party in control of the executive and legislative branches of the government we might see some excesses. Gridlock may have been better.”

“In the long run, regulators should strengthen the partition between tax-payer underwritten portions of a bank’s operations and other operations,” according to Narasimhan Jegadeesh, a chaired professor of finance at Goizueta. “One set of banking operations, for example customer deposits, have a government guarantee and are subject to strict regulations regarding investments. The other assets of banks are not as highly regulated because they have no government guarantees. The government guaranteed operations of a bank should be solvent on a standalone basis, but in the current environment troubles in the non-banking operations are hurting banks’ ability to support their deposits.”

Today’s financial crisis has been exacerbated by the repeal of the federal Glass-Steagall Act in 1999 [a 1933 regulation that prohibited commercial banks from collaborating with full-service brokerage firms or participating in investment banking activities], he adds.

“Glass-Steagall was repealed in order to let banks compete better with other financial institutions,” explains Jegadeesh. “The problem is it let banks take more risks, but used taxpayer funds [through the FDIC, for example] to guarantee their continued existence. Government-sponsored entities such as Fannie Mae and Freddie Mac also took on risks far in excess of what could be supported by their capital base because of implicit government guarantees.”

Giving an institution explicit or implicit government guarantees is inherently dangerous because it encourages “moral hazard,” or undue risk-taking, he explains.

Fannie Mae and Freddie Mac, which were created to help increase the availability of residential mortgages, were recently seized by the government over concerns about the sharp increase in failing mortgages. Regulators did not fully understand the extent of risks they were taking until very recently.

Similarly, the Community Reinvestment Act, enacted by Congress in 1977, was intended to facilitate homeownership by the economically weaker section of the Society. CRA encouraged banks to extend credit to residents of local communities who might otherwise not qualify for home loans.

“It was a noble goal, but it effectively forced banks to extend credit to people who could not carry the debt,” says Jegadeesh. “I believe the incoming presidential administration will have no choice but to ease up programs like the CRA, although it will likely do so in a politically proper manner.”

As politicians ponder their approach, they would do well to consider the way their actions are likely to affect market liquidity, says Kevin Crowley, a lecturer of finance at Goizueta.

“They may be tempted to hammer away at hedge funds and other institutions, but over-regulation could drive money to other countries,” he notes. “Something similar happened after Congress passed the Sarbanes-Oxley Act of 2002, which imposed more rules on publicly held companies. Some foreign companies decided not to list on U.S. markets, and there was an increase in the number of public companies who voluntarily delisted as a way to escape the additional reporting costs associated with Sarbanes-Oxley compliance.”

But with a Democratic Congressional majority and a Democrat in the White House, Crowley sees little chance of a retreat in financial regulation.

“Many kinds of players contributed to this financial meltdown,” says Crowley. “But politicians generally find it easier to blame banks, hedge funds and speculators than to admit their own role. The concern now is that the regulatory pendulum may swing too far and possibly choke off a recovery.”


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Private Equity Leaders Confident of Full Economic Recovery

/PRNewswire/ -- Over half of private equity leaders are confident that the full recovery of the market is no more than 18 months away, new research commissioned by Celerant Consulting reveals.

A survey of more than 220 senior executives across Europe and the United States, carried out by the Economist Intelligence Unit, reveals that 53% of private equity leaders believe that the market will return to its pre-credit crunch levels within 18 months. The findings showed that US executives are more optimistic about the future than their European counterparts, with 62% of US respondents believing that a turnaround would occur within that time frame. As noted, the global sentiment was a bit more pessimistic, with 36% of UK and 32% of German respondents predicting a full recovery would take longer.

Paul de Janosi, Managing Director of Private Equity, Celerant Consulting, said: "Despite the optimistic viewpoint of a majority of the survey respondents, we feel that it will be a few years before we see pre-credit crunch levels of activity again. We expect the roots of early recovery to begin in the second half of 2009, leading to broader activity by mid-2010. The GP's will not be static though, as there is significant amount of portfolio remediation work and this type of market down-turn typically yields strong buying opportunities."

Yet to hit rock bottom?

Despite the long-term optimism, many of those questioned still felt that the market has further to fall. The vast majority believe both the volume and value of deals will reduce over the next year (78% and 81% respectively), whilst two thirds (66%) say they intend not to invest at the moment and would instead wait for more attractive deals.

Change is necessary, but how?

The survey also found that private equity leaders from around the globe are united in the belief that the credit crunch and subsequent recession will transform the industry, with 96% agreeing that PE firms will have to change. However, there is no consensus on what the sector will look like when the credit crunch has passed, highlighted by the fact that 16% acknowledge that there will be a need to change but they are not sure how.

One fifth thought that the industry would need to find a completely different financing model -- unsurprising given that the reduced levels of available credit in the marketplace means that the days of massive leveraging are a thing of the past. Almost as many, 19% globally and 29% US, expect the credit crunch to lead to consolidation within the private equity sector itself.

What to do in the meantime?

Nevertheless, despite acknowledging the need for change, only 20% are planning to scale back activity in the next 12 months, and a mere 2% intend to shed jobs. Rather, the optimistic long-term prognosis is illustrated by the fact that 26% of those questioned are prepared to take on new staff.

Paul de Janosi continued: "The credit crunch means that easy refinancing is a thing of the past, yet the private equity industry is still optimistic about the future. In the short term private equity companies have already begun to shift their focus from investment to improvement. They need to concentrate on their existing portfolios to ensure that they are both maximising their operational efficiency for short-term survival, and guaranteeing long-term growth."

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