Will Small Business Jobs Act Boost Economic Growth?

The recently enacted Small Business Jobs Act of 2010 fulfills a promise U.S. President Barack Obama made to entrepreneurs soon after his election, pledging to create incentives aimed at encouraging small-business creation and growth.

Many experts agree that the package of finance and tax incentives represents some good news for small businesses struggling to cope with weak economic conditions. Although some faculty at Emory University and its Goizueta Business School and other observers praise the new initiative, others wonder if it will have the necessary impact to help jump-start the economy.

"Until now, large companies have been the biggest beneficiaries of stimulus programs and tax incentives," says Thomas Smith, an assistant professor in the practice of finance at Goizueta. "The accelerated tax write-offs featured in the new act are a good idea, since they’re aimed at incentivizing businesses to make capital purchases that can have a ripple effect throughout the economy."

Among other changes under the Small Business Jobs Act, companies can reduce their taxable income by immediately expensing the costs of certain kinds of newly acquired business assets, instead of depreciating them over their "useful life," a period of years determined by the Internal Revenue Service. Generally, companies like to expense their assets quickly as a way to significantly reduce their tax liability.

The asset write-offs, popularly known as Section 179 after the applicable part of the Internal Revenue Code, were previously limited to $250,000 in a given year. The new act raises the threshold to $500,000 of newly purchased assets per year, subject to certain limitations, during 2010 and 2011.

In another bid to get businesses to spend more, the act extends and revises the so-called bonus depreciation rules, which let taxpayers depreciate 50 percent of the cost of certain assets in the first year they are placed in service.

An earlier set of bonus depreciation rules expired at the end of 2009, but the new act extends it to assets placed in service through the end of 2010, and certain assets may qualify even if they are purchased and put into service through 2011.

Some observers have questioned the timing of the legislation, suggesting that few small business owners will risk making significant capital expenditures during the current downturn. They also complain that the bonus depreciation rules, while welcome, have such a limited timeframe that few businesses will not have enough time to plan and get financing for the capital purchases.

Smith, however, isn’t so sure about that.

"The fact is that machinery and equipment is either wearing out—or, in the case of computers and other technology-based assets—is becoming obsolete," he says. "Businesses that want to stay competitive aren’t likely to hold off on necessary purchases just because the economic recovery isn’t moving as quickly as they hoped. Obama’s responses to the recession may not all be perfect, but he’s moving in the right direction."

If Smith was hedging on his view of the tax incentives, another Obama initiative has his full support.

"I think the tax incentives were a good idea, but the $30 billion that’s being released to banks to stimulate small-business lending is even better," he says. "Many small business owners I’ve spoken with have complained that they’ve wanted to take advantage of expansion and other opportunities, but simply couldn’t get loans to finance their plan."

Besides replacing aging assets, some business want to upgrade to more efficient machinery and equipment that can reduce their operating and other costs, adds Smith.

"It’s difficult to say with certainty exactly what the catalyst to spur business activity will be," Smith observes. "But we’ve got to try bold, new initiatives like these, as well as other strategies, to incentivize businesses to start hiring again. To do nothing would be myopic."

Perhaps, but this economy presents some unique challenges, says T. Clifton Green, an associate finance professor at Goizueta.


"Although the recession is officially over, we seem to be having the jobless recovery that people feared, in that unemployment is still very high," notes Green. "The idea behind the $30 billion government bank-loan program and the tax credit initiative is to get small businesses spending to expand their businesses and hire new people."

But large companies can easily borrow at historically low rates, "and they are not using the money to expand," he adds. "Rather than hiring, they're using new debt to buy back stock or replace old technology that they held off replacing during the recession. The recent behavior of large business suggests the small business act may not have the intended new hiring effect."

Indeed, William J. Carney, a chaired professor of corporate law at Emory, stresses that another administration initiative, healthcare reform, may have already undermined any benefit the Small Business Jobs Act may have provided.

"Congress meant well by pushing businesses to provide healthcare insurance," he says. "But it could be counterproductive to hiring, especially among low-wage employers who don't want to take on "Cadillac" insurance programs for minimum-wage workers. We've already seen pushback from McDonald's Corp. and other big employers that complained and are getting limited waivers."

Yet New York City entrepreneur and Goizueta graduate Brett Klasko believes that more credit access could boost businesses.

"Opening up the lending channels is a good idea," says Klasko, chief executive officer of the marketing firm Phinaz whose subsidiaries, Ticket Boosterand Investors Alley, focus on the sports and financial industries, respectively.

"The additional federal funding could give banks an incentive to lend," he adds.

If the effectiveness of this program and others is in debate, then how—or if—such legislation can stimulate a positive response with voters in the midterm elections is even murkier.

"I don’t know if this program and others will really help the Democrats much in the midterm elections," notes Klasko. "For example, the president has been pushing to let some or all of the Bush-era tax cuts expire, and I don’t think that’s a good idea, since it will end up hurting businesses."

Obama may hope that the administration’s most recent stimulus effort will help Democrats in the November elections, but Goizueta finance professor Tarun Chordia does not believe it will help the economy much.

"The act, like the previous "cash for clunkers" and "homebuyers’ incentive," might just move some activity forward," he says. "It might not really create new activity, and we’ll suffer the aftereffects later on."

In contrast to these "small fixes," there’s a real need to upgrade infrastructure, says Chordia. "We currently have spare capacity in the economy, and it is important that the right projects are funded. There is a large debate in economics between those who feel that government spending on infrastructure projects during downturns can help future GDP growth and those who feel that government spending is generally wasteful. It is probably true that projects funded for political reasons, just before the November elections, are likely to be wasteful.

Chordia believes that big issues like the hangover in the housing market will take at least two or three years to resolve, regardless of what the federal government does.

"This recession is different than past slumps," explains Chordia. "In this one, we’ve seen a broad retreat in asset prices, and it will take time to get supply and demand back into balance. At this point the motivation for the stimulus programs seems to be the November election."

From Knowledge@Emory

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AARP Survey Looks at Recession's Impact on Lower-Income Adults 45+

/PRNewswire/ -- An AARP report released today for the first time paints a picture of the struggles lower-income older adults are facing during the recession. The AARP Closer Look June 2010 survey found that nearly six in 10 Americans 45+ who make less than $25,000 a year say they are either "not at all" or "not too" confident they will have enough money to pay medical and living expenses in retirement, compared to 36 percent of higher income adults.

More than four in 10 (42 percent) lower-income older adults rate their health as "fair" or "poor," compared to only 18 percent of those who earn more than $25,000 a year. Additionally, many report they are struggling to meet basic needs, like paying for food and electricity, heat and water bills.

"While the recession has been devastating for many older Americans, this recent data indicates lower-income folks are being hit particularly hard," said Jo Ann Jenkins, president of AARP's affiliated charity, the AARP Foundation. "Each day, millions are choosing between essentials like buying groceries or paying for prescriptions. It's a devastating choice that no one should have to make."

Similar to the general population, lower-income older adults have cut back, but they are doing so in greater numbers. Nearly 40 percent had to cancel or postpone needed healthcare or dental treatments in the last six months--twice as many as higher-income adults. Twenty-three percent skipped doses, cut pills in half or did not fill prescriptions, compared with 15 percent of higher-income people. Lower-income adults are twice as likely to have looked for more affordable housing in the last six months compared to higher-income levels. And half used their car less to cut down on gas costs.

Additional findings for all income levels indicate the continual struggles older Americans are experiencing in tough economic times:

-- More than one in four adults 45+ (28 percent) stopped contributing to
retirement savings in the past six months, and 14 percent of adults 45
to 64 reported having to prematurely withdraw funds from retirement
savings vehicles--a trend which has increased at a significant rate
over the recession.
-- When asked about current value of retirement savings available, nearly
half (48 percent) reported having less than $50,000 in savings, with
16 percent of those reporting no savings at all.
-- With many older workers currently facing extended unemployment, a
large majority (63 percent) of respondents said that, based on what
they have experienced or observed, older workers face age
discrimination in the workplace.
-- Twenty percent of people 45+ reported problems paying their medical
bills in the last six months. The percentages were significantly
higher for Hispanics (29 percent) and African-Americans (33 percent).
-- More than a quarter of people 45+ have put off or postponed getting
needed health care or dental treatments or services in the last six
months.
-- Gas prices continue to be a challenge for more than a third (35
percent) of people age 45+, but finding adequate public transportation
alternatives is also a problem, 34 percent say.
-- A third of people age 45+ report are fixing up their homes to stay
there longer even as almost half (45 percent) note that their
community lacks affordable housing if they chose to move.


AARP Foundation (www.aarp.org/foundation) and AARP Real Relief (www.aarp.org/realrelief) have resources to help lower-income older Americans make ends meet, including federal benefits assistance, money management programs and tips to cut expenses.

AARP Closer Look is a twice-yearly poll to help understand the effect of social and economic changes on baby boomers and older Americans. The full survey is available at http://www.aarp.org/money/budgeting-saving/info-09-2010/closer-look-econ-0610. html.

Methodology

ICR conducted the Closer Look Survey for AARP via telephone between June 9 and June 30, 2010, among a nationally representative sample of 1,000 respondents 45+. One hundred respondents were Hispanic and 100 were African American. The margin of error is +/- 3.35 percent at a 95 percent confidence level.

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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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Dow Jones Economic Sentiment Indicator Up Only Slightly to 38.7; Suggests Recovery Could Be Losing Momentum

/PRNewswire/ -- The media's coverage of mixed economic news led to a marginal rise in the Dow Jones Economic Sentiment Indicator (ESI) in December. The ESI rose to 38.7, up only minimally from 38.3 in November. This slight rise is the ESI's third weakest performance in a year and much less convincing than increases in October and November.

While the ESI ends the year significantly higher than the 22.4 level it registered in January at the start of the year, December's weaker performance means the indicator failed to break back above the level it held before the collapse of Lehman Brothers in September 2008.

The Dow Jones Economic Sentiment Indicator aims to predict the health of the U.S. economy by analyzing the broad coverage of 15 major daily newspapers in the U.S. During December, media coverage that included references to better-than-feared holiday retail sales was outweighed by articles referencing mixed or negative economic news including continuing double-digit unemployment and slower economic growth.

"The ESI's significantly slower rate of improvement in December suggests the U.S.'s economic rebound could be starting to level off and that non-farm payrolls neither advanced nor declined by much during the month," Dow Jones Newswires 'Money Talks' columnist Alen Mattich said.

The ESI represents one of the most comprehensive and far-reaching examinations of media coverage as an economic indicator. The ESI's back-testing to 1990 shows that the ESI clearly highlighted the risk that the U.S. economy was sliding into recession in 2001 and 2008 and suggests the indicator can help predict economic turning points as much as seven months in advance of other indicators.

Unlike some other indicators where 50 is a clear break-point between recession and recovery, the ESI needs to be read with reference to longer trends. Based on the ESI's performance since 1990, previous recoveries have been marked by substantial month-to-month gains, with a jump of three points seeming to be a sign of significant improvement. A drop below 50 marks the point at which there is a clear risk of a slowdown.

The Dow Jones Economic Sentiment Indicator is calculated using a proprietary algorithm through Dow Jones Insight, a media tracking and analysis tool. More information about the Economic Sentiment Indicator and its development is available at http://dowjones.com/esi .

Dow Jones Insight uses innovative text mining and analytic technologies to help organizations keep informed about relevant issues, news, conversations and trends emerging in mainstream, Web and social media. Dow Jones Insight's global content collection includes more than 25,000 news and information sources as well as blogs, message boards, and posts from YouTube and Twitter.

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Solid Index Findings: Americans Define Themselves Based on Finances, But Don't Invest in Their Fiscal Futures

/PRNewswire/ -- The economic contraction has highlighted the internal duel between Americans' beliefs and actions according to the latest Solid Index, a survey by SunTrust Banks (NYSE:STI) that studies Americans' emotions and perceptions toward their finances. The Solid Index revealed that while more than half (58 percent) of the respondents feel that their financial situation contributes to their perceptions of self-worth, 40 percent of American adults will not be enrolling in a retirement plan this year.

The most recent survey is the fourth in a series of six throughout 2009 and it investigated Americans' thoughts around benefits enrollment, the contributors of their self-worth and their reactions to the recession. In addition to their financial situation, the findings revealed that 55 percent of Americans feel that their job contributes to their sense of self-worth, with 43 percent citing their salary and more than a third (37 percent) noting their possessions.

"It is surprising and unsettling that many Americans are neglecting to properly invest in their future even while using their financial situation as a litmus test for their self worth," said Rilla Delorier, chief marketing officer for SunTrust Banks. "In this current economic situation it may seem difficult to invest in one's retirement, but proper planning and budgeting can lead to solid behaviors and help individuals feel good about themselves now and in the future."

Other key findings of Americans' reactions to the recession include:

-- Almost two thirds (64 percent) feel that they are obligated to feel
grateful for having a job in today's economy.
-- Penny pinching is getting old, with 54 percent stating they are tired
of cutting back on the little things.
-- To combat the restrictions of penny pinching, 93 percent said that
they have purchased an item in the last three months to give
themselves a "pick me up".
-- Women are significantly more likely than men to indulge themselves by
spending on clothes (59% vs. 43% men), while men tend to be more
interested in splurging on electronics (30% vs. 18% women).

Not all reactions to the economic turbulence have been negative. One in two respondents stated that the economy has caused them to spend more quality time with their family, bringing them closer, despite the fact that 55 percent believe a night out with the family has become unaffordable. Additionally, many reported becoming more generous due to the economy by helping their friends, family and neighbors save money by giving away hand-me-down clothes (66 percent), preparing meals for others (55 percent), babysitting (38 percent) and doing renovations (37 percent).

"While Americans are challenged by this economy, they are finding new ways to enjoy their families and friends, whether it's spending more time together or swapping a solid - that is, supporting and helping each other with favors instead of paying others to do it for them," added Delorier. "These types of solid behaviors underscore the generosity and resiliency of Americans."

The Solid Index was conducted by StrategyOne as a five-question, single wave telephone omnibus survey among a census representative sample of 1,000 American adults aged 18 and older. The next wave of SunTrust's Solid Index will be released this December.

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Consumer Savings Higher as Debt Declines; Mortgage Delinquencies, Bankruptcies Continue to Grow in September

/PRNewswire/ -- Consumers continue to fight the recession by saving more and paying off debt; banks are responding with more careful lending; and stressed homeowners increasingly are falling behind on mortgages on their primary residence, according to the latest Equifax Inc. (NYSE:EFX) Credit Trends Report, a summary of key economic trends the company distributes to its customers every month.

Some of the key findings in the September report include:

Total consumer debt has been reduced by more than $440 billion, down 3.8 percent from its peak in the third quarter of 2008.

The estimated consumer savings rate continued to be relatively high at 3.71 percent in the third quarter - down from 4.74 percent in the second quarter - but much higher than savings rates that were as low as 1.30 percent as recently as the third quarter of 2008 and .20 percent in the first quarter of 2008.

Bankcard issuers continue to close accounts and reduce credit lines. Since September 2008, there are 88 million fewer accounts and credit lines have been reduced by $751 billion. Delinquency rates also are the highest in five years with 4.36 percent of bankcard accounts more than 60 days late in September 2009 compared with 3.39 percent in September 2008 and 2.80 percent in September 2007.

New accounts opened, based on end of July data, were 54 percent lower than July 2008. The percent of cards issued to those with Equifax Risk Scores greater than 740 grew from about 28 percent in July 2007 to more than 50 percent at the end of July this year. Conversely, the percent of cards issued to those with Equifax Risk Scores 660 and below dropped from 42 percent in July 2007 to slightly over 22 percent in July 2009.

Home mortgages at least 30 days late reached a record 7.65 percent (in dollars) in September, up from 7.58 percent in August and 7.32 percent the previous month. This record rate is a significant increase over the 5.17 percent rate of September 2008 and the 3.55 percent rate of September 2007.

Home equity lines of credit are an estimated $65 billion lower in September 2009 than they were in September 2008 and the number of accounts is an estimated 754,000 lower. Delinquency rates are at an all-time high of 3.39 percent versus 2.66 percent in September 2008 and 1.59 percent in September 2007.

Personal bankruptcies also continued to rise. For the first nine months of 2009, filings are 40 percent higher than last year. Filings have already exceeded one million compared with the 2008 year-long total of 1.1 million.

"American consumers are making the most fundamental change in the way they handle their finances we have seen in a decade," said Dann Adams, president of Equifax's U.S. Consumer Information System. "They are conserving cash and reducing debt across the board. We haven't seen savings rates this high since shortly after the third quarter of 2001 - just after 9-11 - when they were at 3.25 percent.

"At the same time, high unemployment is being reflected in more homeowners falling behind in their primary mortgages," Adams added. "As a result, banks and other financial institutions are being much more careful in managing their risks.

"The data reflect an economy in transition with consumers doing better with their financial management, but with many still struggling in the face of high unemployment and restricted credit."

Data for the Credit Trends Monitor Report is sourced from Equifax's more than 200 million files of US consumers using credit. The personal savings rate information comes from CreditForecast.com, which uses U.S. Bureau of Economic Analysis data.

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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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Recession Has No Effect on Mid-Income Retirement Hopes

/PRNewswire/ -- The recession has forced nearly two in five (39 percent) Americans to save less for their golden years, but it hasn't changed their perception about whether middle income families can save for retirement.

Thirty-five percent of Americans believe it is possible for a typical middle income family to save for a secure retirement, according to a new COUNTRY Financial Survey. While that percentage doesn't necessarily paint a positive picture, it's virtually unchanged from the prior two years - 36 percent in 2008 and 37 percent in 2007 - when the US economy was in a better state.

Yet, the recession is having an impact on people's plans as more than one-quarter of the adults (26 percent) surveyed say the effects of today's economy will cause them to delay their retirement.

"It's encouraging that all the bad news has not caused people to give up hope," says Keith Brannan, vice president of Financial Security Planning at COUNTRY. "If you're struggling, review and adjust your financial plan to get by in the short-term without losing sight of long-term goals like retirement. If you don't have a plan, you may want to talk to a professional who can help you create a tangible plan to get from where you are today to where you want to be in the future."

Genders split on best saving skills for the future
-- Overall, Americans think women (37 percent) are better at saving and
investing for the future than men (29 percent). However, men think
they are better at this task (42 percent) while women believe they
have the upper hand (49 percent).


Employers pull back on contributions
-- Nearly one-quarter of Americans (23 percent) who participate in a
work-sponsored plan like 401(k) say their employer has cut
contributions to their retirement account.


"If your employer has cut their contributions to your retirement account, you have several options to choose from to maximize your retirement plan," adds Brannan. "The worst thing you can do is to stop contributing to retirement just because you no longer have a company match."

Tips for maintaining retirement savings in tough times:
-- Establish and maintain an emergency fund. In these tough times, it's
important to have an emergency fund sufficient to cover at least three
months of your expenses saved in a highly-liquid account, such as a
money market mutual fund or a savings account.
-- Try not to borrow against your 401(k) account. Besides borrowing
against your future, if you leave your employer, you may still be
responsible for paying the loan back within 60 days. If you can't
repay it within that time, IRS penalties could be imposed.
-- If your employer stops matching your 401(k) contributions, consider
redirecting your contributions to a Roth IRA. In addition to
providing tax-free income once you retire, you can liquefy your
contributions at any time for any reason without IRS penalty or income
tax consequences.

For more information on Americans' sentiments about financial security, please visit www.countryfinancialsecurityindex.com.

The March COUNTRY Retirement survey is based on a national telephone survey of 3,000 Americans and is compiled by Rasmussen Reports, LLC (www.rasmussenreports.com), an independent research firm. The margin of sampling error for this survey is approximately +/- 2 percentage points with a 95 percent level of confidence.

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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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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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Recession-Induced Child Poverty to Cost U.S. $1.7 Trillion in Economic Loss

/PRNewswire-USNewswire/ -- A new report has found that the United States will suffer a future economic loss of over $1.7 trillion if the current recession drives an additional 3 million children into poverty, as has been predicted. That amounts to a yearly loss of about $35 billion dollars per year over the lifetime these children.

The report, entitled "The Cost of Doing Nothing," was released today by First Focus, a bipartisan children's advocacy organization. The report analyzes the costs of childhood poverty, including its effects on lifetime earnings and health outcomes. Research indicates that children who spend more than half of their childhood in poverty earn, on average, 39% less than the median income. Furthermore, a poor child loses approximately a quarter of a million dollars worth of "health quality" over the course of their lifetimes. By aggregating these long-term effects across the millions of poor children who are projected to fall into poverty as a result of this recession, the report produces a baseline estimate of the economic costs of allowing additional children to become poor during a recession.

"If we do not act now, the current economic climate will lead to millions more children living in poverty, which will cause a severe economic loss for our nation's future," said Bruce Lesley, President of First Focus. "When children enter poverty at a young age, their ability to achieve the American dream is diminished. They are 13 times more likely to remain in poverty for several years after the recession ends, leading to adverse effects on lifetime earnings as well health outcomes."

The report looks at the particularly severe ramifications that stem from numerous childhood years spent in poverty. The report finds that more than half of children who fall into poverty during recessions are likely to remain in poverty for at least some time after the recession ends. In fact, about a quarter of children who suffer from recession-induced poverty will spend at least half of their remaining childhood in poverty.

"Our findings show that recession-induced poverty has a lifelong effect on our children. Moreover, we know that poverty during childhood leads to severe, long-term economic costs. Therefore, there is a significant economic benefit to acting now to prevent the child poverty rate from skyrocketing. Indeed, if we can just maintain the current child poverty rate, the US economy will benefit by at least $1.7 trillion over the next several decades," Lesley added.

In August, the U.S. Census Bureau released data showing that the number of children living in poverty in 2007 has already begun to climb, reaching its highest rate in a decade. The Census shows that in 2007, 13.3 million children were living in poverty.

The report can be found at http://www.firstfocus.net/pages/3533.

First Focus is a bipartisan advocacy organization that is committed to making children and their families a priority in federal policy and budget decisions.

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Although $700 Billion Bail-Out is Only 'First Step' on Long Road to Repair Financial Markets, CornerCap Sees Opportunities for Smart Investors

PRNewswire/ -- Although the $700 billion bail-out legislation signed into law earlier this afternoon by President Bush should help set an orderly process for disposing mortgage assets, it is at best a first step to allow for stability and recovery of the nation's financial markets says Atlanta-based CornerCap Investment Counsel's chief investment officer, J. Cannon Carr, Jr.

Writing for the firm's quarterly newsletter, Carr says that even with the government's plan, credit markets are likely to remain tight until home prices and debt levels fall to rational levels.

"That will take time," Carr says. "Only the market can stabilize home prices." Moreover, with extreme risk aversion among lenders, Carr still anticipates a difficult year ahead for the economy.

"Despite the uncertain market, this is not a time for broad selling," Carr notes. "In fact, there are real opportunities available for the patient and disciplined investor."

The full text of Carr's commentary is available online and may be downloaded at no cost from www.cornercap.com/library/Newsletters/n2008fall.pdf .

Carr points out that the nation has experienced 10 recessions since 1945. In all but the most recent recession (2001) stocks slid as the economy slowed, but began their assent before the recession ended.

"Recognizing that it is impossible to call a market bottom, we believe the probabilities are in our favor and now is the time to take advantage of some increasingly attractive opportunities to make selective buys," Carr said.

His firm began increasing its exposure to consumer stocks earlier in the year, and now sees opportunities in Industrials and Basic Materials stocks, which are among the hardest hit on recession fears.

"While there are still potential land mines out there, a healthy balance sheet and flexible cost structure are keys to helping determine which stocks can weather the storm," Carr said.

According to Carr the nation's financial system cracked due to two issues: too much debt and falling housing prices. "Once the housing process stabilizes, the financial system can more accurately price transactions, and more importantly, evaluate asset risk and debt obligations," Carr said.

What started as "apparently" isolated problems in subprime mortgages over a year ago has mounted to a crescendo of scary news about the health of the U.S. financial system and the global economy Carr writes.

Even if the government successfully plugs the holes in the nation's financial dam, the pressure causing the fissures must still drop before the dam can truly hold, Carr says.

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