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Bucks: Market Milestones Can Lead to False Assumptions

March 11, 2013 by Leave a Comment

Any time the stock market hits a new milestone, whether it’s going up or down, we start to hear a lot of noise. And the chatter seems to be focused on this idea of what it all means.

With the Dow hitting new highs, the noise has become so pervasive that, by default, there’s the implication we should all be doing something or at least thinking about it. In fact, the number one question I’ve been asked recently is some variation of, “Should I get in or out of the market?”

When we’re reading and hearing this stuff, it is incredibly important to understand that the issue is far more subtle than getting in or getting out of the market. Because built into that question is the potential for a false assumption, and it’s a risky one: You don’t already have a plan.

Now, if you’re one of the rare individuals sitting on a big pile of cash — maybe you just sold your business or received some other lump-sum settlement — the question of getting in the market might matter to you.

But most of us already have a plan (though that may be a false assumption, too). We’re already invested. And if it’s a well-crafted, diversified plan based on the things we value, then the assumption that timing should matter to you can lead us to ask other timing questions, like:

  • Should I still add to my 401(k)?
  • Since it’s tax time, should I make my annual contribution to my profit sharing account, SEP or IRA?
  • Should I still rebalance?

If you’re already invested and have a plan, the answer to all of these questions is the same. If it was part of your plan to do any of these things, you should still do it.

I understand that it’s hard, and that it feels like we should be doing something. But it’s important for us to understand that when we make important financial decisions based on a false assumption, it can lead to scary results.

So the next time (or even this time) the noise implies that you should be doing something — because the markets are doing something —  it’s time to check your assumptions. The noise probably doesn’t apply to you.

Article source: http://bucks.blogs.nytimes.com/2013/03/11/market-milestones-can-lead-to-false-assumptions/?partner=rss&emc=rss

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Strategies: Investors’ Quandary: Get In Now?

March 6, 2013 by Leave a Comment

The stock market has already more than doubled since the dark days of 2009. Records are being set, and most indexes have risen nearly every week this year.

Nearly all strategists point out that it is much better to buy at a market bottom than to invest after a record has been set. Nonetheless, for those willing to accept the risk, there are strong arguments, based on history and on market fundamentals, for believing that the bull market may still have room to run.

Chief among them is the expansive monetary policy of the Federal Reserve. “The old song on Wall Street is ‘Don’t fight the Fed,’ and that certainly has been the case in this market,” said Byron Wien of the Blackstone Group, who is a veteran of many market rallies and slumps. “The Fed and other central banks have been driving the market, and there’s no sign that’s going to stop.”

Another critical factor is the flow of funds into the stock market, said Laszlo Birinyi, who runs a stock research firm in Westport, Conn. “There is still a lot of money sitting on the sidelines — and there are a lot of people who are still jumping in, and that, in itself, is a good thing for the market,” he said.

According to his calculations, the net inflow into stocks over the last 12 months has totaled $76.7 billion, which helps to explain why the Standard Poor’s 500-stock index has risen more than 13 percent in that period. Net inflows to stocks amount to $27.75 billion this calendar year, he said, and barring a big shock, they are likely to continue. “We’re in the fourth and last stage of a long-running bull market,” he said. “We think there’s a lot more to come.”

No one really knows whether history is a reliable guide, but the pattern of past bull markets also suggests that this one could continue to flourish. At the moment, according to the Bespoke Investment Group, the nearly four-year run of the United States stock market is the eighth-longest in the last 100 years, and it is the sixth-strongest in terms of the return of the S. P.’s 500 index. And since 1900, when the Dow Jones industrial average reached a nominal high, as it did on Tuesday, the Dow has averaged a 7.1 percent rise over the next 12 months.

“We believe stock valuations are still reasonable, and that the momentum of the market will keep moving it upward,” said Paul Hickey, co-founder of Bespoke.

Because of the intervention of the Fed, even some longtime market bears are reluctant to bet against the current rally. “This is impressive, no doubt about it,” said David A. Rosenberg, the former chief North American economist at Merrill Lynch and now chief strategist of Gluskin Sheff in Toronto. “There are many major risks out there, but at the moment the central banks are doing a spectacular job of buffering them.”

Mr. Rosenberg has a reputation for being a “permabear,” and he has recently emphasized investing in high-yield bonds and corporate credit instruments over stocks. As far as the immediate future of the stock market goes, he said, “I think we’re overdue for a correction.”

Major problems on the horizon, he said, include a weak economy that is being hobbled further by the recent payroll tax increase and the indiscriminate federal budget cuts that have just been put in place. And the troubles in the euro zone, which flared last month in Italy, are far from over, he said, “There are problems everywhere you look.”

Yet he is reluctant to predict a sustained stock market decline. Precisely because the economy is weak, he said, the central banks will be forced to keep short-term interest rates low. “People seeking income have been fleeing other asset classes,” he said, “and they have been moving their money into the stock market.”

For the short term, problems in Europe may actually be helping the United States, said Michael G. Thompson, managing director of SP Capital IQ’s Global Markets Intelligence. “The gridlock produced by the Italian election has been a catalyst for the United States market,” he said in a telephone interview from London. “It seems to have reminded people that Europe is unstable — and so it has given them another reason to move money into the United States.”

Mr. Thompson said that while earnings growth for the S. P. 500 had slowed, a combination of low rates and “canny management by C.E.O.’s of big companies” made it likely that corporate profits would hit a record this year. “As long as the Fed keeps its foot on the gas and as long as we stay out of a recession, I think there’s a good chance this market will continue.”

Not everyone is sanguine, however. “It’s getting downright embarrassing to be bearish with all this exuberance around,” said Rob Arnott, the chairman of Research Affiliates, an asset management firm in Newport Beach, Calif. “With so many people eager to buy stocks, it’s a wonderful time for us to take some risk off the table.”

Mr. Arnott, who manages the Pimco All Asset Fund, said the economy was weak enough that there was a reasonable chance the United States was already back in an undeclared recession. An economic or financial shock could induce a sharp market decline, he said.

“My view is simple,” he said. “Could this rally continue? Absolutely. But do I want to take a risk on a rally that will at some point certainly reverse and leave a lot of people helplessly trying to de-risk in an unliquid market decline? No. I don’t want to be part of that crowd.”

In the logic of contrarian investing, this kind of pessimism encourages Mr. Birinyi. “Market sentiment has not reached irrationally positive levels yet,” he said. “That implies to me that the market is still grounded, and that it can keep on rising.”

Article source: http://www.nytimes.com/2013/03/06/business/investors-quandary-get-in-now.html?partner=rss&emc=rss

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Economix Blog: A Bad Jobs Report Turns Out to Have Been Wrong

February 1, 2013 by Leave a Comment

The jobs report for last March was a big disappointment, one that spurred talk of a new recession. Now we learn that report was simply wrong, that March was actually a very good month and that jobs rose much more rapidly in 2012 than we had previously been told.

Last April, with the presidential campaign heating up, the Labor Department reported that its survey of employers showed the economy added only 120,000 jobs in March, far below forecasts. The unemployment rate — based on a separate survey of households — did decline a bit, to 8.2 percent, but that was widely dismissed as indicating some people gave up looking for work.

From the next day’s Times:

Republicans pounced on the lower than expected payroll numbers, with the party’s front-runner, Mitt Romney, declaring, “This is a weak and very troubling jobs report that shows the employment remains stagnant.” Speaker John A. Boehner and Representative Eric Cantor, the House majority leader, also deplored the numbers and laid the blame for them at Mr. Obama’s feet.

The report came out on Good Friday, when the stock market was closed, so investors had all weekend to ponder the numbers. They did not like what they saw, and the Dow tumbled on both Monday and Tuesday.

Now we know what really happened in March. On Friday, the Labor Department issued its “benchmark revision” for the 12 months through March 2012. The new numbers are based on far more reliable — but slower to arrive — counts of the the number of workers for whom unemployment insurance premiums were paid. It turns out 205,000 jobs were added that month.

For all of 2012, we are now told that the average month added 181,000 jobs. A month ago, we were told the average for the year was only 153,000, basically the same as in 2011. With the revisions, we are told that the 2011 average was really 175,000.

At the end of last year, the official figures showed employment had risen 3.7 percent from the bottom in February 2010 to the end of 2012. Now that figure is 4.1 percent.

A year from now we will get benchmark revisions for the last nine months of 2012. It is quite possible the 2012 annual average will then rise further, to more than 200,000.

A couple of weeks ago, speaking in Hong Kong, Charles Evans, the president of the Chicago Fed, was asked about what would show things were getting better. He replied, according to Reuters, “One good indicator of labor market improvement would be if we saw payroll employment increase by 200,000 each month for a number of months. We’ve been averaging about 150,000, but it’s been very uneven.”

Turns out the average was a lot higher than the Fed thought. Could that signify we are closer to an end to quantitative easing than we thought?

Article source: http://economix.blogs.nytimes.com/2013/02/01/a-bad-jobs-report-turns-out-to-have-been-wrong/?partner=rss&emc=rss

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Your Money: Amid Fiscal Stalemate, How to Handle Tax Rate Uncertainty

January 4, 2013 by Leave a Comment

So we’re left with no idea how much we’ll be paying in federal income taxes in 2013, and a wide range of possibilities for taxes on investments and estates and tax deductions for mortgage interest and charitable contributions. Plenty of people will spend the next several days feeling helpless, with one eye on the stock market and the other on Washington.

For all the uncertainty, though, we do know a bit about how things will change next year. For example, new taxes, some of which will help pay for Medicare, will affect a few million affluent households.

We also know that in all likelihood, whatever happens in Washington in the coming days or weeks won’t come close to solving the problem that tends to clear the room when you say it aloud: We are not collecting enough money to pay for the promises we’ve made to one another. It isn’t just Medicare, either. Many states have steadfastly refused to set aside the trillions of dollars they will need to cover benefits for public workers once they retire.

As for what you should do about all of this, the answer, for now, is probably nothing. In the short term, stock prices may decline and the economy may get the hiccups, but it’s foolish for amateurs to try to alter their investment portfolios to take advantage of the situation. Leave that to the hedge funds, and watch how many of them get it wrong.

In the long term, however, prepare to make the kind of attitude adjustment that can take awhile to embrace. A decade or two from now, most of us will probably be paying more in taxes or getting fewer services from the government than we do now. Once that happens, you’ll need to earn more, save more, live on less or take better advantage of legal tax avoidance strategies.

In fact, you may want to try to do all of these things in the next couple of years, just to see which ones you can accomplish with the least amount of pain.

Here is what we do know will happen in 2013. First, there is a new tax of 0.9 percent on wages, other compensation and self-employment income above $200,000, if you’re single, or $250,000, if you’re married and filing your taxes jointly. This is on top of the existing Medicare tax.

Second, there is a new tax of 3.8 percent on investment earnings, including interest, dividends and capital gains, in addition to whatever the capital gains tax ends up being. It applies to single people with modified adjusted gross income of $200,000, or $250,000 for married couples filing jointly.

There is still some time to maneuver around the second tax. If you have winning investments you were planning to sell soon anyway, say for a down payment on a house, you might as well do it by Monday. That way, you can avoid the new tax if you’re certain you’ll be in the qualifying income category next year.

A few other changes: For now, you can generally take a tax deduction only for unreimbursed medical expenses that exceed 7.5 percent of your adjusted gross income. That floor will rise to 10 percent next year, except for people 65 and over, who won’t be subject to it until 2017.

Also, if you save money in a flexible spending account for health care expenses, 2013 will bring a $2,500 cap on what you can set aside each year while avoiding income taxes. Many people routinely saved $5,000 in the past.

In the next few weeks, we’ll presumably learn more about the new tax rates on income, capital gains, dividends and estates. A solution may come in stages, with a temporary patch now and the promise of a longer-term deal later.

But this is only the beginning, and if you want to read the Stephen King version of our collective fiscal story, there are a few sources to consult. You could start with the radical centrists at Third Way, a research group, who are the best splashers of cold water that I’ve read on the topic of the federal budget. They present some truly scary data while trying to persuade Democrats to accept cuts to Medicare and other programs.

In 2010, for instance, 11,712 people turned 25 each day, while just 6,670 turned 65. By 2030, 12,499 people will be turning 25 each day, but the number turning 65 will jump to 10,948. The 65-year-olds in 2030 will probably live longer than the people who turned 65 in 2010, and keeping them alive could cost a lot more.

The Pew Center on the States, using the states’ own actuarial data, estimates that there is a $1.38 trillion dollar gap between what governments have set aside to pay for public employees’ pensions and retiree health care costs and their actual obligations. Robert Novy-Marx, an assistant professor at the University of Rochester’s Simon Graduate School of Business, and Joshua D. Rauh, a professor at the Stanford Graduate School of Business, believe the shortfall in pension financing alone is actually $3 trillion to $4 trillion.

If states were to try to fill the gap solely by raising taxes, Mr. Novy-Marx and Mr. Rauh estimate that the cost per household in 2011 would have been $2,250 in New York, $2,000 in New Jersey and $1,994 in California — and we’d need to pay that amount every year for 30 years, with adjustments for inflation. Happy New Year!

These numbers boggle the mind, which is why you’re not seeing them in the newsletters that state legislators send to your home. Instead, lawmakers are trying to change the benefits promised to public employees. But even minor changes have led to lawsuits that could take a decade to resolve. By then, the obligations will probably have grown much larger.

Read enough of these reality checks, and a hazy sort of reckoning starts to take shape. It’s not clear how high taxes will go or how many services — from retiree health care to garbage removal — we may someday need to pay more for, or cover ourselves. But it’s going to cost you more money one way or the other, unless you’re in a truly low tax bracket.

That brings us to those legal tax avoidance maneuvers, which often benefit people who can save. Flexible spending accounts for medical costs will still save you hundreds of dollars in taxes each year, even with a $2,500 cap. A health savings account, the kind that pairs up with a high-deductible health insurance policy, can grow into a sizable pile if you save the money and use it in retirement instead of to pay out-of-pocket medical expenses now. And the fact that the affluent can still avoid capital gains taxes, and get an income tax break in many states, on hundreds of thousands of dollars of college savings via 529 plans is a minor miracle.

There is also the Roth individual retirement account, where even the low-six-figure set can put away money on which they’ve already paid income taxes, leave it there for decades in stocks and bonds, and pull it out without paying a dime of capital gains or other taxes.

That’s the story — for now, at least. In 30 or 40 years, if things are really grim, might the federal government try to tax withdrawals from Roth accounts with enormous balances? As we’re learning now, most great tax deals, like the mortgage interest deduction for beach houses and the tax-free health insurance benefits that many of us get from our employers, may not last forever.

We don’t have much control over what will happen in Washington or our state capitals next year, or 10 years from now. But most of us can probably find ways to earn a little more, save a little extra or spend a little less. Pick just one of those options, make it your New Year’s resolution and see if it helps you feel more in control of your financial destiny by this time next year.

Article source: http://www.nytimes.com/2012/12/29/your-money/how-to-handle-tax-rate-uncertainty.html?partner=rss&emc=rss

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Economix Blog: On Super Bowls, Elections and Stock Prices

January 24, 2012 by Leave a Comment

FLOYD NORRIS

FLOYD NORRIS

Notions on high and low finance.

If the Super Bowl game in two weeks is not close, Barack Obama may be in trouble when November rolls around. On the other hand, a close game would give him a better-than-even chance of winning the election.

That, anyway, is the result of my efforts today to find some relationship between election-year football games and November election results. I’ll explain why later.

Of course, there used to be a theory that held that the Super Bowl could forecast the stock market. That worked really well for a couple of decades. Since then, it has been useless.

Before we get to those examples of spurious correlation, let me note one fact about the game coming up. If the New York Giants win, they will be the worst team ever (as measured by regular season records) to win. As it is, they appear to be the worst team ever to get into the game.

They finished the regular season with 9 wins and 7 losses.

Two other teams with a record that bad made it to the final game. They lost.

In 1980, the Pittsburgh Steelers (12-4) beat the Los Angeles Rams (9-7) by a score of 31-19.

In 2009, Pittsburgh (12-4) beat the Arizona Cardinals (9-7), by 27-23.

Each of those losers had managed to outscore their opponents during the regular season, although the Cardinals did so by a one-point margin. The 2011 Giants gave up 400 points during the regular season while scoring 394 points.

Three 10-6 teams have won, the most recent being  the Green Bay Packers a year ago. The others were the Giants in 2008 and the San Francisco 49ers in 1989.

Over all, the best team (as measured by regular season record) has won 25 and lost 13. The other seven games involved teams with identical regular season records.

But of the last six Super Bowls, the (regular season) better team won only one. That was the Pittsburgh victory in 2009.

There is a case that election-year history favors the Giants. In election years, a team from the old National Football League has won the Super Bowl nine times, the most recent being the Giants four years ago. The Pittsburgh Steelers, an old N.F.L. team now in the American Football Conference, won two of the nine, in 1976 and 1980. Only two teams from the old American Football League have won in election years — the Los Angeles Raiders in 1984 and the New England Patriots in 2004. The Republicans won both those elections.

There used to be a theory that the winner of the Super Bowl foretold how the stock market would do. If an old N.F.L. team won, the market would rise. If an old A.F.L. team won, the market would fall.

Of course, the theory was developed and tweaked based on early Super Bowls, including the decision to count Pittsburgh as being an old N.F.L. team, rather than as a representative of the A.F.C. But it kept working even after that, and it developed a real following on Wall Street.

From 1967, the year Green Bay (old N.F.L.) won the first Super Bowl, through 1989, when the San Francisco 49ers (N.F.L.) won, the market was up after all 16 old-N.F.L. teams won, and down six of seven times after old A.F.L. teams prevailed. The only time it failed was after the Oakland Raiders won in 1984, and that year the S.P. 500 rose just 1.4 percent.

Since then, the theory has forecast the market correctly 11 times, while getting it wrong 10 times. (I am not counting 2003, when Tampa Bay won. That team came into the league after the merger, first joining the A.F.C. and then moving to the N.F.C. It is not clear what the theory would have forecast that year. If you go by the idea that the team was first in the A.F.C., and therefore that its victory was a bearish indicator, that was another loss for the theory. Stocks soared in 2003.)

The Giants’ victory in 2008 was followed by the worst year for stocks since 1931, before there was an N.F.L. championship game.

I searched for evidence that the Super Bowl result somehow forecasts the presidential election. And I found a relationship, which proves that if you try hard enough, you can almost always find some correlation.

Here it is:

If the game is a runaway, the Republicans will win in November.

Of the 11 election-year Super Bowls so far, the Democrats are 4-3 when the game was decided by less than 14 points. But when the game was not close, the Republicans won all four times. The last such romp was in 1988.

Article source: http://feeds.nytimes.com/click.phdo?i=1da2d8070af48b720581c0a3a325c18e

Filed Under: Economy News Tagged With: , ,

Bucks Blog: Many Consumers Plan to Spend Less This Holiday Season

December 1, 2011 by Leave a Comment

Holiday shoppers in Miami.Associated PressHoliday shoppers in Miami.

With economic concerns weighing heavily, 42 percent of Americans –and 49 percent of parents — say they plan to spend less this holiday season than last year, a recent survey found.

Bankrate.com’s November Financial Security Index poll, released early this week, found that just 10 percent of Americans plan to spend more this year than they did in 2010.

But it remains to be seen if consumers can stick to their budgets. Retailers, for instance, reported strong sales over the Thanksgiving holiday weekend.

“While consumers indicate a reluctance to spend more this holiday season, there is a notorious disconnect between how consumers feel and how consumers act, particularly regarding spending,” said Greg McBride, senior financial analyst for Bankrate.com, in a statement.

Princeton Survey Research Associates conducted the telephone survey of 1,005 adults in early November. The margin of sampling error is four percentage points.

The index fell to its second-lowest level of the year, as feelings of job security hit a new low. Just 13 percent of Americans feel more secure in their jobs now than they did one year ago, which helped drag down the overall index to 92.5 points, just above the 2011 low of 92.3 recorded in August. (A reading below 100 indicates decreasing levels of financial security compared with 12 months earlier.)

The percentage of Americans reporting higher net worth than one year ago rebounded slightly in November, thanks to the October stock market rally. Feelings on both savings and debt were largely unchanged from October, with only 11 percent of Americans more comfortable with their savings and 20 percent more comfortable with their debt relative to one year ago.

Are you planning to spend less over the holidays this year? How will you make sure you stay within your budget?

Article source: http://feeds.nytimes.com/click.phdo?i=ec2e3fa79689fb3ad970bfeabe6a3c4a

Filed Under: Your Money Tagged With: , ,

Bucks: The Surprising Money Habits of Successful Entrepreneurs

October 11, 2011 by Leave a Comment

Carl Richards

Carl Richards is a certified financial planner in Park City, Utah. His sketches are archived here on the Bucks blog and on his personal Web site, BehaviorGap.com.

After many years of talking with entrepreneurs, a calling that seems to appeal to the creative side of people, I’ve come up with what I define as the Unified Theory of Capital Management.

It goes something like this: We all have at least two types of capital that we should be managing: our personal human capital and our financial capital.In simple terms, human capital is the ability we have to earn money. Financial capital is our savings or investments.

So why should this matter to you?

Based on my experience and talks with entrepreneurs, I believe everyone, not just entrepreneurs, needs to manage these two types of capital differently than they do now. So I came up with some strategies to help you manage these two distinct, but connected, resources.

For personal human capital, you want to do three things:

  1. Concentrate
  2. Educate
  3. Compound

For financial capital, you want to do two things:

  1. Diversify
  2. Protect

The majority of entrepreneurs express a strong desire to focus on things they can control, or have at least some control of. For example, I’ve noticed that it’s hard for entrepreneurs to invest in the stock market because they have no control over the outcome.

I remember meeting with a friend of mine whose family had owned a fairly prominent real estate development company that was successful over multiple generations. Behind my friend’s desk, the same desk that his grandfather and father sat at, there was a framed stock certificate.

When I asked him about the stock certificate and why it had such a prominent place, he replied that it was the first and last publicly traded stock that the family ever bought. When the stock started to go down, it proved too frustrating for the family because they couldn’t do anything to fix it. They couldn’t paint the fence, change the zoning, remodel or come up with a new marketing plan. Things seemed completely out of control. So they made a decision to focus on those things that they were good at, in this case real estate development, and then protect the money they made.

Again and again, I’ve heard successful entrepreneurs say that their success came from similar focus on personal human capital and those opportunities where their creative skills, relationships and experiences can mitigate  potential risk. But once they make their money, they protect their financial assets by investing far more conservatively than you might think given their propensity for making risky business decisions.

One thing that I’ve heard over and over is that the way to become wealthy is through focus and concentration, while the way to stay wealthy is through diversification and protection. To that end, you do not have to be a creative entrepreneur to benefit from the Unified Theory of Capital Management.

Everyone can focus on improving their personal human capital by looking for ways to take on a side job, increase salary and improving skills and education. Then, look for ways to protect the money through diversification using conservative investments.

Article source: http://feeds.nytimes.com/click.phdo?i=e9ae4504f73eb6626d72b7af50ffed43

Filed Under: Your Money Tagged With: , ,

Strategies: A Recession Forecast That Has Been Reliable Before

October 8, 2011 by Leave a Comment

The stock market offers its predictions, and, occasionally, it’s even right. As the economist Paul Samuelson once put it: “The stock market has called nine of the last five recessions.”

Economists have an even worse record, particularly when it comes to predicting downturns. In 1929, for instance, the Harvard Economic Society declared that a depression was “outside the range of probability.” Whoops.

Then there is the matter of the last recession. With the benefit of hindsight, we now know that the downturn began in December 2007. Few people realized it at the time. A survey by Blue Chip Economic Indicators that month found that, as a group, economists believed that the economy would grow by 2.2 percent in 2008. Instead, it began to shrink.

Are we heading into another recession now? Again, the consensus says we’re not.

But at least one organization with an exceptionally good track record says another recession may already be here. That is the Economic Cycle Research Institute, a private forecasting firm based in Manhattan. It was founded by Geoffrey H. Moore, an economist who helped originate the practice of using leading indicators to predict business cycles. Mr. Moore died in 2000, but the team he trained is still at work.

Relying on a series of proprietary indexes, the institute correctly predicted the beginning and the end of the last recession. Over the last 15 years, it has gotten all of its recession calls right, while issuing no false alarms.

That’s why it’s worth paying attention to its current forecast. It’s chilling: as bad as the economy has been, it’s about to get worse.

In the institute’s view, the United States, which is struggling to recover from the last downturn, is lurching into a new one. “If the United States isn’t already in a recession now it’s about to enter one,” says Lakshman Achuthan, the institute’s chief operations officer.

It’s just a forecast. But if it’s borne out, the timing will be brutal, and not just for portfolio managers and incumbent politicians. Millions of people who lost their jobs in the 2008-9 recession are still out of work. And the unemployment rate in the United States remained at 9.1 percent in September.

More pain is coming, says Mr. Achuthan. He thinks the unemployment rate will certainly go higher. “I wouldn’t be surprised if it goes back up into double digits,” he says.

At the moment, the institute is sticking its collective neck out.

Compare the institute’s forecast with the latest Blue Chip survey, which was released on Friday. In it, the consensus is that the economy is slowing, but still growing modestly, and that it will continue to do so. On average, the economists included in the tally foresaw a growth rate of 2 percent in 2012. In January, the consensus prediction for 2012 was a growth rate of 3.1 percent.

Economists have been ratcheting down their projections, recognizing that the recovery has been so weak that it won’t take much to set the economy back.

A dark cloud hovers over the euro zone. Greece is increasingly perceived as likely to default on its debt, causing as-yet-unknown problems for the global financial system. Spain, Portugal and Ireland are already in downturns. Last week, Jan Hatzius and Dominic Wilson, two Goldman Sachs economists, predicted that France and Germany would soon fall into a “mild recession,” contributing to a slowdown in the United States, where they put the odds of a new recession at 40 percent.

In Congressional testimony last week, Ben S. Bernanke, the Federal Reserve chairman, was also downbeat. He said that the economy was “close to faltering” and that the Fed had lowered its own forecast, adding that the Fed is prepared to intervene as needed. He did not predict a recession, however.

Mr. Achuthan, on the other hand, says that the gross domestic product rate is likely to go negative by the first quarter of 2012, if not sooner. He told me last week that he couldn’t tell exactly when the recession would start — or whether it had already begun. The institute made its recession call only after an array of economic indicators showed a “pronounced, pervasive and persistent” downturn consistent with a recession, he says. By contrast, in the summer of 2010, when some market bears interpreted the decline in one of the institute’s indexes as a signal that a recession was in the offing, the institute said the pattern pointed not to recession, but only to weakness.

Now, he says, the pattern is clear.

This time, Mr. Achuthan says, a host of leading and coincident indexes — those that suggest activity down the road, and those that measure current movements —are all pointing strongly toward recession.

The institute’s U.S. Leading Diffusion Index, for example, has dipped into territory that, with only one exception, would have signaled the recessions of the last 60 years. The single exception was in a short-lived downturn in 1966-7.

In addition, its U.S. Coincident Index has moved into territory that would have signaled recessions over those six decades, with three exceptions. Those were dips in September 2005, after Hurricane Katrina; in March 1993, after a huge storm on the east coast of North America, and in July 1952, after a steel strike. In none of those cases did the two indexes reach recession territory at the same time, as they have now, he says.

TAKEN as a whole, he says, these and other indicators are quite clear. “We’ve entered a vicious cycle, and it’s too late: a recession can’t be averted,” he says.

Unfortunately, this isn’t the end of the institute’s gloomy prognostications. What’s worse, he says, is that the business cycle appears to have become shorter than it was from the mid-80s until the start of the last recession, an era that has sometimes been called “the Great Moderation.”

For the foreseeable future, he says, “more frequent recessions are likely to be the norm.”

Article source: http://feeds.nytimes.com/click.phdo?i=003f4bdf8eecf750c62ff0d3b4ade259

Filed Under: Economy News Tagged With: , ,

Barclays Faces Sanctions in Japan

September 30, 2011 by Leave a Comment

Barclays said it would comply with the ban but that the violation was the result of a technical error, not deliberate short-selling.

In short-selling, traders bet against a stock’s rise and make money if the stock goes down in price. Regulators around the world have tried to regulate short-selling, saying it destabilizes financial markets.

Saddled with a stock market that has underperformed for years, Japanese regulators have been particularly wary of any destabilizing trades in equities.

On Friday, the Nikkei stock average closed flat at 8,700.29, ending three months in which stocks tumbled 11.4 percent.

In a statement, Japan’s Financial Services Agency said that Barclays Capital Japan had failed to properly code short-selling maneuvers on the Osaka Securities Exchange during an 18-month period that started in February 2010.

The agency will suspend equity trades between Barclays Capital Japan and Barclays’ other affiliated companies. The ban runs for 10 business days, ending Oct. 24.

Barclays Capital said the trades had not been coded properly because of a technical malfunction. The firm had suspended transactions on the system that had caused the error, it said in a statement.

“An internal review concluded that there was no deliberate intention to manipulate the market and derive a benefit,” Barclays said.

The agency ordered Barclays Capital to submit a report by Oct. 12 offering more details of the breach, including those responsible for the transactions, and outlining measures to prevent similar errors.

Article source: http://feeds.nytimes.com/click.phdo?i=784e80d043ba030530a5dfaf72781947

Filed Under: Business News Tagged With: , ,

To Your Right, the Frenzied Capital of Finance

August 20, 2011 by Leave a Comment

Tourists mix with workers in front of the New York Stock Exchange. The stock market’s volatility has raised Wall Street’s profile among many tourists in the city this summer.

Credit: Benjamin Norman for The New York Times

Article source: http://feeds.nytimes.com/click.phdo?i=43edac5cbe574f9d084575f32b21327d

Filed Under: Business News Tagged With: , ,
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