The Unemployment Rate is Bogus


Read Top Fund Managers Comments on Economy

Will the Economy Rise from the Grave?

Will the Economy Rise from the Grave?


Mutual fund managers’ quarterly letters, market commentaries, forecasts, and other reports are full of interesting tidbits and, if one looks carefully, investment ideas. Every quarter, mutual funds are required to publish reports, and many portfolio managers, research chiefs, and advisors take the time to express their opinions about the markets, individual stocks, or other items on their minds. Some fund shops publish more frequently–on a monthly or even weekly basis.

Featured Commentary
GMO | Jeremy Grantham | January 2009
Quarterly Letter: Obama and the Teflon Men, and Other Short Stories. Part 1.
…We are deep in the pickle jar, and it seems likely that, in terms of economic pain, 2009 will be the worst year in the lives of the majority of Americans, Brits, and others. Read more…

Tweedy, Browne | Jan. 15, 2009
Shareholder Letter
Unfortunately, there was nowhere to hide in public equity markets in 2008, nor for that matter in virtually any other asset class, as stock markets around the globe collapsed in the face of an unprecedented credit crisis. Needless to say, our funds were not immune to the carnage. Read more…

Recent Commentary
Morgan Stanley | January 15, 2009
Investment Perspectives
Discover Morgan Stanley’s macroeconomic insight and find out what they think of specific regions, industries, and stocks. Click here to read more.

PIMCO | Bill Gross | January 7, 2009
Andrew Mellon vs. Bailout Nation
2008 was the year when the United States led the charge of bailout nations, lending and literally guaranteeing trillions of dollars of private liabilities in an effort to avoid the advent of another Great Depression…Was it necessary and productive to mutate 21st century American-style capitalism into a thinly disguised knock-off of the New Deal? Read more…

PIMCO | Mohamed El-Erian | Jan. 7, 2009
No Immunity From Policy Action
Not long ago, the question of how the actions of national authorities – and the US Federal Reserve in particular – impacted on their investment decisions would get a range of replies from investors. Some observed that their decisions were unaffected; others cited the old mantra that “you should never fight the Fed”. Read more…

BlackRock | Jan. 6, 2009
Outlook & Opportunities in 2009: A Framework for Investing
The financial market turmoil that began in late 2007 has intensified as economic data continue to disappoint and the ongoing credit crisis shows few signs of abating anytime soon. In response, policymakers worldwide have employed aggressive policy reflation measures…Read more…

Royce Funds | Charlie Dreifus | Jan. 6, 2009
Charlie Dreifus Reacts to Being Named Morningstar Domestic-Stock Fund Manager of the Year
I’m very honored to have won. It’s particularly noteworthy that this accolade comes during such a difficult year, a year in which I wasn’t especially pleased with Royce Special Equity Fund’s (RYSEX) performance on an absolute basis. Read more…

Caldwell & Orkin | January 2009
Market Update
Like The Comrades Marathon, the U.S. economy enters 2009 tumbling downhill from a mountain of leverage that it spent 20 years ascending.  This descent has destroyed asset values (real estate, housing and stocks) while, as always, the debt that was used to secure these assets remains steadfastly in place, leaving consumers with tattered balance sheets, negative home equity and stock margin calls. Read more…

ING Clarion Real Estate Securities | January 2009
Market Commentary
Real estate stock investors endure a very tough year. Despite a sizeable rally in December, real estate stocks suffered their worst year ever as equity markets around the world plunged in 2008. Read more…

Legg Mason | January 2009
Month-End Commentary: December 2008
The S&P 500 Index rallied a little over +1% in December, thus allowing 2008 to go into the record books as the worst year since 1937, rather than the worst year since 1931. A small victory, one might argue, but it was a welcome relief to see some “green on the screen” for a change. Read more…

Oak Value Funds | January 2009
Fourth-Quarter Review
There is certainly no doubt that 2008 was a battleground for most investors. The events of the last year challenged numerous fundamental assumptions and theories on investing. Read more…

PIMCO | Paul McCulley | January 2009
Cyclical Outlook
When formulating our outlook, we typically fine tune our GDP and inflation forecasts as a means to anticipate changes in central bank policy. But for now, the standard fine tuning has been put on the shelf because the reality of a recession brings clarity to forecasting. Read more…

T. Rowe Price | January 2009
2009 Investment and Economic Outlook
We are pleased to share the presentations and highlights from some of the firm’s key investment managers regarding the U.S. and markets abroad. Find out Alan Levensons’ outlook for the U.S. economy, Mary Miller’s take on the fixed-income markets, and explore opportunity abroad with Raymond Mills. Click here to see all of the presentations.

WisdomTree Investments | Jeremy Siegel, Wharton professor and Senior Investment Strategy Advisor
Economic and Market Commentary
2009 doesn’t have to be a very good year to be better than 2008. The past year saw equities fall the most since the Great Depression as the global economy slid into recession. But I think that 2009 will surprise on the upside, with both the economy and the markets doing much better than expected. Read more…

Oakmark Investments | Bill Nygren | Dec. 31, 2008
Commentary on the Oakmark and Oakmark Select Funds
There is certainly a camp of investors who believe we are on the verge of a severe depression, and if they are right, zero might be a pretty good relative return. But with that view so widely broadcast, I think the contrary position looks very attractive. Read more…

The U.S. Banking System is Close to Insolvency

RGE Monitor
January 22, 2009

The US Banking System is BankruptRGE Monitor Estimates $3.6 Trillion Loan and Securities Losses in the U.S.

Nouriel Roubini and Elisa Parisi-Capone of RGE Monitor release new estimates for expected loan losses and writedowns on U.S. originated securitizations:

* Loan losses on a total of $12.37 trillion unsecuritized loans are expected to reach $1.6 trillion. Of these, U.S. banks and brokers are expected to incur $1.1 trillion.

* Mark-to-market writedowns based on derivatives prices and cash bond indices on a further $10.84 trillion in securities reached about $2 trillion ($1.92 trillion.) About 40% of these securities (and losses) are held abroad according to flow-of-funds data. U.S. banks and broker dealers are assumed to incur a share of 30-35%, or $600-700 billion in securities writedowns.

* Total loan losses and securities writedowns on U.S. originated assets are expected to reach about $3.6 trillion. The U.S. banking sector is exposed to half of this figure, or $1.8 trillion (i.e. $1.1 trillion loan losses + $700bn writedowns.)

* FDIC-insured banks’ capitalization is $1.3 trillion as of Q3 2008; investment banks had $110bn in equity capital as of Q3 2008. Past recapitalization via TARP 1 funds of $230bn and private capital of $200bn still leaves the U.S. banking system borderline insolvent if our loss estimates materialize.

* In order to restore safe lending, additional private and/or public capital in the order of $1 – 1.4 trillion is needed. This magnitude calls for a comprehensive solution along the lines of a ‘bad bank’ as proposed by policy makers or an outright restructuring through a new RTC.

* Back in September, Nouriel Roubini proposed a solution for the banking crisis that also addresses the root causes of the financial turmoil in the housing and the household sectors. The HOME (Home Owners’ Mortgage Enterprise) program combines a RTC to deal with toxic assets, a HOLC to reduce homeowers’ debt, and a RFC to recapitalize viable banks.

Decade of The Great Depression

A Short Summary:

It is August 1939 and Americans are still recovering from the Great Depression–the worse nightmare that has ever happened to the United States. For the last ten years, since 1929, this country has experienced total economic collapse. Who could have imagined that this would happen in our modern industrial world?

The Wall Street stock-market crash of 1929 signalled the beginning of this Great Depression, even if it did not actually cause it. Ten years have passed and this economic depression has had devastating effects on most people in this country. Production fell sharply. Unemployment went through the roof. No one had much money, so purchasing declined. Thousands of businesses and hundreds of banks have closed.
We are a country of small farmers, but farmers everywhere have gone into bankruptcy. People lost their jobs, homes, and savings, and now many depend on charity to survive. In 1933, more than 15 million Americans–one-quarter of the nation’s workforce–were unemployed.


The Real Unemployment Rate is Closer to 16.5%


1930-depression-bread-line-in-nycBy Pedro Nicolaci da Costa

NEW YORK (Reuters) – When economists tell us the current U.S. slump could never turn into another Great Depression, they all point to one thing: one of four Americans was out of work in the 1930s.

But since the definition of joblessness has changed over the years, this expert assessment might be too rosy.

As many as 25 percent of Americans were unemployed during the days of bread lines that symbolized the Depression, but that figure is more than three times the current 6.7 percent unemployment rate, the economists say. Even the most pessimistic estimates only foresee the rate rising barely above 10 percent.

“We are in a very, very different place than the U.S. economy was in the 1930s,” James Poterba, president of the National Bureau of Economic Research told a recent Reuters Summit.

Or are we? Figures collected for Reuters by John Williams, from the electronic newsletter, suggest that, while we are not there yet, the comparison is not as outlandish as it might initially seem.

By his count, if unemployment were still tallied the way it was in the 1930s, today’s jobless rate would be closer to 16.5 percent — more than double the stated rate.

“I expect that unemployment in the current downturn, which will be particularly deep and protracted, eventually will rival, if not top, the 25 percent seen in the Great Depression,” Williams said.

He and other critics have one particular sticking point with the current way of measuring unemployment: the treatment of discouraged workers.

Under President Lyndon Johnson, the government decided individuals who had stopped looking for work for more than a year were no longer part of the labor force. This dramatically decreased the jobless rate reported by the government.

“Both part-time workers wanting full-time work and discouraged workers tend to make the unemployment rate lower than it would otherwise be,” says Robert Schenk, professor of economics at St. Joseph’s College, Indiana.

The latest report, due on Friday, is expected to show another month of more than half a million job losses in December, and a jump in the unemployment rate to 7 percent.

However, some economists, including Kenneth Rogoff at Harvard University, now say joblessness could top 11 percent. Under Williams’ methodology, that picture might look much more like the Great Depression.

(Reporting by Pedro Nicolaci da Costa; Editing by Kenneth Barry)