First GDP Growth in Four Qtrs

The 3.5 percent GDP growth rate in the July-to-September quarter represented the first positive growth in the figure after four straight quarters of declines.

It was the largest gain in two years. But the concern is that this growth will falter given the huge problems still facing households.

Yes, much of the increase can be attributed to the governments controversial Cash-for-Clunkers and New Home Buyers refundable tax credit program. The real test for the economy will be the upcoming Q4 2009.

Most economists don't expect the economy to grow quite as much in coming quarters, but they aren't forecasting a double-dip recession, either. Most see growth in the 2% to 3.5% range. The adjustment in inventories could add to growth for several more quarters.

The big question confronting policymakers, investors, consumers and economists is whether the economy will be able stand on its own as the federal government's stimulus begins to wane.

Here is a breakdown of this quarters GDP drivers:

2.36 percentage points of the 3.5 percent third-quarter growth in GDP came from consumer spending. Car sales alone represented 1 percentage point of total growth, reflecting the success of the government's Cash for Clunkers program.

This is the biggest question facing the fledgling recovery, given that consumer spending represents 70 percent of total economic activity. Can consumers keep spending with unemployment at a 26-year high of 9.8 percent and expected to keep rising until next summer?

1.22 percentage points of the 3.5 percent GDP growth came from investment, with nearly half that strength coming from a surge in residential construction, an area that had been plunging since 2006.

The $8,000 new home buyer refundable tax credit was a major contributor along with falling prices. much of Business spending on computers and other equipment showed gains but spending on commercial structures such as office buildings and shopping centers continued to decline.

0.48 percentage points of GDP growth in third quarter came from the increase in government spending.

All the strength in third-quarter government spending came from a 7.9 percent rise in spending at the federal level, reflecting in part the boost from the stimulus program. That offset a 1.1 percent drop in state and local spending, where budgets have been hard-hit by the recession. The expectation is that the stimulus program, which is helping states weather the recession, will keep government spending growing in coming quarters.

Baltic Dry Index Rising Again

In September the outlook for shipping and dry bulk shipping rates, was very poor even while the stock market surged up in September. The video above tells the story. But in October the rate has moved up, as world trade in the Atlantic is expanding.

The Baltic Dry Index is a daily average of prices to ship raw materials. It represents the cost paid by an end customer to have a shipping company transport raw materials across seas on the Baltic Exchange, the global marketplace for brokering shipping contracts. The index is quoted every working day at 1300 London time. The Baltic Exchange is similar to the New York Merc in that it is a medium for buyers and sellers of contracts and forward agreements (futures) for delivery of dry bulk cargo. The Baltic is owned and operated by the member buyers and sellers. The exchange maintains prices on several routes for different cargoes and then publishes its own index, the BDI, as a summary of the entire dry bulk shipping market. This index can be used as an overall economic indicator as it shows where end prices are heading for items that use the raw materials that are shipped in dry bulk






This would be a good time to consider names like DRYS, EGLE, DSX or GNK.

US National Activity Index

Consumer sentiment is greatly impacted by the jobs market and their perception of the USA economy going forward. Consumer sentiment began rising in the first two quarters but has most recently declined.

The magnitude of the surge in the stock market was a surprise to everyone. Examining the US National Activity Index helps us better understand the panic market selling in Q4 2008 and Q1 2009 followed by the biggest V-shape market bounce back from the deep dark abyss since the 1930's.


CHICAGO FED Business Activity Report-- At –0.63 in September (up from –0.96 in the previous month), the index’s three-month moving average, CFNAI-MA3, suggests that growth in national economic activity was below its historical trend. However, the CFNAI-MA3 in September improved to a level greater than –0.70 for the first time since the early months of this recession. For the four previous recessions, the first month when the CFNAI-MA3 was above –0.70 coincided closely with the end of each recession as eventually determined by the National Bureau of Economic Research (see top chart above showing the last three recessions).


The chart above shows the monthly change in the CFNAI-MA3, which has been positive for the last eight months (February through September), the first time since 1975 of eight consecutive monthly increases, and similar to the seven consecutive monthly increases from December 2001 to June 2002 that marked the end of the 2001 recession (see shaded areas).

What is the National Activity Index?

The index is a weighted average of 85
indicators of national economic activity.
The indicators are drawn from four
broad categories of data: 1) production
and income; 2) employment, unemployment,
and hours; 3) personal consumption
and housing; and 4) sales, orders,
and inventories.

A zero value for the index indicates that
the national economy is expanding at its
historical trend rate of growth; negative
values indicate below-average growth;
and positive values indicate above-average
growth.

The Committee Failed America

In 1987 Ronald Reagan's, anti-government free-markets philosophy had gained a solid foothold in the American economic physic.

The newly appointed federal reserve chairman Alan Greenspan (an Arthur Burns protégé) subscribe to economist Milton Friedman and philosopher Ayn Rand's laissez-faire philosophy of no government intervention.

In the early 90's a powerful private financial committee was formed in Washington D.C. to promote the free-financial markets philosophy and to overturn the last great regulation hold-out from the 1930's financial crisis, the Glass-Steagall Act. The boys title for the bill was 'The Financial Modernization Act.' And so if you don't want to modernize, I guess you're considered hopelessly old fashioned."

By 1999 TIME's World section, takes you inside the most powerful economic triangle in Washington in its cover story on the Committee to Save the World, a.k.a. Fed Chairman Alan Greenspan, Treasury Secretary Robert Rubin and Deputy Treasury Secretary Larry Summers.

The Glass-Steagall Act was created after the first great financial crisis

The Glass-Steagall Act is the Depression-era law that separated commercial and investment banking. It was functionally repealed in 1998, when Travelers (the parent company of Salomon Smith Barney) acquired Citicorp. And it was officially repealed in 1999. And just seven years later the world found itself in another 1930's style worldwide financial crisis.

Recent events on Wall Street...the failure or sale of three of the five largest independent investment banks-have effectively turned back the clock to the 1920s, when investment banks and commercial banks cohabited under the same corporate umbrella.

Ironically the very ideology that said monopolies are bad and capitalism should allow bad businesses to fail...failed us. In the end we had private Capitalism of profits and excessive compensation but when the losses from those bad decisions came they were Socialized with taxpayer money. Amazingly both right and left wingers came together to say, "No Bail-Outs". Yet, the fear of systemic risk ( finance code for risk of collapse of an entire financial system or entire market ) seemed so great two presidents of two parties came to the same conclusion, government action not in action was required.

The architects of that failed philosophy now get promoted to clean up the mess. Thank you, Timothy Geithner and Lawrence Summers. These boys have make a great political living for themselves. Here is just one recent article on Larry Summers connections.

The Young Turk Gives Greenspan Advice


Last October Alan Greenspan, former Federal Reserve chairman, at a hearing on Capitol Hill (during the financial crisis) makes a profound self discovery. Greenspan Concedes a possible flaw in his thought process. This is classic Greenspan. He's incapable of admitting mistakes were made. Instead he carefully admits there may be a "flaw" in his ideology that says less financial regulation is always better for the public. He talks as if his decisions were based upon scientific models and rocket science rather than personal opinion.

Alan Greenspan is a classical intellectual. He's ideally suited to discuss macroeconomic issues, musical history and Adam Smith or Ayn Rand philosophy. Unfortunately that background is of little value in monitoring the realities of microeconomic details and human nature. He's not the type of detail oriented person you need to develop a minimal intrusive yet efficient and effective regulation system to protect America. And paradoxically the man who believed in free-markets and Laissez-Faire/hands-off government was in charge of the Federal Reserve, an entity created by government.

Over the last 10 years I've had the pleasure of listening to Treasury Wizard Greenspan speak many times. He is the master of grace and speaks with such elegance. Greenspan, a musician at heart, could make words dance to please democrats and republicans alike. Unlike others, I do not blame a few men or one party for the greatest financial crisis of our lifetime. There is plenty of blame to go around in Washington D.C., Wall Street and on Main Street. What's done is done. The question is will anything change for the better?

Listen to the PBS Frontline Special Report ( $25 DVD Video) for free (while we still have the viewing rights) below.

Shattering Glass-Steagall

The Senators, Economist and Glass-Steagall

Worldwide Bounce Back

The worldwide recession appears to have ended, with surveys showing manufacturing activity is on the rise nearly everywhere. “It is the emerging markets that are leading, with the U.S. following and Europe lagging,” said Chris Williamson, the chief economist of Markit, a company that surveys manufacturers in many countries.

The surveys, conducted in the United States by the Institute of Supply Management and in other countries by Markit, measure not the level of manufacturing output but the way it is changing. The surveys have a reputation for showing turns in the economy, often before other indicators do. In the charts above, the index figures have been converted to show the number of points over or under 50 for each of 12 countries, from the end of 2007 through September.

While details vary, the slump was sharp in nearly every country, reflecting the sudden decline that came after Lehman Brothers collapsed in September 2008. That worsened a credit squeeze, which meant some companies had no choice but to cut back on everything they could, from inventories to marketing expenditures to jobs. Others, fearing that the economic outlook could become much worse, cut back voluntarily.

It now appears that companies cut too much, and the surveys of manufacturing show that companies are expanding in most countries. Over all, the surveys indicate that the manufacturing sectors of China, Taiwan, South Korea and India had begun to grow by April, but that the United States did not follow suit until August.

Source: New York Times

Brand American Rising?

Every now and then you come across a little piece of news that has great importance, yet is under reported in today's news sensation world. Here is such news. If I'd heard it from a friend I'd say that's not possible (not that I'd expect the USA to be in the bottom 10). What does this have to do with investing? Peoples attitudes about countries affect their desire to invest in the companies of that country.

Why the change? Why does the ranking shake out this way?

NEW YORK, Oct. 5 /PRNewswire-USNewswire/ -- Brand America is now ranked #1 by global citizens, according to the GfK Roper Public Affairs & Media, a division of GfK Custom Research North America. Results from the 2009 Anholt-GfK Roper Nation Brands Index(SM) (NBI), which measures the global image of 50 countries, show the United States taking the top spot as the country with the best overall brand, up from seventh last year.

"What's really remarkable is that in all my years studying national reputation, I have never seen any country experience such a dramatic change in its standing as we see for the United States in 2009," explains Simon Anholt, NBI founder and an independent advisor to over a dozen national governments around the world. "Despite recent economic turmoil, the U.S. actually gained significant ground. The results suggest that the new U.S. administration has been well received abroad and the American electorate's decision to vote in President Obama has given the United States the status of the world's most admired country."


Anholt-GfK Roper Nation Brands Index(SM)
Overall Brand Ranking
(Top 10 of 50 Nations)

2009
1 United States
2 France
3 Germany
4 United Kingdom
5 Japan
6 Italy
7 Canada
8 Switzerland
9 Australia
10 Spain, Sweden (tie)

Source: 2009 and 2008 Anholt-GfK Roper Nation Brands Index(SM)

"This improved perception of the U.S. is not only in the area of Governance, there are improved perceptions for People, Culture and even Tourism of the United States," adds Xiaoyan Zhao, Senior Vice President and director of the NBI study at GfK Roper Public Affairs & Media. "While most nations' reputation does not undergo major change from year to year, the U.S. has clearly bucked the trend. What's key for the U.S. and other world's leading nations is to strike while the iron is hot and develop focused policies and communication that draw businesses, financial investors and tourists -- in order to help lift their national economies and their global credibility."

The NBI is based on a global survey in which people from across 20 major developed and developing countries are asked to rate each nation in six categories: Exports, Governance, Culture, People, Tourism and Immigration/Investment. The NBI ranking is based on the average of these six scores.

Turning to the rest of the NBI rankings, mostly the same countries are in the top ten as in 2008 - but also with some shifts in position. France again captured second place overall, while Germany and the United Kingdom fell to third and fourth, respectively. Japan (5th) and Italy (6th) did not shift rankings from 2008. However, Canada lost ground, slipping from fourth last year to seventh in 2009. Switzerland, Australia, Spain and Sweden round out the top 10.

Other major movers in the overall ranking include several developing countries - such as China, which climbed several spots from last year to 22nd in 2009.

This year's NBI study also includes questions on the impact the global economic crisis is having on people's opinions and perceptions towards the nations tracked. Top-line results from this area will be released late fall 2009.

To request a copy of the Anholt-GfK Roper Nation Brands Index(SM) (NBI) 2009 Highlights report or for more information on the Anholt-GfK Roper Nation Brands Index(SM) (NBI) and Anholt-GfK Roper City Brands Index(SM) (CBI), please visit www.gfkamerica.com and/or www.simonanholt.com.

About the Anholt-GfK Roper Nation Brands Index(SM)

Conducted annually in partnership between independent advisor Simon Anholt and GfK Roper Public Affairs & Media beginning in 2008, the Nation Brands Index(SM) measures the image of 50 countries with respect to Exports, Governance, Culture, People, Tourism and Immigration/Investment. Each year, approximately 20,000 adults ages 18 and up are interviewed online in 20 core panel countries

Given the China economic success why do you think they only rank 22nd.?

Interest Rates Foresee No Inflation

(10-18-09 update)
A run away inflation train is what many believe we'll see resulting from tons of USA money printing and borrowing.

Many of us recall the rising inflation days of the 70's exploding into ultra high interest rates that peaked around 1981. But if history is to repeat itself then we should be seeing rising interest rates in 2009 not declining (or stable) rates. And our governments selling of 30 year bonds at less than 1/2% interest rates to investors (during the fall 2008 financial panic) was the shrewd financial move of this decade. What does that make the buyers of those bonds? Can you say...fools.

The charts below show no rising interest rates (for now).

The times, as Bob Dylan sang,"..they are a changing" and someday we (USA) may have hyperinflation or stagflation again. But for the next year just expect Japanese style stagenation. After all, if the Japanese can be in a 20 year stagnation cycle of low inflation and low interest rates why can't the USA have the same. Japan has even had much lower average unemployment than the USA with low inflation. But wait, I'm forgetting one gagantic detail. Our excessive national debt. True that will come into play but I'm perdicting later not sooner.

The countries with the greatest potential for inflation are India and China. But they can view that as more a sign of their positive economic outlook and growth from much lower GDP levels of 20 years ago.

Why has the USA market continued to climb?

Less market fear and lower interest rates combined with some economic green shoots has resulted in the greatest American market bounce back since the 1930's. And lower corporate borrowing cost and slashed employee staffs mean higher future profits for large corporations even if revenues do not grow.

Forget what you want to believe and examine the data. During the 70's and 80's interest rates rose and fell but as you see in the charts below the trend was rapidly rising. This is the opposite trend of what we've experience over the last 20 years. So, while traditional beliefs may not have changed clearly the data shows something has changed. So what has changed?

What causes inflation?

Milton Friedman noted, “Inflation is always and everywhere a monetary phenomenon....It is a situation in which too few goods are being chased by too much money". The monetary policy is as lose as it gets. Economic's teaches us that inflation has two key drivers. #1. Cost-Push Inflation, workers’ ability to negotiate higher wages for themselves and business ability to raise prices. Rising commodities prices and product shortages can also cause this problem. We have neither. #2. Demand-Pull Inflation, resulting from an increase in aggregate demand, caused by an increase in money supply and increases in government and consumer purchases. We have both with one big exception. Consumer spending is only modestly recovering.

True, government gifts for spending like Cash for Clunkers $4,500 and $8,000 for first time home buyers resulted in a spike in spending. But at this point no bear or bull nor economist believes consumer spending is rapidly rising.

Therefore the U.S. monetary policy will (most likely) maintain the Fed-Funds rate under 1% through 2010. You can thank (or curse, if you have large amounts of savings earning near zero rates) our governments for keeping rates low like they did in 2001-2004. But unlike 2001-2004 we have record breaking amounts of unemployed and under employed people. And the (2001-04) housing building and spending boom is now bust. So, I'd bet we'll not see any meaningful spike inflation until late 2010.

What about our gargantuan national debt?

There’s also the inconvenient truth of U.S. debt, running up such gargantuan fiscal liabilities, both privately (consumers) and publicly. And just like the 70's once again were spending a fortune on war and the military. This time it's in Iraq and Afhganistan. Combine this with our future social security and medicare liabilities. No question we have long-term issues that could result in rapidly rising future inflation. The only hint of big inflation now is oil prices. Oil prices are now inversly correlated to the value of the dollar more than world demand and supply factors. Still one big variable has changed from the 70's that is keeping inflation low.

One big change from the 70's. One word. CHINA.

Yes, our enemy for 35 years has evolved into the worlds factory for cheaply built products (thanks to it's inclusion into the World Trade Organization). China has become our banker and product supplier. We have become their most important export market. We are their consumer market.

Why all the worry over China's willingness to lend us money? Why the worry over China dumping dollars? Why the worry over China wanting to cash in their USA treasury bonds? Folks, forgive my bluntness but these are nonsense worries (if only in my mind). It's like saying we need to worry about drug dealers not wanting to sell drugs for profit and employment to drug users.

I hear a few people saying: what is this Madman-Across-The-Water saying?

Think about this. The USA is China's number one export market. China will gladly work to keep us (and the world) addicted to buying their goods to keep their labor force employed. And do you really believe that China wants to kill the U.S. Goose that lays their golden eggs? No. Just because you're a Communist does not mean you're an Economic Neanderthal Man. There's no better way to beat a Capitalist then at his own game and on his home field!

30-Year Conventional Mortgage Rates, 1971-2009:


30-year Treasury bond yields, 1977-2009:


Baa Corporate 30-year Bond Yields, 1962-2009:


AAA Corporate 30-year Bond Yields, 1962-2009:


Prime rate, 1955-2009:


Dr. Mark J. Perry is a professor of economics and finance in the School of Management at the Flint campus of the University of Michigan. He (and many other economist) have pointed out that historically low 30-year mortgage rates reflected relatively low market expectations of future inflation. Some commenters (and Robert Shiller on CNBC) pointed out that the Fed is buying mortgage securities, which is temporarily keeping 30-mortgage rates low, rather than low inflation expectations keeping rates low.

What we believe and what is, are often two sides of a coin.

But the charts above show that other long-term rates (30-year Treasury bond, 30-year AAA corporates and 30-year Baa corporates) are historically low, as well as the prime rate being historically low, and these low rates wouldn't necessarily have anything to do with Fed purchases.

Question: How could all of these long-term rates be so low if there were inflationary pressures building up in the economy, which would lead to higher expected future inflation, and higher nominal long-term interest rates, and not historically low long-term rates?

We each have different inflation rates.

Now when it comes to inflation, each person or family will have a different index based upon what you must buy and want to buy. If you are an older American family, whose house was paid off years ago and who now needs to spend large sums of money for health care and college education (for your children or grandchildren) then your real inflation rate is sky high.

If you are young with no health care expense and renting or buying a home at today's ultra low mortgage rates along with lots of fantastic electronics goods at excellent low prices your inflation rate has been declining dramatically from 20 years ago. In the 70's I recall getting annual letters from my landlords explaining why due to inflation my rents would be rising by 7% even thought 85% of the landlords ownership cost in the property were fixed. But everyone just came to expect rising rents. Today rents have not only been level but in many cases they had to declined to keep renters. Each person or family's situation will be different.

But while each person's inflation index will be different, in aggregate the USA CPI is still the best gage of our nations inflation rate (consistently applied over time). I would agree with the debate that we need to examine the relevance of the variables making up the index to our lives and required expenditures' vs. desired expenditures'.

Buy Doom Sell Boom

Now that the DJIA just hit 10,000 (again) I thought it would be interesting to listen to what the wanabe market gurus and high paid experts were saying in the first half of this year. Here are just two examples of the many classic doom perdictions.

I'll be the first to admit the most advance I was looking for was DJIA 9,500. But it has become clear to me I need to be looking to buy stocks on break-outs and pull-backs. And one can always find lower risk stock laggers to hold into year-end (as discussed in prior articles). Each day as I scan the market details I continue to find strenght in many stocks. Many stocks are above their 2007 levels. A few with excellent earnings outlooks like Apple and IBM are near their 2008 all-time highs!

But even in July, I was reading non-stop articles on SeekingAlpha.com from their mega posters preaching how, at DJIA 8,200, the market was due for a correction back to 6,500. When it didn't happen they wrote articles telling you why the market was wrong and they were right. The real problem was just to many kids with great educations but like knowledge of market history.

The lesson to learn? One must establish a long-term savings and investment plan. And one must understand that the market is a leading economic indicator not a lagging indicator. If you wait to invest only when the economy is ideal...you are too late! If you only invest when the economy is horrible and the market has declined by 40% you certainly stand a better chance at higher long-run returns.

What now? You, need to understand this market momentum can continue to push the market up, back to last summer's pre-Lehman Brothers collapse levels ( around DJIA 10,500 or S&P 1200 ), by year's end. Yes, at this point forget thinking you will see a 10% correction, about the most we'll get is 5% because traders and investors see benefits in buying the dips again. Now this momentum can turn negative in 2010 just as it did in 2002. But as professional traders say, "You need to trade the market you see not the one you think it should be" and "The trend is your friend" the two best money making ideas they never taught me in BBA or MBA investment classes.



The young man above was just one example of how individuals will extrapolate out the current trend (when making market predictions). Listen to one of the many high paid experts who was perdicting the DJIA would fall to 5,500 and the S&P 500 would fall to 400! Folks the S&P 500 is now at 1,100 ---- 275% above this guys perdiction.

In September I gave readers just one more example of how Blogger Youthful Investment inexperience (in understanding stock markets and the data behind charts) cost his followers thousands
Eleven Reasons These Charts Are Worthless

6 Articles 92 Stock Ideas

Want a stock idea that has been prescreened from a trusted source. Here you go...6 articles and 92 stock ideas. What's your favorite stock to buy now? Why?

5 small-cap stocks to buy now

5 Best Stocks to Buy Now

12 top stocks to buy at the bottom

4 Cheap Stocks to Buy Now

6 Best Stocks to Buy Now

7 Dividend Stocks Increasing Cash Payouts

33 Relatively Safe Dividend Stock Yields

20 Stocks with the Potential to Pop

Dividends For Defensive Investors

Turning to dividend-paying stocks in times of market turmoil is not a new concept. In fact,noted analyst Benjamin Graham recommended shares of large, prominent and conservatively financed companies as a defensive equity strategy when he wrote The Intelligent Investor more than 50 years ago.

And with a population of nearly 80 million baby boomers starting to retire, this need for income will become even stronger. With longer life expectancies and the potential for rising inflation, income-seeking investors will need to make sure their money continues to grow.

Consider the facts uncovered in a Legg Mason Study:

Especially relevant to today’s volatile markets is the record of outperformance that dividend-paying companies have posted in down years for the market. Our chart below illustrates how, since 1980, dividend-paying stocks of S&P 500 Index have outperformed non-dividend-paying stocks in each year the broader index generated a negative total return. Dividend-Paying stocks have outperformed non-dividend-paying stocks in down years for the S&P 500 Index (%)

Especially in a difficult equity market, dividends do matter.

• For the defensive investor, dividends have the potential to cushion returns in a down market period, as they have in every down market period since 1980. Of course, past performance is no guarantee of future results.


• As illustrated the Legg Mason study of Standard & Poor’s “Dividend Aristocrats,” on the front side, companies with a long-term history of rising dividends have generated higher total returns with lower risk over time.


• Remember, too, that dividends have always been an important component of total return, especially when they are reinvested and compounded over time. As illustrated in the Legg Mason study, $1 invested in the S&P 500 Index from 1929-2008 would have grown to $37; but with the reinvestment of dividends, the same $1 would have grown to $929.
  
  Note: Past performance is no guarantee of future results. All
  investments involve risks, including loss of principal
  amount invested. Common stocks are subject to market
  fluctuations. Dividends and yields fluctuate and are
  subject to change. Yields and dividends represent past
  performance and there is no guarantee they will continue
  to be paid. While dividends may cushion returns in down
  markets, investments are still subject to loss of principal
  amount invested.

Recent Article on Which Dividends Are Safe Now?

Unemployment Ominous Jobless Recovery

In my prior post I reported on the speck of light we saw in the Septembers unemployment report. We said the positive sign was the fact that new unemployment claims as a percentage of the labor force had declined. This was a positive sign relative to the recessions we had in the 70's and 80's.

Now for the really bad news. As a result of are outsourced and imported economy, beginning in 1991 American began experiencing what economist call "jobless" recovers. In other words unlike the 70's and 80's were we saw big spikes in job hiring at the end of recessions, we no longer see large job creation improvements.

Why? Because unlike the 70's and 80's we now purchase much (maybe most) of what we buy from foreign lands. In fact the economic training I and every economist gets totally ignores the negative impacts of importing more than you export. Instead economist will dwell all day on elementary examples of the benefits of "Comparative Advantage" which like their theory of "The Rational Man" has value but are far to simplistic to exist in a complex world of humans and changing economic tides. And so it is you will be hearing more of this cherry coated term, "jobless" recovery in the future.

Yes, economist called attention to this in the 1990-91 recession when unemployment continued to rise after the "official" recession end. The chart above shows the monthly U.S. jobless rate back to January 1990 (BLS data here), highlighting (in grey) the 1990-1991 and 2001 recessions, and the two periods following the last two recessions that were referred to as the periods of "jobless recovery." Following the 1990-1991 recession, the unemployment continued to increase for 15 months until it peaked in June 1992 at 7.8%, and following the 2001 recession, the jobless rate increased for 19 months until June 2003 when it peaked at 6.3%.

Assuming that the most recent recession ended in June 2009 (as many economist believe) and we have another jobless recovery of at least 16 months, we can expect the unemployment to realistically continue to increase at least through the end of 2010 before it reaches its post-recession peak in the current "jobless recovery."

How can this impact the stock market? Well, the most recent example was the 2001-2003 market which climbed for months after the 9/11 final sell-off which proved to be the end of a much shorter recession. But by March of 2002, after a period of inventory restocking similar to our current experience the market fell for 9 straight months back to its 2001 lows before rebounding again in 2003 when unemployment finally began declining.

Let's just hope history doesn't repeat itself.

New Unemployment Claims Show Hope

You can forget using cold heartless statistics to define the difference between a recession and depression for a family. Former President Harry S. Truman defined it best without using one number. He said, "It's a recession when your neighbor loses his job; it's a depression when you lose yours."

Yes, unemployment is now standing at 9.8% and that's bad. I'm not here to paint you a rosy economic picture. But one must always keep in mind night is followed by day. Actual unemployment is considered a lagging indicator while changes in weekly unemployment claims is considered a leading indicator of what's to come. And there we are seeing signs of light on the horizon. Signs that daylight is coming.

This chart shows weekly claims as a % of the total workforce. That percentage dipped with last week's report to its lowest level for the year. Comparing the severity of this recession to others based on this metric, we are in better shape now than in the recessions of '74-'75 and '81-'82. The economy is now about 3 months into a recovery with a workforce disruption metric that has fallen to 0.42%. It took almost one year of recovery for that same metric to drop to this level following the '81-'82recession, and almost 18 months of recovery following the '74-'75 recession.

Now, I find this little speck of light positive for another reason. Back in the 70's and 80's it was easier to have a more powerful job creation uptick when the economy was improving due to the lack of outsourcing jobs to foreign countries back then. It would also be interesting to know how high the underemployment rate reached back then compare to now.

If anyone has any additional interesting facts to add about last weeks unemployment report, please let us know. Here is the official American September Unemployment Report for all to see.

Conservative Investors Should Consider Dividends

In today’s low interest rate environment with $3.5 trillion dollars earning almost zero, concervative investors might want to consider investing in financially strong blue chip companies that offer the potential for stable and solid dividends. A filtered of the 200 largest U.S. stocks (by market cap), reveals the 20 highest dividend yield companies (sort by yield %).

Company, Ticker, P/E, Yield & Debt/Cash Flow

Reynolds American Inc. RAI 16 7.4% 2.3
Altria Group Inc. MO 12 7.4% 3.4
Progress Energy Inc. PGN 14 6.3% 13.6
Duke Energy Corporation DUK 17 6.2% 6.0
AT&T, Inc. T 13 6.2% 2.1
Consolidated Edison Inc. ED 16 5.9% 14.7
Lilly & Co. LLY 5.9% 1.4
Verizon Communications Inc. VZ 14 5.9% 2.3
Southern Company SO 15 5.6% 7.7
Bristol-Myers Squibb Co. BMY 8 5.6% 2.1
Lorillard, Inc. LO 13 5.5% 0.9
Spectra Energy Corp. SE 13 5.3% 5.9
Dominion Resources, Inc. D 12 5.2% 4.4
American Electric Power Co. AEP 11 5.2% 7.7
EI DuPont de Nemours & Co. DD 44 5.1% 2.9
FirstEnergy Corp. FE 10 4.9% 4.9
PPL Corporation PPL 15 4.7% 6.9
Merck & Co. Inc. MRK 11 4.7% 2.6
Philip Morris International, Inc. PM 14 4.7% 1.9
HJ Heinz Co. HNZ 13 4.4% 4.1

Out of 20, 9 of them are utilities. Keep in mind utilities traditional carry high debt loads but benefit in todays low interest rate environment.

Out of 20, 9 of them are utilities. Keep in mind utilities traditional carry high debt loads but benefit in today's low interest rate environment.

Four of them are tobacco companies. Tobacco, specifically international tobacco, (USA market has been dying for years) is proving to be exceptionally resilient to recession. However, not all of them are created equal. For example, Reynolds American and Altria Group Inc’s payout ratios are more than 100%. The best seems to be Lorillard, Inc. Its debt to operation cash flow ratio is 0.9. In other words, in theory it could pay off all its debt within 1 year.

Three of them are pharmaceutical and 2 are tech related. Mary Buffett and David Clark point out in their new book Warren Buffett And The Interpretation of Financial Statements, what seems like a long-term competitive advantage is often an advantage bestowed upon the company by a patent or some technological advancement. If the competitive advantage is created by a patent, as with the pharmaceutical companies, at some point in time that patent will expire and the company’s competitive advantage will disappear. If the competitive advantage is the result of some technological advancement, there is always the threat that newer technology will replace it. Today’s competitive advance may end up becoming tomorrow’s obsolescence. This has always been true and one must always keep in mind change is constant. Still, it's doubtful that there is anything within the next 12 months that will radically change the investment outlook for the companies above products and services demand. And even utility stocks will benefit from a improving industrial output economy.

Mutual Funds or Exchange Trade Funds (ETFs)are an even more conservative diversified investment play. The following are the top 10 dividend ETFs(by net assets)you may wish to consider:

# Fund Name & Ticker

1 iShares Dow Jones Select Dividend Index DVY
2 Vanguard Dividend Appreciation ETF VIG
3 SPDR S&P Dividend SDY
4 WisdomTree LargeCap Dividend DLN
5 Vanguard High Dividend Yield Indx ETF VYM
6 WisdomTree International SmallCap Div DLS
7 PowerShares Intl Dividend Achievers PID
8 WisdomTree Europe Total Dividend DEB
9 WisdomTree Dividend ex-Financials DTN
10 WisdomTree International Div ex-Fincls DOO

While these are all conservative alternatives it doesn't mean they can't decline in value if the market declines. Still, for those with large stock investment exposures now (or those just getting started) these stocks are worth considering now. Most of the dividend stocks listed above have barely risen in value, as investors passed up conservative stocks in favor of the most depressed stocks over the last 6 months.

Disclosuer: I hold long positions in AEP, LLY, VZ, MO

FINRA SaveandInvest.org

FINRA BrokerCheck® This is an excellent source for investors to check out people who solicited them with investment products. You always need to know the background of the person and company you are talking with when considering investments.

FINRA saveandinvest.org is a great place for both young military people and older people wanting basic personal finance education from a trusted source thats not selling products. FINRA is the largest independent securities regulator in the US their chief role is to protect investors by maintaining the fairness of the US capital markets.



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