U.S. Economy

Question of the Week: Investors Preparing for Double-Dip Recession

The "pause" button has been hit on the U.S. economic recovery, fueling worries that we're headed for a double-dip recession.

"We're in a pause in a recovery, a modest recovery, but a pause in the modest recovery feels like a quasi-recession," Former U.S. Federal Reserve Chairman Alan Greenspan said in an interview on NBC's "Meet the Press" broadcast last Sunday.

Greenspan touched off speculator interest in a double-dip downturn when he announced that a further decline in home prices could push the economy into a new recession.

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Defensive Investing: Use Dollar-Cost Averaging to Reduce Volatility Risks

Dollar-cost averaging has long been a strategic staple among mutual fund buyers. Longer-term investors use it to smooth out the effects of short-term price fluctuations, but the tactic seldom has been practical for purchasers of individual stocks - that is until now.

For those unfamiliar with the strategy, dollar-cost averaging - also known as constant-dollar investing - involves the regular purchase of a smaller fixed-dollar amount worth of shares over time, as opposed to the lump-sum purchase of a large number of shares at once. For example, rather than buy $1,200 worth of shares of fictitious company XYZ in January, you might buy $100 worth of XYZ shares each month for the full year.

The technique offers several advantages for fund investors:

  • Because you are investing a fixed-dollar amount at regular intervals, you don't have to be concerned with trying to time the markets.
  • Since the fixed-dollar amount you invest buys more shares when prices are low and fewer when they are high, your average cost basis levels out over time. This reduces the risk that you might pay too high a price by making a lump-sum purchase at the wrong time.
  • The lower average cost basis mutes the impact of short-term volatility on your existing holdings.
  • You can build a sizable position in a single fund, even if you never have a large sum of money to invest at any one time.

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A Tale of Two Investments: U.S. Steel Scenario Illustrates the Power of Dollar-Cost-Averaging

To understand the potential defensive-investing benefits of dollar-cost averaging, let's take a look at two scenarios involving United States Steel Corp. (NYSE: X).

Thanks to the general downtrend in the market, the May 6 "flash crash," and the rapid subsequent rebound, U.S. Steel shares fell from a 52-week high of $70.95 on April 6 to just $52.81 at the market close on Friday, May 14.

Indications of some new life in the construction sector and an uptick in autos would seem to indicate that steel demand could rise - which would be especially good for U.S. Steel, which supplies both businesses.

You've got $10,000 to work with.

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With Mid-Term Elections Looming, Will Democrats Fire Back with a Second Stimulus

Data last week showed a job market that's careening down a steep street with no breaks. Yet investors were able to shrug off employment concerns, as the stock market actually ended the week up 1.5% due to that rockin' Monday on the first day of the month.

That's because there is growing speculation that the Democrats are plotting a surprise stimulus in the run up to November's mid-term elections.

Let me explain...



Click here to read on...

It's Time to Keep America From Becoming Just Another Banana Republic

The great American tradition of individualism, entrepreneurship and revolution is being systematically undermined by a cadre of financial strongmen bent on turning us into just another "banana republic" - where a subdued and apathetic population is subjugated by a ruling class of wealthy oligarchs.

The gross irony is that the same capitalist system that molded America into the strongest, most productive and richest nation in history, has been transformed into a mostly private moneymaking enterprise whose beneficiaries are those who actually produce nothing but paper profits.

The story of America's transformation from great experiment to another banana republic is one in which economic crises were manipulated to create a political front for an elite banking class.

It's a story that's worth examining...



To find out why America is headed for banana-republic status, please read on...

Slight Job Gains Won't Shrink the High Unemployment Rate

Employment reports released this week show mixed results, but lead to the same conclusion: The high unemployment rate isn't improving any time soon.

U.S. private-sector jobs last month grew by only 42,000, according to a report issued yesterday (Wednesday) by payrolls processor Automatic Data Processing, Inc. (Nasdaq: ADP). ADP revised the number of jobs added in June to 19,000 from 13,000, which fell far short of economists' predictions of 39,000.

The ADP report "shows continued weakness in the jobs market, which is in part caused by the uncertainty in the economy and general business climate," said Gary Butler, ADP's chief executive, in a statement. "American businesses are on the cusp of recovery, but more effective incentives are needed to encourage business investment resulting in the creation of more jobs."

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We Want to Hear From You: Are You Preparing for a Double-Dip Recession?

The "pause" button has been hit on the U.S. economic recovery, fueling worries that we're headed for a double-dip recession.

"We're in a pause in a recovery, a modest recovery, but a pause in the modest recovery feels like a quasi-recession," Former U.S. Federal Reserve Chairman Alan Greenspan said in an interview on NBC's "Meet the Press" broadcast Sunday.

Greenspan touched off speculator interest in a double-dip downturn when he announced that a further decline in home prices could push the economy toward a new recession.

Read More…

Flat Consumer Spending and Declining Factory Orders Point to Slower Economic Recovery

Consumer spending in the United Sates was flat in June and personal savings were the highest in a year, underscoring how unemployment continues to hamstring the U.S. economic recovery.

Separately, U.S. factory orders fell by more than expected in June from May, and pending home sales continued to plunge as the expiration of a government subsidy for first-time homebuyers depressed housing market activity.

Taken together with the gross domestic product (GDP) data for the second quarter, the latest string of reports shows a U.S. economy that is drawing closer to a double-dip recession.

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Taipan Daily: Zero-Interest-Rate Market Investments

We all know the economy has a tough row to hoe… We're facing severe unemployment. Almost 50% of those unemployed have not been able to find a job in six months. We've also seen huge bankruptcies over the past two years, such as General Motors, CIT Group and Lehman Brothers, and more than 100 banks […]

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Insights on ECRI: Is This Stock-Market Prophet Calling for a Double-Dip Recession?

The Economic Cycle Research Institute - referred to as the "ECRI" by anyone in the know on Wall Street - has correctly called every U.S. recession during the last 45 years.

To work its magic, the ECRI charts the weekly changes in an index of Leading Economic Indicators (WLI). Market professionals like myself very quietly use the same group of indicators to call market tops and bottoms. The indicators are so accurate in terms of what they have to say about the future that I refer to ECRI and the WLI as "The Prophet."

Given the Prophet's 100% hit rate over the last half century, investors should definitely take heed of the warning signals that this economic seer of seers is making right now.

To see if the ECRI has labeled this as a "double-dip" recession, please read on...

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Wall Street's Mood Shift Is Signaling a Profit-Making Price Push Ahead

A mood of mild optimism has begun to spread down Wall Street not long after there was nothing but long faces. Fancy that.

More good news out of Europe, better-than-expected new home sales, and the latest of a solid second-quarter earnings season has helped resuscitate the animal spirits that were missing in action since the spring. 

Stocks rose past some key milestones in their historic July over the past week, pushing the Dow Jones Industrial Average just barely into positive territory for the year. It was a very professional, low volatility rally this week, a welcome change from the intra-day dramatics that had put everyone on edge lately.

What has really changed from the point of view of government policy or corporate results? Nothing and everything.

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To find out what’s changing on Wall Street, click here

China Leapfrogs Japan and is Now the World's No. 2 Economy – And is Gunning for the No. 1 United States

As the old Avis rental car slogan used to say: "When you're No. 2, you try harder."

With the growth rates that its economy has turned in the past few years, no economist could ever accuse China's leader of not trying hard. China now claims to have jumped over Japan to take over the No. 2 spot in the world economic pecking order.

China's next target: The No. 1 U.S. economy.

In fact, some experts believe that China could catch up to the United States' $14.4 trillion economy in as little as 10 to 15 years.

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How to Pick Stocks in the 'New Normal' Economy

In today's potentially ultra-slow-growth "New Normal" economy, old stock market multiples do not apply.

In fact, investors who rely on long-held rules about Price/Earnings (P/E) ratios when they buy and sell stocks are risking a pretty big "haircut:" They may be overvaluing some of their stocks - and the stock market in general - by 17% to 20%.

Let's take a closer look...



To understand how to value stocks in the "New Normal" economy, please read on...

History Gives a Reason to Be Hopeful about U.S. Stocks

Volatility has hamstrung U.S. stocks recently, but history suggests there's a reason for hope on the horizon.

The past week and a half has been a welcome reprieve from the extreme volatility we've seen over the past few months. There have been no fewer than 19 days this year in which up or down volume has accounted for more than 90% of total volume.

The rapid up-and-down, all-or-nothing nature of the stock market has confounded even the most talented, highly paid and well informed traders. The hedge fund industry as a whole has been caught flat-footed - posting losses in each of the last two months.

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Defensive Investing: Beware of Municipal Bonds

Of the speculative excesses that misguided monetary policy and a prolonged recession has caused, the one that poses the most danger to investor wealth is the financial bubble in state and local municipal bonds.

Municipal bonds - usually referred to as "munis" - are very popular portfolio plays because of tax advantages that, in effect, enhance their rates of return. There's also an allure because of their local nature: Investors can invest in specific bond issues that provided the money for projects such as schools, highways, bridges, hospitals or housing that actually affects the community in which the investor lives. That makes them a very tangible investment.

But there's a problem.

State-and-local-government finances have taken a bigger beating during this economic downturn than during any other recession since World War II. Even worse, that beating came after the easy money available during this stretch encouraged those same governments to venture well beyond any reasonable limits in terms of their borrowing. They're now stuck with a bigger-than-warranted debt load - which can't be covered by the property tax stream that's been reduced by record-level housing defaults.

The bottom line: At the present time, "munis" may not be the benign - or even alluring - investment that they've been in the past. In fact, thanks to continued fallout from the worst financial crisis since the Great Depression, some munis may be more akin to bombs than bonds - ticking away and just waiting to blow up your portfolio.

To understand why "muni" bonds may be dangerous, please read on...

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