It would appear as if there is nothing but bad news out there. It is probably true that there is no silver bullet that would miraculously slay the evil vampire and restore all of us to economic health. This will likely be a slow and hard fought economic recovery, much like the war in the Pacific where the Marines had to liberate island by island from the Japanese. Although most find fault with the Administration’s plans for the economy and housing, they offer longer term solutions that may allow for proper thought, debate and implementation as opposed to the quick-fix solution offered in 2008 with the first $350 billion dollars. To successfully navigate these treacherous economic times and regain lost equity one will have to be very deliberate, focused and aware of opportunities not clearly visible in the smoke of destruction. Increased reserves, such as we are building in the LJL Secured High Yield Income Fund, hence the somewhat lower annualized return and higher safety margins (we have reduced our loan-to-value to 55% based on a very conservative valuation approach), should be the underlying investment philosophy during this period. We should also be mindful of positive changes in the economic environment, as few as they may be, in order to be properly positioned for financial growth. This recession started with the bursting of the housing price bubble that triggered the collapse of the global credit markets. Monitoring these two areas should alert investors to any possible recovery. On the housing front, $275 billion will seek to stabilize the mortgage market and lessen the number of houses entering the market through foreclosures; home building is at a record low, reducing new inventory coming on to the market at a time when home builder optimism has risen somewhat; sales volume has increased and in recent months the rate of decline of house prices under $600k have declined significantly. One of the clearest indications of the health of the credit market is indicated by the TED spread, the difference between the 3-month Treasury yield and the 3-month LIBOR which is the rate at which banks are prepared to lend to each other. In normal operating markets, this spread is below 0.5%. During the height of the crisis in 2008 it reached nearly 5%! In medical terms the global credit market was in the intensive care unit. In the 1%-2% range the credit market was out of intensive care but still in hospital. Below 1% the patient can be released, but is still too weak to return to work. Well it the credit market has been released from hospital and is recuperating at home. The bad news may seem overwhelming but there are a few swallows around which bode well for a conservative, consistent and secured investment strategy.

A few months ago, most people were too terrified to do much more than wring their hands while sitting on them. But now, as the stock market takes another bullet every day and the yields on cash dwindle away, some investors seem to be flinging caution to the winds. EPFR Global of Cambridge, Mass., reports that $2.4 billion poured into emerging-markets funds and another $3.4 billion into junk-bond funds in the first six weeks of this year, even as investors yanked $1.3 billion out of much safer balanced funds. According to indexuniverse.com, so far in 2009 nearly half of the new money in exchange-traded funds has gone into ETFs that bet on gold, oil, real estate, emerging markets and junk bonds, often with leverage added to amplify the potential gain, or loss. If you fixate on the money you already have lost, you may feel that a moderate future gain can only reduce those losses, making it hardly worth seeking at all. On the other hand, even the slightest chance of striking it rich holds out something precious: hope. That emotion can elbow aside the fact that most Hail Mary passes fail, in the stadium and stock market alike. Hurling your money at the wildest risks you can find is a bad bet. The best way to recover is by gritting your teeth and grinding out gains one slow, boring play at a time. You aren't likely to rebuild your wealth through an act of desperation; recovery is a process, not an event. Leave the Hail Mary play where it belongs: on the football field.

For the entire article from THE WALL STREET JOURNAL click here:

Mortgage rates held steady over the past week, as homeowners got a boost from the stimulus bill and President Obama unveiled a foreclosure-prevention plan on Wednesday. The average 30-year fixed mortgage stayed constant at 5.34% for the week ended Feb. 18, according to Bankrate.com. The average 15-year fixed rate mortgage sank below the 5% threshold to 4.93%;the average jumbo 30-year fixed rate slipped to 6.92% from 6.98%. Adjustable-rate mortgages were mixed, with the average 1-year ARM falling to 5.47% from 5.67% and the 5/1 ARM holding at 5.37%. "Interest rates are moving in a sideways pattern and I don't expect to see a jump out of this range for a little while," said Mike Larson, an analyst at Weiss Research. "The government is playing a spread game. It's selling Treasurys and buying mortgage-backed securities, so it's suppressing mortgage yields and keeping those rates stable. But demand for U.S. debt is not unlimited, at some point, people may be reluctant to buy it," Larson added.

For the entire article from CNNMoney click here:

Along with giving American homeowners a break, President Barack Obama's new plan to get mortgage foreclosures under control should be a boon to the troubled companies that insure home loans. The $75.0 billion Treasury-led initiative, if it works, will pull millions of Americans into affordable mortgages, reducing the number of at-risk loans that mortgage insurers had already planned to pay claims on. Much of the foreclosure mitigation, up to 5.0 million loans, will be done through refinancing debts owned or guaranteed by government-controlled Fannie Mae and Freddie Mac who already shoulder $5.6 trillion in U.S. mortgages, roughly half the market. Private mortgage-insurance firms have been gushing losses as loan delinquencies have risen far above expectations.

For the entire article from FORBES click here:

The stock market flirted with its dotcom-era low but trimmed its losses to miss that mark on Friday, capping an otherwise dismal week in which fears of nationalization of major U.S. banks gripped trading floors around the world. New assurances that nationalization is not in the cards helped the market a bit Friday afternoon. But the matter looms large in the minds of many investors who wonder whether circumstances will eventually dictate a change of plans. The Dow Jones Industrial Average was off almost 220 points at its intraday trough, which put it slightly below its closing low set in October 2002 after the Internet bubble burst. It ended down 100.28 points, off 1.3%, at 7365.67, less than 80 points above the 2002 low. On the week, the Dow industrials declined by 6.2%, the worst weekly decline since the week of October 10, 2008, when the Dow fell by a harrowing 18%.

For the entire article from THE WALL STREET JOURNAL click here:

MANY of the diehard optimists on Wall Street have been beaten to a pulp by now, but those still standing have fallen back on a nifty bit of calculus. The second derivative, they say, is turning positive. That means that although the economy is spiralling down, it is doing so more slowly. There are a few bits of data to back up this assertion. Retail sales rose by 1% in January from December, the first monthly increase since June. Car sales fell in January but were stable to individual buyers, if not to corporate fleets. The economy may shrink at a slightly lower rate in the first quarter than it did in the fourth (in part because fourth-quarter growth is likely to be revised to a steeper drop than the first annualised estimate of 3.8%). An index compiled by JPMorgan Chase finds that although economic news remains on balance worse than expected, the margin of awfulness has shrunk a bit; the firm’s analysts have marginally trimmed the risk of “a mini-depression”. Meanwhile, thanks to huge policy stimulus by the authorities since October, yields on corporate bonds have edged lower, interbank rates have improved, and the money supply has surged. Thomson Reuters, a data gatherer, says that more than $100 billion of American corporate bonds have been issued this year, more than the four preceding months combined (though many are federally guaranteed).

For the entire article from THE ECONOMIST click here:

If the economies and stock markets of the world were graded on a curve, the United States would be doing quite well. In the fourth quarter of last year, the American economy shrank at a 3.8 percent annual rate, the worst such performance in a quarter-century. They are envious in Japan, where this week the comparable figure came in at negative 12.7 percent — three times as bad. Industrial production in the United States is falling at the fastest rate in three decades. But the 10 percent year-over-year plunge reported this week for January looks good in comparison to the declines in countries like Germany, off almost 13 percent in its most recently reported month, and South Korea, down about 21 percent. Even in the area of exploding mortgages, the United States has done better than some countries, particularly in Eastern Europe. There it is possible now to owe twice what a house is worth — even if the house has not lost much of its value.

For the entire article from THE NEW YORK TIMES click here:

FROM TOM TOLES:

 

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