There appears to be little good news on the economic front these days inducing commentators to be referring to depression more often. In this weeks’ Investor Section below we look at the differences between a recession and a depression, but it is important to note that our GDP has contracted by 6.2% as opposed to the 30% in the Great Depression of the 1930’s and our unemployment is at a 25 year high of 8.1% as opposed to the Depression 25%. It is true that we may well not yet have seen the bottom, but there are encouraging signs that are not widely reported. Large organizations, especially in the financial sector are under severe pressure and may well go the way of the dinosaur, but a number of local and regional banks and credit unions are doing very well. The banner headlines on real estate is pure doom and gloom, but under the radar a number of companies buying defaulted and troubled mortgages and bank owned real estate (REO’s) are handsomely rewarding their investors. In areas of California homes can now be purchased by investors (who are now able to finance 10 properties) at prices that allow for positive rental based cash flow. The emotional level of this economic downturn is still very negative and fear is keeping investors from participating in good solid investments yielding above average returns at a time when most are either continuing in a downward spiral or receiving negative inflation adjusted returns on safe harbor investments.

THE word “depression” is popping up more often than at any time in the past 60 years, but what exactly does it mean? The popular rule of thumb for a recession is two consecutive quarters of falling GDP. America’s National Bureau of Economic Research has officially declared a recession based on a more rigorous analysis of a range of economic indicators. But there is no widely accepted definition of depression. So how severe does this current slump have to get before it warrants the “D” word? A search on the internet suggests two principal criteria for distinguishing a depression from a recession: a decline in real GDP that exceeds 10%, or one that lasts more than three years. America’s Great Depression qualifies on both counts, with GDP falling by around 30% between 1929 and 1933. Output also fell by 13% during 1937 and 1938. The Great Depression was America’s deepest economic slump (excluding those related to wars), but at 43 months it was not the longest: that dubious honour goes to the one in 1873-79, which lasted 65 months. Japan’s “lost decade” in the 1990s was not a depression, according to these criteria, because the largest peak-to-trough decline in real GDP was only 3.4%, over the two years to March 1999. Before the 1930s all economic downturns were commonly called depressions. The term “recession” was coined later to avoid stirring up nasty memories. Even before the Great Depression, downturns were typically much deeper and longer than they are today. One reason why recessions have become milder is higher government spending. In recessions governments, unlike firms, do not slash spending and jobs, so they help to stabilise the economy; and income taxes automatically fall and unemployment benefits rise, helping to support incomes. Another reason is that in the late 19th and early 20th centuries, when countries were on the gold standard, the money supply usually shrank during recessions, exacerbating the downturn. Waves of bank failures also often made things worse. In the Great Depression average prices in America fell by one-quarter, and nominal GDP ended up shrinking by almost half. America’s worst recessions before the second world war were all associated with financial panics and falling prices: in both 1893-94 and 1907-08 real GDP declined by almost 10%; in 1919-21, it fell by 13%.

For the entire article from THE ECONOMIST click here:

Mortgage rates remained flat last week, as President Obama unveiled a $75 billion plan to help prevent foreclosures. The average 30-year fixed mortgage stayed constant at 5.41% for the week ended March 4, according to Bankrate.com. The average jumbo 30-year fixed rate reached the lowest level in nearly two years, slipping to 6.77% from 6.87%. Mortgage rates are continuing their sideways movement, though they may tilt higher as long-term concern grows regarding how the government will manage its growing budget deficit, according to Weiss Research analyst Mike Larson. "Mortgage rates are moving sideways with an upward bias. There are some concerns for how we'll pay for the stimulus and everything else. And despite the dismal economic news the market is getting, there's some concern about supply overshadowing that, and that's impacting bond prices," Larson said. President Obama's $75 billion foreclosure prevention program went into effect Wednesday. The Homeowner Affordability and Stability Plan will help more homeowners refinance into new, low-interest rates and it provides incentives to lenders and servicers to restructure mortgages.

For the entire article from CNNMoney click here:

HOUSES in the United States are now more affordable than at any time in the last 40 years, when compared with personal income. Only a couple of years ago, home prices rose to clearly unsustainable multiples of income, and the abrupt change could hold out hope for a revival of the housing market. In the summer of 2005, when funny-money mortgages were readily available and helping to drive up home prices, the national median sales price of a home was almost eight times as much as the average per capita after-tax income of Americans. But by this January, with incomes up and home prices down sharply, that multiple had fallen to less than five. That may be little comfort for many homeowners who owe more than their homes are now worth, but it does indicate that home prices have fallen far enough, at least in many areas, to make them affordable.“You have a big debt overhang problem, but you don’t have a house price problem anymore,” said Robert J. Barbera, the chief economist of ITG, an advisory firm. Home prices vary widely from region to region, and people in areas like New York or Los Angeles can only dream of finding an acceptable home for $169,900, which the National Association of Realtors says was the median sales price of previously owned homes sold in January. That figure was down from a peak of $230,900 in July 2006. It is not clear that prices have declined enough to make houses broadly affordable in some regions. National median prices can be misleading, particularly because more or fewer sales may be coming from high-cost or low-cost areas. Moreover, the volume of home sales has plunged. Many recent sales involved homes that were in or close to foreclosure, and may have been conducted at prices lower than the asking price for other homes in the area. But it is also possible that the decline in the median price may understate the devastation that has befallen the housing market in some areas. In December, the latest figure available, the S.& P./Case-Shiller composite home price index for the 20 regions was off 27 percent from July 2006. The personal income figures may also be high, since they are affected by government transfer payments and include significant increases in Medicaid and unemployment insurance payments. But the trend is the same even with transfer payments eliminated from the calculation. Pressures are still forcing home prices down, including the difficulty of obtaining mortgages for prospective buyers who cannot meet the standards set by Fannie Mae and Freddie Mac, the government-controlled agencies that finance the bulk of new home loans now. In addition, there was a lot of overbuilding in many areas, and even though construction has plunged, the inventory of unsold homes has stayed stubbornly high. Rising unemployment levels may discourage some who could buy from doing so. But at least by one measure, home prices no longer appear to be high by historic standards. That fact could help to stimulate demand, if not immediately, then at least when the economy appears to stabilize.

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

we could see an explosion to the upside after a meeting scheduled for March 12th. On that date, a House financial services subcommittee plans a hearing on mark-to-market accounting rules, which have been blamed for forcing banks to report billions of dollars in write-downs. If that meeting results in the government relaxing mark-to-market rules, optionMonster Jon Najarian thinks the stock market could explode. On Wednesday he told us, “if the government relaxes mark-to-market for 12 to 18 months you could see financials move 100% in a matter of hours.” And he went on to say, “In fact, I hope you’ll replay the soundbite because if the government relaxes mark-to-market accounting a number of banks stocks will be unbelievable values at these levels.” U.S. industry groups have urged the SEC and FASB to significantly alter or suspend the accounting rule, saying it is undermining the government's multibillion-dollar effort to stabilize the financial sector. Mark-to-market accounting requires assets to be valued at current market prices. Some banks say it forces them to mark down assets to artificially low prices in the current financial crisis, even when banks intend to hold the assets past the current reporting period.

For the entire article from CNBC click here:

As government data revealed that 651,000 more jobs disappeared in February, a sense took hold that growing joblessness may reflect a wrenching restructuring of the American economy. The unemployment rate surged to 8.1 percent, from 7.6 percent in January, its highest level in a quarter-century. In key industries — manufacturing, financial services and retail — layoffs have accelerated so quickly in recent months as to suggest that many companies are abandoning whole areas of business. This dynamic has proved true in past recessions as well, with fading industries pushed to the brink during downturns before others emerged to create jobs when economic growth inevitably resumed. But with job losses so enormous over such a short period of time, some economists argue that the latest crisis challenges the traditional American response to hard times. For decades, the government has reacted to downturns by handing out temporary unemployment insurance checks, relying upon the resumption of economic growth to restore the jobs lost. This time, the government needs to place a greater emphasis on retraining workers for other careers, these economists say.

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

China’s top economic officials said they saw signs of economic recovery thanks to government efforts to boost growth, but analysts warned Beijing might be getting complacent as it tried to shore up confidence amid a pronounced slump. “We can see the economic figures are already stabilising and recovering, which shows the [government’s stimulus] policies have started to take effect,” Zhou Xiaochuan, China’s central bank governor, said at a press conference on Friday on the sidelines of the annual meeting of the country’s rubber-stamp parliament. He said some export sectors were showing signs of recovery but a Chinese newspaper reported on Friday that exports and imports both fell more than 20 per cent in February. Exports fell 17.5 per cent and imports fell 43.1 per cent in January. “The government is really complacent and that worries me,” said Frank Gong, head of China research for JPMorgan. “They seem to be satisfied with the performance of the economy but the worst is yet to come in export performance, deflation is imminent and to sustain the current fragile recovery they need to provide more policy stimulus.”

For the entire artcile from THE FINANCIAL TIMES click here:

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