Tags: Forbes: | Bernanke | Bust | Coming

Forbes: Bernanke Bust Coming

Friday, 16 December 2005 12:00 AM

(Headlines - scroll down for full stories)
1. Forbes: Bernanke Bust Coming
2. Dividend Stocks Explode on Wall Street
3. Satellite Radio Trade Soars 21%
4. 10 Salary Trends for 2006

1. Forbes: Bernanke Bust Coming

Incoming Federal Reserve chief Ben Bernanke is set to suffer through a major housing decline and recession

That's the clear message from Forbes columnist A. Gary Shilling in a piece titled "The Coming Bernanke Bust."

Shilling insists that Bernanke, while certainly intelligent, lacks the experience and political savvy that Greenspan used so effectively to deal with (or avoid) countless economic problems.
 
"Greenspan is a master politician, while Bernanke has a lot to learn about surviving and thriving in the Washington jungle," says Shilling.
 
"Greenspan stayed on for so long because he skillfully avoided fights with Congress and the White House. His public statements are masterpieces of obfuscation; he can't be pinned down. His ad hoc approach to monetary policy is indefinable, allowing him to foster the notion he is clairvoyant. He sagely refuses to name an inflation target, thus giving himself wide leeway when statistics jump around."
 
Of course, prior to his selection as Fed Chief, Bernanke had only three years of experience on the Fed's board of governors and half a year serving as President Bush's economic chief. But in his public life so far, says Shilling, Bernanke has made a searing impression.
 
"What evidence has emerged from his brief time on the national scene is revealing. In a jarring November 2002 speech he suggested that the Fed could drop money out of helicopters to stop deflation. That comment has now created news coverage that no central banker wants," says Shilling.
 
Where Greenspan was generally considered vague and ambiguous in his economic assessments, Bernanke is not one to mince words.
 
"Bernanke wants to set an inflation target (perhaps 2%) and wrote a book on that subject. The problem with such a rigid formula is that it might conflict with the Fed's legal requirement to promote maximum employment and stable growth."
 
And Shilling believes that trouble awaits the new Fed chief.
 
Bernanke has long been vocal about his deflation and employment worries, and his record "may force him into excessive hawkishness on inflation."
 
Also, Bernanke hardly seems concerned about the potential housing crash.
 
"In October he said that 'a moderate cooling in the housing market' would not preclude economic growth in 2006. That statement will haunt him once housing crashes," says Shilling.
 
The author reminds readers that Greenspan's tenure was marked by unwinding inflation, which allowed him to repeatedly lower rates. And the outgoing chairman enjoyed an exceptionally healthy economy, encountering only two mild recessions in almost two decades.
 
But when presented with the opportunity, says Shilling, he never took action to stem future disasters – like the one facing America's housing industry today.
 
"His strategy has been not to prick bubbles but to wait until they break, then clean up the mess. Greenspan did nothing to curb the stock speculation building in the late 1990s. Massive monetary ease before and after Sept. 11 kept speculation alive despite the bear market. Aided by non-Fed actions like exploding government spending, speculation simply shifted from stocks to real estate."
 
And now, says Shilling, a housing bubble burst will be the catalyst for a very painful U.S. recession – and Bernanke will take the heat.
 
Meanwhile, real estate depreciation will sap homeowners of all the cash they have been sucking out of their homes to fuel recent buying sprees.
 
According to the article, Americans will stop spending and start saving, generating massive losses for the foreign countries that sell goods and services to the United States.
 
Shilling points out another impending problem: "This scenario is beginning to unfold just as U.S. investors are stampeding to foreign stock markets, chasing the rallies that overseas bourses have lately been relishing. Some U.S. advisers are recommending a 33% allocation to foreign stocks, up from 20% two months ago. At current rates U.S. investors in 2005 will put $100 billion into mutual funds offering foreign stocks. Such a sum is equal to the flow into U.S.-only funds, which last year got twice what international funds did."
 
Shilling sees an increasingly stronger dollar eroding overseas stock gains. He recommends unloading foreign equities immediately, getting rid of Asian concerns first.

2. Dividend Stocks Explode on Wall Street

MoneyNews is a big fan of dividend-paying stocks – especially since May 2003, when Congress passed tax cuts that slashed the federal tax rate on dividends down to 15%, making it equal to the tax on long-term capital gains.

According to a recent Forbes.com article by Jack Gage titled "Live Within Your Means," dividends see most of the action on Wall Street these days.

"There has been an explosion in dividend hikes (22% more in 2004 than in 2002) and one-time dividends (68% more)," says Gage.

The author cites a host of Wall Street gurus who dance to the siren song of dividends. One is Richard Bernstein, chief U.S. portfolio strategist at Merrill Lynch. He predicts that by 2015, dividend stocks will catch up to low-yield growth stocks as Baby Boomers focusing on capital preservation reach their golden years.

But when it comes to dividends, investors aren't the problem – it's some of the companies paying them out that could present trouble.

"Bernstein warns that some companies are dishing out more cash than is prudent," writes Gage. "Your risk here is not just that your quarterly payout will be cut but also that you will suffer a sharp capital loss when the market reacts to that cut."

"One warning sign that Bernstein looks out for: dividends that are higher than earnings. Another trouble indicator: long-standing deterioration in free cash flow."

But Bernstein isn't alone.

The Web site Safehaven.com predicts dividend payouts will fall 10% by the end of next year, even though companies "hate" to cut dividends.

"What are dividend trends predicting now?" Safehaven.com asks.

"In our interpretation, an earnings decline of a minimum of 10% from fourth-quarter 2004 levels by the end of 2006. If this is correct, it suggests a reason why stock markets are already weak and may yet fall further. At the very least, equity markets will be hard-pressed to match bond and cash returns for a time. That supports our cautious asset mix currently."

3. Yesterday's Triple Edge Alert Recommendation up 21%!  Join now.

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This company is the leader of a small sector and stands to gain the lion's share of new customers – and it will cost this firm much less than what its closest rivals will be forced to spend.

If this stock rises just 10% between now and the end of January 2006 – which is a very real possibility, judging from the looks of things right now – in about six weeks, we could see a 46% profit on this trade.

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4. 10 Salary Trends for 2006

It's the holidays, and apart from those lucky souls who anticipate year-end bonuses this year, few Americans are thinking about work.

So Salary.com is doing it for them.

The compensation company today released a list of 10 "hot-button" salary/compensation trends for 2006. Chief among them are a move toward incentive-based performance and earlier bonus timeframes.

The trends are as follows:

1. The industry will face a continued movement toward pay for performance – with greater emphasis on incentives.

2. Companies and their boards will be looking to re-evaluate, cut back or eliminate components of their executive pay programs.

3. Stock option usage will continue to slow.

4. Commitment by employers to expand their use of work-from-home programs for employees because of family situations, high gas prices and travel concerns.

5. The use of signing bonuses will return, in moderation.

6. Workers may see an increase in pay for jobs with increased visibility and increased demand.

7. Employers will find creative ways to attract and retain older workers.

8. An increase in the use of spot bonuses will provide immediate positive feedback to key contributors.

9. Retraining will become a challenge for employers and employees.

10. Employees could start seeing their bonus payments and salary increases sooner than in years past.
 

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(Headlines - scroll down for full stories) 1. Forbes: Bernanke Bust Coming 2. Dividend Stocks Explode on Wall Street 3. Satellite Radio Trade Soars 21% 4. 10 Salary Trends for 2006 1. Forbes: Bernanke Bust ComingIncoming Federal Reserve chief Ben Bernanke is set...
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2005-00-16
Friday, 16 December 2005 12:00 AM
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