Posted on 04/02/2009 6:23:12 PM PDT by Lady GOP
The US dollar will encounter one of its most market-moving pieces of data on Friday: non-farm payrolls (NFPs).
Risk appetite has been fairly strong, which has put the “safe haven” asset under pressure, but if NFPs or the unemployment rate prove to be worse than expected, investor sentiment could take a turn for the worst and provide a boost for low-yielding currencies.
1. The ADP private payrolls gauge reported its 14th straight drop, falling a record 742,000
2. Initial jobless claims, continuing claims continue to hit the highest levels since recordkeeping began in 1967
3. Challenger Job Cuts surged for the 13th consecutive month at a rate of 180.7% in March from a year ago
4. ISM Manufacturing employment gauge edges up from record low, but holds below 50 for 8th straight month
5. Conference Board’s consumer sentiment edges up to 26.0, but remains 0.7 points from 1967 record low
Based on both a Bloomberg News poll of economists and a variety of leading indicators, Friday’s release of US non-farm payrolls (NFPs) is likely to show job losses for the fifteenth straight month in March. At the time of writing, Bloomberg News was calling for NFPs to plunge by 660,000, but looking at the range of estimates, economists are anticipating that NFPs could fall anywhere between 525,000 and 750,000.
Based on leading indicators like jobless claims, we expect that declines will be on the worse end of the scale and NFPs could fall by 700,000 or more. Meanwhile, something that is starting to garner even more attention is the unemployment rate, which is projected to hit 8.5 percent, the highest since November 1983.
(Excerpt) Read more at finance.yahoo.com ...
If you think inflation is on the way …
Nest eggs were destroyed in the 1970s when inflation rocketed to 25%. About the only simple way to inflation-proof your savings is National Savings & Investments' index-linked savings certificates. These government-backed products pay a return linked to the retail prices index (RPI). You can choose three- or five-year certificates which pay RPI plus an average of 1% tax free – good news for higher-rate taxpayers.
If you put £100 in today, and RPI remains at 3% over the term, you would get £112.35 after three years. If you believe the government's cash printing presses will spark an inflation surge, take the five-year bonds and enjoy the ride. If RPI rises to 10%, you'll get close to 11% per year, tax free. You can invest between £100 and £15,000 in each certificate.
Mortgages
Buy A five-year fixed rate at 3.99%, or a 15-year fix at 5.94%
High inflation often spells high interest rates, so borrowers may want to lock into ultra-low rates with a longer-term fix. Britannia building society has a 15-year fix which allows you to jump ship every three years. The flexibility is appealing but not the rates – the best on this deal is 5.94% and, for that, you need a 40% deposit.
David Hollingworth at London & Country believes three- to five-year fixed rates will grow in popularity. One of the best deals is HSBC's five-year fix at 3.99%, but a 40%-plus deposit is required. Woolwich has a four-year fix with the same rate (also 60% maximum LTV; purchase only). "The upside of higher inflation is that it erodes debt quicker," says Hollingworth. But that doesn't mean you should super-size your borrowing for the sake of it.
Investments
Buy Gold, property, index-linked gilts, emerging markets
Anyone who took out a mortgage in the inflationary 1970s saw it shrivel to a tiny real sum by the mid-1990s. So is investing in property long term the way to protect yourself? Now prices have fallen it's tempting. But (a) banks are not lending much and (b) you'll have the short-term pain of high interest costs when the Bank of England raises rates to combat rising prices.
Investment folklore suggests the only way to truly protect yourself against inflation is by buying gold. It leaped from below $150 an ounce in 1976 to $750 in the early 1980s, then began a long decline until the start of this decade. Oddly enough, it has reacted little to the economic gloom encircling the globe since 2007. Swiss bank UBS says gold could hit $2,500 within five years. It used to be an esoteric market for the rich, but buying gold today is much easier through an exchange-traded fund from £50.
Equities are seen as a long-term hedge against inflation, but investment adviser Mark Dampier of Hargreaves Lansdown warns against expecting them to offer much short or medium-term protection. "If you have inflation, no asset class likes the transitionary period. It's painful for everything, as it means interest rates have to go up." Over the shorter term, he says index-linked gilts – government bonds that shield investors from inflation – may offer more protection. You can buy these from the government's Debt Management Office, from £1,000.
The other opportunity is to look east. The bullish are pointing to the 30% rise in the Shanghai composite index this year. The way in is via a global emerging markets fund; top trusts include funds from First State, Baring, Aberdeen, JP Morgan and Templeton.
Pensions
Buy Index-linked products
Pensioners lose most from inflation. It hits the real value of savings, while pensions fail to keep up with prices. You can try to protect savings with National Savings index-linked certificates. You can also buy a degree of inflation protection for your pension annuity. But it's expensive. For example, a couple both aged 65 with £100,000 savings will be offered a fixed annual income of £6,818 from the current best provider, according to the Annuity Bureau. If they want their income to go up in line with RPI, they will be offered an initial annual £4,115.
Pensions analyst Laith Khalaf of Hargreaves Lansdown says: "Investors should inflation-proof some pension income; splitting a pension between a level annuity, a 3%-escalating annuity and an RPI-linked annuity is one way. Drawdown is a solution for those with larger pots. Whatever they do they shouldn't ignore the inflation risk."
If you are younger and just starting to save in a pension, inflation is less of a worry. It will be invested in a range of equities that should, over the very long term, at least rise in
bump
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