Can the U.S. Economy Recover from the Current Slump ?

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The official unemployment rate in September stood at 9.6%. The total number of unemployed persons was 14.8 million.  The number of long-term unemployed (27 weeks and more) stood at 6.1 million. Billions of dollars in bailouts have saved the large banks and the economy from complete collapse but the $14.5 U.S. economy is unable to recover strongly.

The unemployment rate is stubbornly high compared to previous recessions. The following graphic from a Bloomberg BusinessWeek report illustrates the uniqueness of the current economic downturn:

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Source: The U.S. Economy: Stuck in Neutral, Bloomberg BusinessWeek

From the report:

“Complicating matters, the hole from which the U.S. economy needs to escape is unusually deep. As the accompanying chart shows, employment in September remained 5.6 percent below its December 2007 peak. In four of the five previous recessions going back to 1970, employment had bounced back to new highs by this stage. The only exception was the aftermath of the 2001 recession, in which employment was 1.8 percent below its pre-recession peak at this stage.”

Most people would agree that the economy will eventually recover.However in order to  stimulate demand and pull the economy out of the current slump, unusual and bold policy measures are needed.

Five Mexican ADRs under $10

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The following five Mexican ADR stocks closed under $10 yesterday:

1.Maxcom Telecomunicaciones (MXT)
Sector: Telecom
Closing Price on Oct 19th: $3.65

2.Cemex (CX)
Sector: Construction &Materials;
Closing Price on Oct 19th: $7.71

3.Grupo TMM (TMM)
Sector: Industrial Transportion
Closing Price on Oct 19th: $2.81

4.GRUMA (GMK)
Sector: Food Producers
Closing Price on Oct 19th: $6.00

5.Grupo Simec (SIM)
Sector: Industrial Metals&Mining;
Closing Price on Oct 19th: $7.44

Knowledge is Power: Coal, Emerging Markets Edition

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A “one dollar, one vote” explanation of the welfare state

Five reasons to invest in emerging markets

Coal stocks firing up gains

UK: Public sector will lose 500,000 jobs in cuts

In China, a City With Lots of Buildings, but Few People

Central banks are telling you to buy shares and corporate bonds

Outsourcing goes into high gear

Yuan Revaluation ‘Won’t Allow the Americans to Export More Goods’

Don’t buy bank shares – this financial play is a much better bet

A beach in Brazil

Impact of Dividend Reinvestment on Returns Over Long Periods

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The following chart shows the importance of dividend reinvestment on returns over a period of 101 years:

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Source: Triumph of the Optimists, Elroy Dimson, Paul Marsh and Mike Staunton, Princeton University Press, 2002, p. 145 as referenced in “The High Dividend Yield Return Advantage: An Examination of Empirical Data Associating Investment in High Dividend Yield Securities with Attractive Returns Over Long Measurement Periods.”,Tweedy, Browne Fund Inc. 

From the research report:

“In their book, Triumph of the Optimists: 101 Years of Global Investment Returns Princeton University Press (2002), Elroy Dimson, Paul Marsh, and Mike Staunton examined the respective contributions to returns provided by capital gains and dividends from 1900 to 2000. They discovered that while year-to-year performance was driven by capital appreciation, long-term returns were largely driven by reinvested dividends. In the chart below, they showed the cumulative contribution to return of capital gains and dividends in both the U.S. and the U.K. from 1900 to 2000. Over 101 years, they found that a market-oriented portfolio, which included reinvested dividends, would have generated nearly 85 times the wealth generated by the same portfolio relying solely on capital gains. This wealth accumulation would, of course, have been lower if dividends were not assumed to have been reinvested.”