TIME Employment

Spain Created Jobs!

SPAIN-ECONOMY-UNEMPLOYMENT-INDICATOR
A municipal worker cleans the ground as people walk outside a government employment office in Madrid on January 23, 2014. GERARD JULIEN / AFP / Getty Images

After 68 months of losses, that's reason to celebrate

The last time Spain posted positive job numbers, it was 2008 and Miley Cyrus was still fully clothed on the Disney Channel.

Finally, after 68 consecutive months of losses and stagnation, the number of employed Spaniards rose to 16.2 million in February, 60,000 higher than the same month last year, according to the Financial Times. Madrid hailed the improvement as a sign of a greater recovery to come.

But the gains could be fleeting. The newspaper reports that only 9% of February’s job contracts were permanent offers, and the vast majority of recent hires were contract positions that do not bestow the pension and related benefits of full-time employment.

[FT]

TIME

Sbarro Prepares a Fresh Slice of Bankruptcy Filings

Sbarro Restaurant Chain Files For Chapter 11 Bankruptcy Protection
Customers order lunch at a Sbarro restaurant on April 4, 2011 in Chicago, Illinois. Scott Olson / Getty Images

Sprinkle 400 pizza joints across a generous helping of malls, mix in a recession, and you have a recipe for Chapter 11

Roughly two years after Sbarro LLC managed to claw its way out of bankruptcy, the ailing pizza chain is reportedly serving up a fresh slice of Chapter 11 filings.

The Wall Street Journal reports that Sbarro is gathering votes on a restructuring plan that could have the company filing for Chapter 11 protections as early as Sunday. Sales at its restaurants took a hit after the 2008 recession, as foot traffic in its favored habitat, the mall food court, dropped off precipitously.

Sbarro managed to shake off some debts through tweaked recipes, fresher ingredients and closures at hundreds of struggling locations, but the Journal reports that the streamlined firm is still roughly $140 million in the red, a burden that’s just waiting to be sliced, again.

[WSJ]

TIME global economy

Global Investors Got High on Emerging Markets: Now for the Comedown

Pedestrians walk past a Citibank branch in Mumbai Dhiraj Singh / Bloomberg / Getty Images

The world is now paying the price for irrational exuberance over developing economies

You’d think that the world’s investors would be in good spirits right now. The U.S. economy finally appears to be recovering. Japan may be stirring back to life. Both the IMF and World Bank recently upgraded their projections for global growth. But as we get started on 2014, financial markets are in turmoil. Emerging markets from Argentina to Turkey to South Africa are seeing their currencies get slammed as investors flee. The jitters ricocheted to the U.S. last week, pummeling stocks in New York City. What in the world is going on?

Call it coming down off an emerging-markets high. During the Great Recession, when the U.S. and Europe became crushed under debt, joblessness and recession, the developing world appeared to be the future of the global economy. Growth in countries like China, India, Brazil and Indonesia shrugged off the woes of the West and supported the world economy through this toughest of times. Money flowed generously into many of these markets as a result, especially since anxious central banks in the U.S., Europe and Japan flooded their economies with liberal amounts of cash to prevent an even worse downturn. What’s happening now is that global investors are starting to realize the developing world has its own issues, and that it hasn’t detached itself from the West’s problems either. Simply, we’re waking up to the fact that many of the most promising emerging markets are facing difficulties that dim their prospects. The bubble of exuberance that has surrounded the developing world is bursting.

Take a look at China. Though its GDP growth, at 7.7% in 2013, is nothing to sniff at, it is far cry from the double-digit expansion that had been so common, and many economists believe growth will slow further. That’s because its current, investment-obsessed growth model is sputtering and the leadership in Beijing is embarking on a major reform effort to build a new foundation for future success. In fact, a good part of the strong performance China experienced during the downturn was due to a massive surge of credit that has left China burdened with lofty levels of debt. That expansion fueled consumption of everything from iron ore to Prada handbags, but it wasn’t sustainable. Now that Beijing is trying to cool things down, countries that export a lot to China, like Brazil, could see a knock-on effect to their growth as well. Despite warnings from many economists that this was coming, investors only now seem to be adjusting their thinking to a world with a slower China, and that’s affecting their sentiments towards other emerging economies.

(MORE: China’s Economy Is Slowing, and We Should All Be Thankful)

Investors are also coming to realize that many developing nations are facing political pressures that are dragging on growth. India, plagued by political gridlock and distracted by upcoming elections, has allowed the free-market reform that has been driving growth to stall. In Thailand, an ongoing political contest between the ruling party and its opponents is weighing heavily on the economy.

Still other problems have been exacerbated by the global downturn itself. All the cheap dollars spilled out by the U.S. Federal Reserve in its efforts to stimulate the American economy has made it easy for countries like Turkey and India to finance consumption and, in essence, live beyond their means. The fear is that as the Fed scales back that largesse, these countries will have a harder time getting cheap money, and that will drag on their economies. Some companies in emerging markets like Indonesia built up significant amounts of dollar debt that now could become more expensive to service. Those jitters are causing some investors to get out of some of these markets before matters get worse. Perhaps these fears will prove unfounded, but since the cash-creating programs of the world’s major central banks are so unprecedented, the impact of winding them down is uncertain as well.

This isn’t to say that all emerging markets are disasters. The IMF expects Nigeria to grow at a very China-like 7.4% this year, while the Philippines remains surprisingly buoyant. “The real lesson from recent events is that the need for investors to discriminate between individual [emerging markets] has never been greater,” noted research firm Capital Economics in a recent note. Still, while we detox, expect a bumpy ride.

MORE: The BRICs Have Hit a Wall

TIME Jobs

Why Today’s Miserable Job Numbers Are Probably Wrong

Views From A Job Fair As U.S. Added 238,000 Jobs In December
Prospective job applicants wait in line to learn about job openings at the Kentucky Kingdom Amusement Park during a job fair at the nearby Crowne Plaza Hotel in Louisville, Ky., Jan. 4, 2013. Luke Sharett / Bloomberg / Getty Images

The underwhelming 74,000 jobs added in December dampens any notion of recovery, but the government will likely revise the tally in coming days, writes Bill Saporito. The total differs from a privately funded report issued last week

The best thing you can say about today’s dismal job numbers is that they’re likely wrong. “This would be really bad news if it was true,” says professor Peter Cappelli, director of the Wharton School’s Center for Human Resources. The underwhelming 74,000 increase in non-farm payrolls suggest that the idea the economy was gaining momentum just got coldcocked by bad weather and weak spending.

Then again, consider that the November jobs report was revised upward to 241,000 from 203,000; the October report was upwardly revised to more than 200,000 new jobs too. The U.S., on average, has been adding about 180,000 jobs a month as it tries to fill the 8 million job hole created by the Great Recession. Just to keep pace with population growth we need to add 143,000 jobs monthly, so the 74,000 figure, if it stands, is actually a move backward.

Yes, you can blame the weather for some of this. According to BNP Paribas analyst Julia Coronado, our horrible winter could have whited out 75,000 jobs, as employment was lost in construction, tourism and transportation.

Along with weak job growth, the other perplexing number in the December report is the drop in unemployment, down to 6.7% from November’s 7%. That’s the lowest the jobless rate has reached since November 2008. But the lower number is problematic too because it signals that more people haven given up looking for work. “If the unemployment rate is falling and job growth is less than population growth, the only way that can happen is that lots of people have given up,” says Cappelli.

You can see that in the labor participation rate, which dropped to 62.8% from 63%–that’s the lowest level since February 1978, says National Association of Manufacturers chief economist Chad Moutray. It’s not unusual for people looking for full-time work to drop out in December, says Cappelli, since they figure that many companies are only hiring for temporary work at that time of the year. But it’s hardly encouraging and more men have thrown in the towel than women. For them, the so-called ‘he’-cession continues.

The jarring data also gets thrown into the mixer as the Fed gets ready to taper its bond buying program by $10 billion to $75 billion a month. Coronado points out that average hourly earnings grew a mere 0.1%, which dents purchasing power. Since the economy is nearly 70% consumer-based, that’s a sign of weakness. “This report certainly adds fuel to the fiery debate on whether low inflation is likely to continue or is sending a signal about the underlying strength of the economy,” she says.

So why are the data wrong? The government report contrasts sharply with payroll company ADP, which recently reported that private businesses added 238,000 jobs in December. It’s a matter of money, says Cappelli. The Bureau of Labor Statistics employment data is gathered through a survey, and the agency doesn’t or can’t spend the money needed to expand the design’s sample size enough to make the result more reliable. So the numbers are instead revised later when better data becomes available. Maybe BLS needs to hire a couple of people to improve the product.

MONEY

5 years later: Lessons from the crash

Lehman Brothers’ collapse in September 2008 sent stocks on a terrifying ride. A year-by-year look back reveals five key takeaways you need to heed today.

  • Lehman Brothers implodes

    Five years ago, you witnessed the worst panic unfold on Wall Street since the Great Depression.

    As home prices fell and mortgage-backed securities soured, the pillars of the nation’s financial system — from investment banks led by Lehman Brothers to thrifts such as Washington Mutual to the insurer AIG to mortgage giants Fannie Mae and Freddie Mac — toppled like dominoes.

    Among the eventual losses: 5,000 points on the Dow Jones industrial average, $7 trillion in wealth, and, of course, your faith in the financial system.

    Fast-forward to the present, and the Dow has returned to pre-crisis levels and is back to setting new highs.

    As you look at the key events that transpired since Lehman’s collapse, you’ll find lessons big and small that are as relevant as ever. It turns out that for better or worse, things haven’t changed nearly as much since the crisis as you might have expected.

    On the slides that follow is a year-by-year look at key events in the financial crisis, with the main lesson to take from each of them.

    Related: What’s your money state of mind?

  • Lesson 1: Don’t bank on one sector

    September 15, 2008: The turmoil after Lehman’s collapse was different — and more frightening — than the tech crash in 2000.

    This time the stocks that took the biggest hits weren’t shares of profitless startups. They were financial titans — some more than a century old — that produced a third of the market’s profits and dividends. No wonder these blue chips were fixtures in many retirement portfolios.

    The love affair is clearly over. Or is it? Financials have been the market’s best performers since September 2011, posting annualized gains of 39%.

    As a result, bank stocks, which made up less than 9% of the S&P 500 in 2009, based on total stock market value, now represent more than 17% of the broad market. That means they’re probably among the biggest holdings in your stock mutual funds and ETFs.

    To limit further exposure, stick with funds that focus on pristine balance sheets and consistent earnings, such as MONEY 50 fund Jensen Quality Growth JENSEN PORTFOLIO I JENSEN QALITY GROWTH FD I JENIX 0.1288% , where financials make up less than 4% of assets.

    More takeaways from 2008

    October 16: In a month when investors yank $71 billion from equity funds, Warren Buffett says buy U.S. stocks.The moral: You have to be willing to go against the crowd, and fund flows are a good contrarian indicator.

    December 11: Bernard Madoff is arrested in largest Ponzi scheme and financial fraud ever. The moral: Investments that seem too good to be true are. Madoff also demonstrated the risk of letting a single fund manager or financial adviser oversee your entire portfolio.

    Related: Millennials Have No Idea Who Bernie Madoff Was

  • Lesson 2: Buy and hold works – eventually

    March 9, 2009: When the Dow fell to 6547 that day, stocks had already lost more than half their value. And equities wouldn’t fully recover until 2013. So it may seem that investors who pulled $25 billion out of stock funds in March and $240 billion — plowing that money into bonds — over the next three years were on the right track. They weren’t.

    March 2009 marked the start of a bull market that saw stocks return 174% so far, vs. 25% for bonds.

    Had you simply hung on to a basic 70% equity/30% bond strategy from Sept. 1, 2008 — when things started to get scary — you’d have earned more than 7.5% a year. That’s not far off the 9% historical annual return for this mix over five-year stretches since 1926. Of course, you’d have earned that only by staying the course.

    More takeaways from 2009

    March 31: The price/earnings ratio for stocks, based on 10 years of averaged profits, falls to a generation-low 13.3. The moral: The price you pay for stocks is the single biggest determinant of future returns. Since March 2009, the S&P 500 has gained 22% annually.

    October: U.S. unemployment rate peaks at 10%.The moral: Emergencies don’t happen just to other people. Set aside six months of expenses in cash — a year’s worth if you’re over 50, as your job hunt will take longer than a 30-year-old’s.

  • Lesson 3: Reaching for yield can fail

    January 11, 2010: When stocks fall, the stability of cash can cushion the blow. Yet things don’t necessarily work out that way.

    Just ask shareholders of Schwab YieldPlus. This so-called ultrashort bond fund — which was marketed as a cash alternative, though it really wasn’t one — fell 35% in 2008 when the mortgage securities that provided the “plus” in the fund’s name turned out to be riskier than thought. (Schwab settled the charges in January 2011 but did not admit wrongdoing.)

    Before that, there was the Reserve Fund, the first money fund in 14 years to lose value in part because it tried to boost payouts by holding some Lehman debt.

    It makes no sense to take risks with your rainy-day savings, a lesson that’s worth remembering today. Since early 2009, investors have poured $73 billion into floating-rate bond funds, which buy short bank loans that offer higher payouts than basic cash. And $33 billion has gone back into ultrashort bond funds.

    More takeaways from 2010

    May 6:The Dow mysteriously drops 1,000 points in a “flash crash” blamed on computer trading models. The moral: Rapid-fire programmed trading is yet another reason individuals should just stick with buy and hold.

    December 31: Fidelity reports average 401(k) balances have recovered from the financial crisis. The moral: Between December 2007 and December 2010, 401(k) balances rose about 1% annually, while stocks lost close to 3% a year — proving that saving is your most reliable retirement planning tool.

    Related: How much do I need to retire?

  • Lesson 4: Diversification works

    In 2008, only one type of diversification seemed to pan out: your basic mix of stocks and bonds. Among equities, everything pretty much fell in lockstep.

    February 2012: Fast-forward more than three years, when the financial crisis unfolded in a different guise — this time with the debt crisis in Europe. Fear of government defaults peaked in early 2012, with rates on Greek debt reaching 29%.

    Diversification worked here, too, but also in a different guise.

    While conventional wisdom said investors should flee the continent, European shares wound up beating the world in 2012, returning 20.3%. The year before that, it was U.S. stocks that performed the best (despite Uncle Sam’s fiscal woes). And so far in 2013, Japan is leading, despite having just been in another recession.

    Spreading your bets globally eventually pays off, especially given how mercurial equities can be. For investors who are hearing that the U.S. looks like the only promising market these days, this is a clear lesson to heed.

    More takeaways from 2011-2012

    August 5, 2011: In response to the budget stalemate, S&P strips the U.S. of its AAA credit rating. Ironically, Treasuries post their best week in two years. The moral: U.S. debt remains the world’s safe-haven investment of choice, despite Uncle Sam’s fiscal troubles.

    January 31, 2012: Spurred by anemic bond yields, investors pour money into dividend funds, leading to worries of a “dividend bubble.” The moral: While this fear is overblown, it’s a useful reminder that no matter how appealing income-paying shares are, they’re far riskier than bonds.

MONEY

Market Timing: Not a Good Retirement Strategy

I’ve been working for five years now and save religiously for retirement. But I feel that I’ve begun investing at a bad time for the markets. Most of all I worry about what will happen to my 401(k) if the market tanks again. Am I right to be concerned? — Aaron, Nashville, Tenn.

It would be nice if I could assure you that the market gyrations that have spooked investors recently and over the past dozen years — i.e., stock prices dropping by 50% or more in 2000 and 2007 — aren’t likely to occur again. But I can’t do that.

If anything, recent research shows that these sorts of gut-wrenching episodes — while not exactly the norm — are likely to occur more frequently than we previously believed. So I can virtually assure you that over the course of your career, the market will tank many times.

But I don’t think that’s something you should worry about when you’re investing for retirement. Investors have gone through many tough times before.

Since 1929, we’ve had 14 recessions and 13 bear markets, an average of about one of each every six or so years. And each time stock prices eventually recovered from these setbacks and climbed to new highs. I see no reason for that dynamic to change.

Besides, as counterintuitive as it may seem, you may actually be better off starting to invest in a lousy market if you’re just beginning to save for a retirement that’s many years down the road.

Related: What is an index fund?

A T. Rowe Price study from a few years ago examined how four hypothetical retirement investors who put their savings into a diversified portfolio of stocks would have fared over four different 30-year periods depending on whether they began investing on the eve of a bull market or a bear market.

I’ll spare you the details, but the upshot is that the investors who got their start in a bear market accumulated more than twice as much in savings as those who began investing on the verge of a bull. The reason: the shares that investors acquired at depressed prices during a setback soared in value as the market rebounded, significantly boosting the eventual size of their nest egg.

Of course, neither you nor I really know whether this is, as you fear, “a bad time for the markets.” Bear and bull markets are easy to identify in hindsight, but difficult to impossible to predict in advance. If that weren’t the case, everyone would get out of the market just before it drops precipitously and jump back in just as prices are rebounding.

So it makes little sense to try to time your retirement saving and investing based on what you think the market may or may not do. The most you can do is play the cards you’re dealt as best you can.

As a practical matter, that means investing most of your retirement savings — say, 70% to 90% — in stocks at the beginning of your career when you have plenty of time to recover from those inevitable market downturns. As you get older, you can begin shifting more of your savings to bonds.

You can expand beyond a simple stocks-bonds portfolio if you like. But don’t feel you have to load up on all the gimmicky little niche investments Wall Street’s marketing machine churns out. In general, a simpler mix is better.

Related: What is the right mix of stocks and bonds for me?

By the time you’re ready to retire — and more interested in protecting your nest egg than growing it — you probably want to have roughly 50% of your savings in stocks and 50% in bonds. For a guide of how to achieve this transition, you can check out the “glide path” of a target-date retirement fund. After you’ve retired, you can then shift your focus on the best way to turn your savings into retirement income.

But however worrisome you may feel the outlook for the economy and the markets may seem today, what with the constant talk of the fiscal cliff at home and the debt crisis abroad, you would be making a big mistake if you let your anxiety sidetrack you from continuing to save diligently for retirement and putting 401(k) money into the investment that’s generated the highest long-term returns in the past and is likely to do so in the future — stocks.

MONEY

Investment Advisers See Some Bright Spots

Nearly 60% of independent advisers think a double-dip recession is unlikely over the next six months, and more than 60% expect the S&P to increase in the same period, according to a survey released recently by Charles Schwab.

But don’t go betting the farm on these optimistic findings just yet. A look at the results from January’s survey of advisers shows that they aren’t necessarily the best augurs. In that earlier survey, 49% of advisers expected inflation to increase in the next six months (it hasn’t); 47% expected consumer spending to increase (it hasn’t); and 40% expected unemployment to increase (it hasn’t). Advisers did get some things right, though. In the January survey, 59% expected consumer savings to increase in the next six months (it did); and 46% thought the housing market would continue to soften (it has).

Schwab acknowledges that the survey has limited forecasting value. “We’re thinking [the study] is more like a national view of what’s going on,” says Bernie Clark, executive vice president for Charles Schwab Advisor Services. “It’s not a predictor as much as where we think that the trends are taking us.”

And what looks like the dominant trend these days? The biggest challenge facing advisers and their clients right now, Clark says, is what he calls the “uncertainty factor.” About half of advisers’ clients feel less optimistic about the economy than they did in 2009. Forty percent of advisers say their clients are less optimistic about their investment performance than they were six months ago, and 50% of advisers say their clients feel less confident they’ll be able to retire when they want to. Advisers report that 47% of clients are reducing expenses, and more than half are spending less on discretionary items.

Advisers have their own doubts, too. Seventy-one percent say it will be difficult to achieve their clients’ financial goals. That’s down from the 84% who held that opinion in early 2009, but up from the 58% who expressed these doubts earlier this year.

In any case, people are increasingly turning to independent advisers for help with financial planning. More than 9 in 10 advisers said they received new assets in the past six months.

For the record, the sector of the market that advisers think will perform the strongest over the next six months is information technology, cited by 47% of them. Of course, if you have your doubts about advisers’ predictive powers (see above), maybe you’d also like to know the sector in which they have the least confidence. And that’s consumer discretionary—the pick of only 9% of professionals. Check back in six months to judge their accuracy.

Follow MONEY on Twitter at https://twitter.com/money.

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