Amid all the advice on investing that sometimes works and sometimes doesn’t, one tenet remains our bedrock. Put your money in stocks for the long run and you will do OK.

From 1940 through the end of 2007, over 90% of all three or five-year stretches were winners. And there were no, zero, zip, zilch losing 10-year periods.

By rolling 10-year periods, I don’t mean just 1950 to 1959, but also 1951-1960, 1952-1961, 1953-1962 and so on. Since 1950, there have been 60 rolling 10-year periods. And no matter where you started in them, you would have made money.

S&P 500 1940 through 2007

Chart source: The Principal Group

But if you are beginning to doubt if that’s right, the results from this decade have given you plenty of reason. We started out with three back-to-back bear markets this decade: 2000, 2001, 2002. We had a strong bull in 2003. Then we got a lame period for the next two years. Finally, in 2006, the market got strong again. It stayed that way late into 2007 before it nearly fell to its open and went negative again. The calendar turned just in time. Then last year it was back down again.

At this point, nearing the end of January 2009, as Barack Obama steps up to the presidency, we are into another bad year. Two and a half good bullish years out of nine years and one month have left U.S. stocks in the red. So far this decade (since the close of 1999), the Dow has lost 30%, the S&P has shed 45% and the Nasdaq is still down 65%.

That hardly inspires confidence in the infallibility of the long run. We may be about to see the first negative 10-year period for stocks since the Great Depression.

Do you still buy stocks, and if so, what stocks?

I am buying stocks, yes, because at present valuations the market is so low that once the recession ends, the probability that stocks will rise quickly is as near to certain as you can get. The market is also likely to begin rising before the recession ends, by up to six months.

Even with this confidence, though, I am buying with the notion that I might or might not see the price rise in the next 12 months and may even see it drop before it recovers and rises. We could have a negative 10-year period, but I don’t foresee a negative 12- or 15-year period.

Interest rates on fixed income investments are now so low that many stocks pay better dividends than even junk bonds do.

What stocks do you buy for the recession? What stocks for the coming Obama years? What stocks are the best for 2009?

You’ve seen dozens of ads that purport to answer those questions. You have probably read advice like “buy utility stocks” or “master limited partnerships” or “get into medical equipment and research stocks.” Those may be fine answers as far as they go, though they aren’t the answer I would give.

I would say this: look at what a company expects to earn over the next two years. If that number is positive, buy the stock if you can get it at less than 10 times its estimated earnings for 2011.

Many companies already have 2010 earnings estimates. Not all of them have projections for 2011 yet. You can take the 2010 estimates and do your own projection for an additional year by estimating conservative growth, say 5%. Most companies will do much better than that if they are going positive at all.

This is not hard to do, either. Yahoo Finance, among many others, gives analyst estimates for stocks along with estimated 5-year growth rates. The five-year estimates are inclined to be a bit optimistic in many cases, so just use the 5% rule to be safe. Take the 2010 estimate times 1.05 to get your 2011 number. Multiply that by 10 (which would be the price of the stock at a P/E of 10), and there’s your target buying price.

Many companies are worth more than that, and you should consider them on their individual merits if you are confident in your projections. As an analyst, I will be using somewhat more tailored P/E ranges and growth rates, plus considering dividends case by case.

But if you do a quick scan and use 10 times 2011 earnings, you are so far inside the margin of safety that you can relax and feel good about doing the right thing. This is as close to a sure bet as you can get.

Source: Going Against the Evidence – Who Says Stocks Make Money?

For long-term investors who are buying companies with good prospects for several years to come, this is a buyers market. But there is one group to either avoid or treat with extreme care–small caps.

These stocks are doing much worse than large- and mid-cap stocks. As of Wednesday morning (Jan. 14), the large-cap Dow Industrials and the S&P 500 are down 3.7% and 3.5%. The S&P Midcaps are doing better– down 3%. But the Russell 2000 (small cap) Index is down 5% and the S&P small caps are down 6%.

Investors have the basic idea right. The smaller companies may not have the financial strength to weather the recession when customer spending dries up.

Certainly, some good small-cap companies will be winners, too. But I would avoid small-cap funds or any small company that I didn’t check very carefully. If you are interested in a company with a market capitalization under $2 billion take some basic precautions. Check that its debt is low and its profit margins are in the top half of its group, for starters.

Source: Where Not to Invest Yet

But their paychecks are shrinking.

More and more Americans have become involuntary part timers. Some of these half-fortunate workers looked for full time work, but were only able to find part-time employment. Most of them are still in the same job but working less. Goodbye to the rich time-and-a-half overtime work. These involuntary part-timers are even losing straight-time hours.

An involuntary part-timer, also known as an “underemployed” person in the statistics, is someone who wanted a full-time job but works 35 or fewer hours per week. In the past 12 months, involuntary part-timers have increased 62% to over 7 million U.S. workers.

The Bureau of Labor Statistics keeps the records. Once a month, BLS reports the employment conditions and we’re all made instantly aware of part of the story—how many people are unemployed and whether that number rose or fell. The unemployed are headline news. The underemployed are doubly forgotten, slipping behind the economic race and unnoticed by most newscasters.

In addition to underemployment, BLS also keeps track of the number of workers compared to the number of working age people. That ratio spells trouble, too. In December 2006, the employment-to-population ratio was 63.4%. It was down to 61.6% in the latest data, for November 2008.

Coming out of a recession, as work and orders pick up again, employers are still cautious. They are apt to expand current employees’ working hours and grant more overtime…they hesitate to take on additional employees too soon.

If you’d like to avoid the industries and parts of the economy that are most adversely affected by these trends, it’s pretty easy. Retail, restaurants and construction are the hardest hit areas.

And if you think you can escape it all by beefing up your non-U.S. investments, you could be fooled. Manpower’s global employment outlook predicts lower hiring rates in India, Singapore and Taiwan.

Manpower surveys 71,000 international CEOs to come up with its employment outlook. Thus the survey gives a very broad picture. If you plan to diversify globally, it might be a good idea to take note of where the outlook is strongest. Employers most likely to increase hiring in the coming quarter are found in Peru, Costa Rica, Canada, Romania, Colombia, South Africa, Australia, Poland, the United States and China.

Looks like sticking close to home is again a good idea. As the world follows the U.S. into recession, it is likely to follow the U.S. out as well this time around.

Source: Unemployment Is Only Part Of The Problem, What About Underemployment?

This is cause for celebration. But poking under rocks to find the losers is interesting. Every industrial group and sector has a smattering of stragglers. And one industry is doing much worse than any other. If you are feeling contrarian, this is where to look for bargains among the unloved–in real estate investment trusts.

Known as REITs, pronounced “reets,” these trusts pass most of their profits through to investors as generous dividends. Among the REIT losers so far this year, the current yields range from 4% to 22%.

The problem with REITs is that to pay out a portion of profits, the company has to make a profit in the first place. So this is not an automatic gimme. But it is an exceptional place to look for companies that are undervalued. The stronger companies in this group will come out of the recession and reward investors well for getting in early while the shares are cheap. My estimate at this point is that this group of stocks will look very smart about 18-months from now. But the best gains will go to investors who get in within the next six months.

Just a hint to those who know what to do next.

Source: January Blues for Some – Opportunity for Others

This from Investor’s Daily Edge:

Economists say this recession will last till June 2009 at least. Conventional wisdom says it’s time to buy defensive stocks—utilities, consumer staples, booze, healthy banks, drug companies, and defense contractors.

I’ve been walking around with my eyes open, and I don’t think so.

Last week, Andy and I went to the bank then stopped at Starbucks. There were no lines in the bank. We had to wait 10 minutes to get to the counter in Starbucks (NYSE:SBUX).

The legendary Howard Schultz is back, and so is Starbucks.

Schultz was the person who convinced the original coffee-roasting partners to expand in the 1980s when he visited them to find out why they were buying so many of the Hammerplast Swedish drip coffee makers he sold. They hired him for marketing help. But when Schultz’s best new idea was to open a coffee bar, they wouldn’t do it. Schultz quit, started his own coffee bar, and within a few years, bought the roasters out for $3.8 million and called it Starbucks.

He’s the genius who took Starbucks from one very cool Seattle store to 10,000 around the world.

If you missed that wave, catch its revival now.

This stock may be 76% off its 2006 high of $40, but it’s on the way back with Schultz at the helm.

Starbucks has been one of those growth stories that kept fooling people. At first, it was so hot everyone agreed it was going places. Cities were complaining if they didn’t have a Starbucks yet. Then it appeared to be in every town it could conquer.

So much for hot growth, though it was still a fine business, the analysts thought.

Except Starbucks’ Schultz knew better. Under Schultz’ guidance, Starbucks started putting two, three, four stores in a town…

And that seemed likely to end when the analysts noted there were corners with Starbucks stores facing each other.  Growth would slow.

Wrong again. Starbucks began sidling into the crevices, into grocery stores, bookstores, airports and little kiosks within other businesses. Growth kept rolling.

And it began going international.

Schultz, who founded Starbucks and embodied everything it stood for, retired as CEO in 2005.

But eventually growth did slow. Starbucks seemed to be courting trouble. Some of the stores weren’t selling well. In the meantime, Green Mountain (GMCR) had moved into similar niche locations and done much better at cornering the convenience store/gas station market. Dunkin’ Donuts expanded its coffee offerings. Peet’s started taking equal shares of grocery store shelf space.

Last January, Schultz un-retired. The first thing he set out to do was to restore the company’s feel. To him, Starbucks is not about coffee, it’s about the feeling of having coffee. It bothered him that when you walk into a Starbucks today, it no longer smells good. Schultz moved quickly to shut down stores that weren’t selling enough. He set out to ramp up international sales.

And he vowed to make Starbucks a real coffee place again. Grinding beans in the stores is to make a comeback. And now there’s Clover…

Clover is a special brewing system. The Clover choice costs even more than regular high-priced Starbucks. Another new system will improve on the espresso, grinding the beans for each cup, as they should be.

I expect Starbucks to recover its momentum this year. The international expansion is particularly promising. Even Starbucks-besotted Americans are pikers among international coffee drinkers.

Americans consume just over 4 kilograms (8.8 pounds) of coffee beans per person a year. The Scandinavians drink two to nearly three times as much, with Finland leading the way. The Swiss, Germans, Dutch, French, Austrians, Belgians and Italians drink 5 to 6 kilograms to our 4. Plus, Europe is like the U.S. pre-Starbucks. Coffee is sold locally, in restaurants and independent cafes.

Source: Wikipedia, consumption in kilograms per capita

So, yes, there’s a global recession on. Yes, premium coffee is a luxury compared to the can of Folgers in the supermarket. But think booze…

Spirits and beer sales usually hold up well in bad economies because they are modest luxuries. It’s not that everyone is suddenly a drunk (though some are to be sure). Rather, most drinkers consider that cold beer an affordable treat. A cup of Starbucks fills the same role in the non-alcoholic beverage world.

Will Starbucks really be the absolute best stock of 2009? Nah. Probably not. That one will probably be an out of the blue surprise. But Starbucks will be one of the great ones. I’m expecting the shares to rise 100% or more in the next year and triple in two years.

Source: A Cheap Luxury for a Dreary Economy

This from Investor’s Daily Edge:

Consumers drive the American economy. Give them confidence in their jobs and they work hard, create value, make money and exchange it gladly.

Take away their jobs, and it all stops.  The flow even stops when people who still have jobs become worried by the trouble they see around them. And that is exactly what is happening today.

This week, the Institute for Supply Management released numbers that should frighten consumers and freeze the economy even more. The ISM’s monthly index of manufacturing activity fell to 36.2 for November. Any reading below 50 means the economy is shriveling, and these numbers are extreme. It gets worse. The new orders index fell to the lowest level in 28 years.

And jobs… The ISM employment index fell to 34.2. It has fallen four months in a row, without a sign of improvement anywhere in sight.

Meanwhile, financial pundits and columnists who should know that two-thirds of the U.S. economy is rooted in consumer spending applaud every layoff and plot for more… they think this creates shareholder value.

Worse, they invent plans to save the world by inflicting more pain and job loss.

I’m not sure where they think consumer dollars come from, but it’s a crazy idea to kill the golden geese if you expect them to spend their nest eggs. And they promote this nutty notion by repeating crazy or outright false facts…

For instance, they think they could save Detroit if it weren’t for those $70 an hour autoworkers.

Aww, gee… The problem with their plan is that union autoworkers don’t make $70 an hour. Not even close. Do you want to know the real numbers?

In 2007, the United Auto Workers union renegotiated the base union wage to $14 an hour for new “second tier” hires. That was a full 50% cut from what pre-2007 (first tier) workers got.

This is old, old news—the pundits with the plans should know this. I’m not sure whether they missed the news or they just prefer to overlook it because it doesn’t fit their philosophy that labor is always the problem.  In the military, spreading stuff like this is called disinformation. In politics, it’s called propaganda. Out here where I live, it’s called stubborn.

But you still think that $70 an hour number must have some truth if everybody is spouting it? Well, it must be those fabulous benefits, then, huh? Sure… but if you think a blue-collar $28 an hour bolt tightener is really making $70 an hour, let me show you how to prove a $7 an hour burger flipper really makes $18.

You start with your actual base pay of $7.25 an hour at Hamburger McHeaven. Then you add the national average for benefit expenses such as health insurance, retirement and vacations. That would be 29% of his base pay (U.S. Department of Labor, Small Business Administration data). Now you’re up to $9.35 an hour in wage costs (not all pay!).

We still have a long way to go… but we can use the “evil autoworker” ploy—we’ll include the pensions for four ancestors in the burger flipper’s salary.

That’s how you get a $70 an hour autoworker. You take his salary, plus his benefits like Social Security, FICA, workers comp, and health. And then you add full benefits and pension costs for four retired workers to the total.

That’s the germ of the “truth” in the $70 number, even though UAW workers don’t personally make anything close to that figure.

True, pensions are a big overhead. In 1962, GM (NYSE:GM) employed 460,000 American workers, and provided retirement benefits to about 40,000 former employees. But by 2005, GM had about 140,000 employees and 450,000 retirees.  Their past success and size led to this upside-down mess.

But the current worker’s pay? Truth: the actual average for manufacturing workers in Big Three auto plants is $67,480 a year. Turnover is very low. Half of these workers are over 45 and have been on the job more than 20 years. So they’re up to $32.44 an hour, just a 16% raise from what a new worker hired in 2006 would get. (Source: Center for Automotive Research data, 2008.)

And what does a retiree get? The average is $31,000.

These numbers, by the way, include both skilled and production workers… the designers, engineers, programmers and mechanics as well as the bolt-tighteners.

Detroit and other auto towns may lose hundreds to thousands of jobs. We may not be able to avoid it. But don’t imagine for a minute it’s good.

Fire ‘em, furlough them, poison them or ship them to the moon and you are still not going to save $145,000 every time you get rid of a GM, Ford (NYSE:F) or Chrysler worker.

But you will lose a consumer, who might lose a house, who will pay less in taxes at state, local and federal levels.  You will gain a family that doesn’t buy a new car, take a Disney vacation or eat steak and go out to Red Lobster once in a while. Why the media propose that creating massive sudden unemployment is going to fix Detroit’s mess—or ours—is a mystery to me.  Maybe they don’t like blue-collar workers who make more than they do.

That’s just the obvious example of the day. Ditto the same in a dozen other industries and states.

Job losses eventually harm us all indirectly. Maybe even your own city’s budget—even if you live in Maine or California instead of Detroit. The New York Times reports that in October alone, 20,000 employees of auto dealerships lost their jobs nationwide. The auto dealers association estimates that new-car dealers produce a $54 billion annual payroll for 1.1 million workers. These dealers bring in nearly 20% of the retail sales and sales taxes in small and large communities alike, according to the Times.

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And there’s something else you should know about those autoworkers if you think the middle class matters. They’re college grads, too

That’s right, as of 2007, over 74,000 of the Big Three’s 129,000 manufacturing workers in Michigan had college degrees. The ratio is continually rising. Unskilled positions are becoming very hard to find in the industry.

Even among skilled workers with no college degrees, attaining their skilled job status required 8,000 hours of on the job training, plus 700-800 hours of classroom time. If you were applying for a US government job, that would constitute the “equivalent” of a bachelor’s degree at the very least.

“They” are us. Different part of the country, different industry, different work, but real, true middle class people. That was Henry Ford’s plan. And Henry Ford was a heck of a capitalist.

Ford paid his autoworkers $5 a day back when a machinist’s pay was 22 cents an hour and less skilled workers made 15 cents to 20 cents an hour. Ford wanted his workers to reach middle class and buy cars.

We’ve lost his vision. He understood that good jobs led to widespread prosperity. Trying to hire U.S. workers at mythical pay scales of Third-World countries that sell third-rate cars within their own borders, or even their Japanese counterparts over here is not the solution.

In fact, non-union autoworkers at the foreign carmakers in the U.S. now make just about the same as the Big Three’s union workers.

Of course they do. Supply and demand, baby. If they didn’t, every Toyota (NYSE:TM) plant in the country would vote to go union tomorrow. Why don’t the media know this? Are they eating the magical mushrooms?

But the disinformation campaign rages, and you should ignore it. These people got their theories from books, and think they are better than average working people, because as long as the AC is working they don’t sweat while sitting at those desks.

It’s simple. The economy will not turn around while unemployment is rising. We may have to lose jobs, but it’s like losing a leg to prevent the spread of gangrene. It’s a deterrent; it’s not a blessing.

So, let’s not be so quick to applaud every time we read about layoffs.

And let’s not be too high-minded about preferring desk-bound white-collar jobs to production-line jobs. Only some of those white-collar jobs are truly skilled, and most are learned on the job just like in factories—except the training period is shorter in the white-collar world.

These days, companies hire college grads to be customer service order takers, salesmen and marketing assistants—none of which truly requires 16 years of education. College grads are a dime a dozen. The average machinist is far more explicitly job-skilled and has much greater direct job training than the average new bank teller or loan officer.

And just look where all those loan officers got us, anyway.

We may not bring back the housing bubble that sent the economy into overdrive, and we don’t want to. But we do need to put most of the people who lose jobs in this recession back to work as quickly as possible. Only then can we get the momentum to create real, new jobs once spending unlocks again.

My only hope is that if state or federal governments do create jobs with infrastructure spending to get things going the money will be tightly managed. I’d suggest two criteria:

• Funding only projects that are “shovel-ready,” not in planning.
• Earmarking for projects that serve security needs, high-density areas, major shipping routes or critically worn infrastructure such as old water and sewer systems.  We don’t need more outer-outer beltways, airport parking lots, stadiums, or highways through nowhere.

And by the way, give those autoworkers some credit for a lot of good things the rest of us enjoy. If you are going to screw them, at least snap off a respectful salute first.

Because you owe a lot of benefits to organized labor–paid vacations, 40-hour standard weeks… and your health insurance. Almost nobody had it till unions fought for employee health insurance when President Harry Truman’s plan for national healthcare failed in the 1940s.

Source: A Consumer Economy Can’t Run Without Consumer Income

These problems should be stated in financial reports. But sometimes they are hidden in plain sight.  A bit of dubious padding in pension plan earnings projections can neatly camouflage millions in shortfall.

By the way—even if you are not buying dozens of stocks for their dividends, this is something good to know. It will help you evaluate those slick plans that brokers, bankers and insurance salesmen hold out to you when you take out life insurance, buy an annuity, set up a 401(k) or do any long-term planning yourself.

Let’s start with a choice: Which would you rather have? $311.80 today to put in a 20-year bond that pays 6% a year? Or would you rather have $1,000 on Nov. 13, 2028?

They are the same. The $1000 is the “future value” of taking $311 today and investing it for 6% per annum for 20 years.

Or to reverse the order, assuming 6% a year return, $214 is the “present value” of $1000 in 2028.

And the 6% assumption? That is the “discount rate.”

The problem with Lockheed Martin and several other companies is that the potential for big pension shortfalls is craftily understated in the discount rates they use in their projections. Lockheed has been using a discount rate of 7.5% for its pension plan returns.

Is that reasonable? No way! Nor should you accept a rate like that in an annuity or life insurance plan’s projections.

First of all, a pension plan should be conservative. It should hold bonds along with blue-chip stocks, and bonds do not pay anything near 7.5% unless they are of poor credit quality and highly risky.

For reality, we’ll go to the guidelines Charles Schwab has published—a 20-year average return for large-cap stocks is 8.2%, and for bonds it’s 4%. If the pension fund is half stocks and half bonds, a reasonable discount rate would be 6.1%. In truth, the balance for pension funds today according to Watson Wyatt and several other firms is 60% stocks. With a 60-40 ratio (bonds to stocks), the discount rate should be 6.5%.

Jiggling with this number makes a huge difference. A million dollars worth of obligation in 20 years can be fully covered with $235,000 in the pension plan today if it really can average a 7.5% return. But if the proper discount rate is only 6.5%, then the fund should have $283,000 in it. That’s 20% more money.

On top of this, many pension fund managers have been switching to more bonds in the past year. If the ratio turns back to 60% bonds rather than 60% stocks, the discount rate should fall to 5.7%, and Lockheed’s pension fund would need 40% more money in it today than it would at a 7.5% discount rate. Ditto any other companies using high discount rates.

This isn’t hard to check. It’s all in a company’s annual report, and often in the quarterly reports. If a company says that it needs to add to its pension fund, or is barely covered, take a second look at the discount rate it is using to be sure it is stating the full measure of the problem.

And you can tell your broker, banker, and insurance salesman to use a reasonable rate in his projections the next time you’re doing some financial planning, too.

Source: Pension Problems Part II

This from Investor’s Daily Edge:

The election’s over. President-elect Barrack Obama won, and some people are worried that he’ll start taxing dividends like income. Have I got news for you… that’s the least of our worries on the dividend front.  Put it in the drawer for next year’s hand wringing.

Because just when you thought the financial news had exhausted all the bad stuff and you had found safety in dividend stocks, I have to give you a heads up. Your stock could be getting a pension fund “margin call.”

I love dividend stocks. These companies have cash, pay cash, and keep the faith with investors for the most part. But some are on the verge of breaking that faith this year. It has nothing to do with mortgages or credit markets – it’s about pension funds in trouble.

And when pensions are sucking up cash flow, your dividends could suffer. Mercer, a pension consulting firm that is part of Marsh & McLennan (NYSE:MMC), already estimates that pension shortfalls will lead to a 10% cut in stock dividends this quarter compared to a year ago.

That’s a big deal. Even the 2003 squeeze on pension funds after the three-year-long post-dot-com bear market didn’t cause that. In fact, this could be the first time pensions have been hit so hard since 1958.

Pension plan contributions are a normal expense that companies handle just as they pay the electric bill and management bonuses. But pension plans are special. The funds are separate from the general coffer and there are rules on how much money the plans must have compared to the benefits they’ll have to pay out. This is true in the U.S., Canada, UK and Europe. And though I will use U.S. examples, British and European stocks are also under pressure.

In the bull market years of the 90s, keeping a pension fund properly funded was no problem for most companies. Their funds were flush with stock, and stocks were going up. In fact, before Enron spoiled everyone’s party, some pension funds were loaded with roaring hot company stock. (The post-Enron limit is 10% in company stock in the company pension fund.) Pension funds were making money.

Obligations were fully covered and then some. Some funds were so flush the companies were able to stop putting money in them for several years. They even showed earnings from pension funds as “other” income on balance sheets, making their earnings look better than they should.

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GE (NYSE:GE) was famous for smoothing its earnings by including pension fund surpluses in its figures. Some critics called this maneuver “vapor earnings.” These vapor earnings fattened the bottom line sufficiently to bring fortunate GE execs an extra 9% in their bonuses.

Now comes today… after a bear market… into a recession. Vapor earnings are vaporizing. As of September 30, S&P 500 companies’ pension funds have lost an average of 11.6%, according to CFO magazine. They are now about 92% funded. That’s just barely OK… for a couple more months.

For many years, U.S. companies only had to keep 90% of the present value of expected obligations in their accounts. The Pension Protection Act of 2006 will raise that “coverage ratio” gradually to 100%. For 2008, the magic number is 92%. And it goes to 94% in 2009. So this 92% funding estimate means that some companies pass muster, and a lot don’t.

Standard and Poor’s says S&P 500 pension plans were $200 billion short of minimum funding levels by the end of September this year. Worse, they were on target to surpass the $219 billion record shortfall of 2003.

Who’s in trouble? What stocks to avoid? Remember that funding a pension is a normal business expense. So it’s not every company that shows a pension obligation that should bother you, but the ones that show likely shortfalls that could overwhelm earnings.

Among the companies with big pension plans that are likely to need a large shot of hard-to-find money are Lockheed Martin (NYSE:LMT), United Technologies (NYSE:UTX), Aetna (NYSE:AET), Boeing (NYSE:BA), IBM (NYSE:IBM), Eastman Kodak (NYSE:EK), Goodyear (NYSE:GT), Ford (NYSE:F) and GM (NYSE:GM).

Those are just the big names. By industry, the most underfunded pensions are concentrated in information technology and healthcare. Utilities also slipped from overfunded last year to coming up short this year.

The good news is that companies have to give you a warning in their financial reports—the bad news is that you have to read the suckers. At least if you do it online, you can use a search and go straight to the “pension” part of Management’s Discussion.

Source: Another Fancy Disaster You Didn’t Need – Pension Fund Vapors

More from Investor’s Daily Edge:

Years ago, my friend Bob Meier told me that bears start every bull market. Sounded strange. But it’s true.

Bulls push rallies farther and higher on big hopes, but they’re not the ones to start them. But bulls are like adolescents. They don’t handle adversity well. And just about the time the bulls are upset because they aren’t going to make 40% a year, the bears are smelling honey in those trees. They are seeing stocks that should go up 15% to 20% and priced at half to two-thirds of their fair value.

But how does a bear know what the fair value is?

Because the market has standards and traditions. Bears are the ones who know them.

For instance, you have heard that the normal historical P/E for the stock market in the United States is 15. Good research shows that it is actually around 16 (Jeremy Siegel) to 17 (Ned Davis). It swings around those numbers, not often much lower, but in recent years a lot higher.

And today the P/E ratio for the S&P based on the last four quarters’ earnings (the trailing 12 months or ttm) is only 10. It hasn’t been this low since the early 1980s. Right before the last great bull market.

Things are just as deeply discounted on other valuation scales. The price to sales ratios for the NYSE and Nasdaq average 0.85 today. That implies almost everything is a great bargain because a ratio of 1.0 is considered a strong value. Most of the time, this ratio is closer to 1.2 to 1.5 and it sometimes goes much higher.

Price to book value? It is actually 1.0 for Nasdaq and 1.5 for the S&P 500. The implies that most companies are now selling for the replacement cost of their assets or exactly what shareholders have invested in the company. The S&P’s price to book ratio is usually over 2.0, and a ratio of 4.0 is not uncommon because a business is much more than a package of assets.

Finally, there’s price to cash flow. I like to see a ratio of 10.0 or lower, and it can be a challenge to find strong companies going for less that 15 in many years. Today the market average is 8.5 and the S&P is 9.9.

Now why would that make a bear happy? Because if he buys a stock that’s at a P/E of 10 today, and it usually goes for a P/E of 18, he’s already got one paw in the honey jar. The stock should appreciate by 80% simply if it can get back to its normal valuation. Then add any growth on top of that and you are seeing triple digit gains.

But don’t expect that these bargains mean the market “must” turn around immediately and sharply. The real bears are cool value hunters, typically cautious and experienced investors. They are likely to average in carefully.

Still, if you want a reason for the stock market to take off—turn on the Bernanke-Greenspan show and simply look at the stock market. The reasons for the next bull market are already in place.

Source: Sweet Honey in the Rock?

In the 1980s, a smallish newspaper chain called Gannett went on the warpath. It patched together feeds from dozens of local sources, married it with hot design and created a new national newspaper called USA Today. It was a shocker… color on the front page… graphs, boxed stories…

USA Today became, and still is, the only truly national newspaper in the United States. The New York Times and Wall Street Journal are read coast to coast, but they do very little news coverage outside their cities except for national and world news.

At the same time that Gannett was building USA Today, it began buying even more independent papers in small towns. And wherever Gannett moved in, competitors began to fall as if the mob had come around and demanded protection money. The results would have been about the same. Gannett used its huge cash pile to operate its new papers at losses long enough to drive their local competitors out of business.

In 1978, Gannett had 78 papers in the U.S. and another 21 in Canada.

Today it has 85 dailies in the U.S., more in Canada and the UK, and about 1000 non-daily newspapers altogether. A lot of success at Gannett meant a lot of failures in other places.

Now another creative destructor is doing the same unto Gannett – the Internet. Advertising revenues keep slipping as people read newspapers online. It’s even worse after the housing crash because those real estate listings were an important revenue stream.

Gannett is laying off 3,000 workers. This means 3,000 people with no salaries. Not exactly good news for the economy’s recovery when consumers lose incomes. But the stock market cheered.

Meanwhile, in Boston, the venerable Christian Science Monitor announced it will cease printing its daily paper and deliver entirely online during the week.

So far this year, about 12,000 jobs have been cut in the newspaper industry.

So if you find any great newspaper stocks going for very low valuations… don’t buy. Cheap ratios are not values. Cheap ratios on companies with good earnings and growth prospects are.

Source: Creative Destruction Still at Work