eReader Review

Kobo Aura HD E-Ink eReader

Kobo goes against the grain with a new, high-end E-Ink reader that features the highest resolution screen of any other dedicated reader and larger screen.

The new Aura HD features a Pearl E-Ink display with a pixel density of 1440 X 1080 pixels, displayed on a screen that is 6.8-inches diagonal.  Almost all the other top of the line readers use a 6-inch screen and have 800 X 600 pixel counts.

Kobo has not been able to compete head to head with the larger sellers of eReading machines, at least with it current line up of devices.  It's E-Ink readers have not gained significant market share against Amazon, though with Sony seeming to be heading for the exits and Barnes and Noble on the ropes, there may be room for the Japanese firm to find its niche in the American market.
Kobo also breaks new ground by charging $170 for their new device, a price that puts it near the full-color 7-inch tablets from Amazon, Google and Barnes and Noble, among others.
This is, if anything, a bold move by Kobo.  But it may prove to be a good bet by the lagging manufacturer of eReaders.    Kobo recently reported that the new Aura is accounting for 27% of its total sales, but there is no way to evaluate that success since they do  not release their sales figures.  Without more information it can't be told if they sold 100 or 100,000 of the units.
Kobo sells a total of five models of eRaders.  In addition to the Aura HD model shown above, the rest of the line is shown below.

The top of the line 7-inch Android Tablet, is their Arc.  Pictured at ther ight, the Arc is a 7-inch Android tablet that competes with the Kindle HD and Barnes and Noble's HD as well as the Nexus 7, to name a few.  Priced at $200 it has not sold well against its competition, and the reviews have not been kind.

Their best 6-inch E-Ink reader is the Glo, pictured in the left image below.  This is their answer to the KindlePaperwhite and the Nook Simple Touch with Glowlight.  It sells for $130 and, like the Arc, has not received good reviews when compared with its competition.

The low-end of the Kobo lineup for 6-inch E-Ink screens is the $100 Touch, pictured pictured above right.  This competes with the low end of Kindle and Barnes and Noble’s Simple Touch, although the Kobo Touch is more expensive.

The final entrant is the Mini.  This E-Ink screen is five inches diagonal, and is the lightest eReader available from the major manufacturers.  Pictured at the right, the Mini seems to have be in a hard place to inhabit, although it is an interesting innovation for E-Ink readers.  The criticism of the unit is its small page viewing area, necessitating frequent page turns.  It also has a reduced pixel count that makes for fuzzy fonts.

Its price, at $80, is close to the 6-inch touch, but it gives a substantially smaller reading area with less screen resolution. 
Reviewers have not seen good prospects for the Mini, but is has the advantage of being the only smaller screen on the market from the top three manufacturers.

The five models of Kobo’s lineup, if they all sold equally well, would each have 20% of their total sales.  Kobo has said the Arc now accounts for 27%, which is their best seller, but a 7% margin over other models is not a huge difference.

It will be interesting to see how Kobo does in the future.  The firms generally is lacking in competitive equality in some critical areas:  their selection of books is less than the rest.  They have little to no offerings on movies, special editions, or magazines. 

Compound this shortcoming with hardware that is perceived to be equal to its larger competitors and you get a less than promising position.
The best feature of the Kobo lineup is their eReader apps.  I have used their app on all of my devices, and in some instances I think it one of the best for maintaining consistent formatting for poetic publications.

But, I don’t think they can make a living off their free software.  They must be able to translate their best feature into a viable revenue stream.  Perhaps the Aura will help, but if it does, it will contrary to the way the market in the past has been moving.  For all other vendors, E-Ink readers are declining in market share.  It is hard to see how their new device will reverse the larger trend to tablet eReading.

It may come down to being a matter of price.  Amazon and Barnes and Noble sell their readers near, at or below costs.  They want customers for their electronic content, so their eReaders are loss leaders to gain new buyers of their content.  Kobo may no have enough content to sell to make this a viable option, or they may improve their content selection in they near future.

But with the quality differences in the critical areas I outlined, Kobo needs to lower the prices on their devices, even if it means selling them at a loss.  Whether this firm has the deep pockets to fund this strategy is not known.

Choosing Your eReader and Apps

Ray Hendon

Second in the series

In the first article of this series I showed the rise of eReading over the last seven years and the effects this new innovation has had for both printed material and the hardware required to read it.

Missing from that analysis, however, was the more personal consequences of electronic reading.  There are two consequences, in my view, that stand out.  First, while it is well established that people who buy eReaders read more than the average person, is it now clear that buying an eReader further increase the amount of reading.  Survey after survey has shown the same thing:  people read more after they get an eReader.

The second consequence is also important.  eReader owners can buy their books at lower costs than those who buy paper editions. All of the electronic book vendors sell their books at significantly lower prices than the paper editions.  Current publications can sell from $9.99 to $15, while the bound editions can be $30 or $40—although less for paperbacks.

Another consequence is somewhat related to the first two: almost the entire  Cannon of Western Literature can be had for free for those who own an eReader.  The Gutenberg Project has taken upon itself to scan hundreds of thousands of books that are in the public domain.  In the United States, this includes virtually all publications prior to 1922.

This means the entire body of Greek and Roman literature plus the vast writings in Europe through the Middle Ages, The Renaissance, the Age of Enlightenment--all of of 16th, 17th, 18th and 19th Centuries  are available at no cost to those who have an eReader.

This, to me is a priceless treasure, and commends electronic reading to the most stalwart traditionalist.

What eReader to Buy

If you decide to join the revolution of eReading, there are two decisions that immediately face you:  What hardware do you choose as your primary eReading device, and what eReading apps do you like for reading on other devices?  The choice of reading devices is the subject of this essay.  The reading apps and other considerations will be covered in the next essay.

As for your choice of hardware, there are three categories of reading devices to choose from.

E-Ink Displays

E-Ink display readers are good for only one thing: reading digital content.  They are not good as a tablet computer; they are much too slow and cumbersome for that task. But, they read electronic text especially well because the text displayed on their screen is so easy on the eyes.  No other display can match the lack of eye strain these devices offer.  Plus, they are small, light and easy to hold—easy to carry around. But, that is essentially all they do.  Do not confuse a dedicated E-Ink screen device with a general purpose tablet.  

Below are four of the most popular brands of E-Ink readers.

The Kindle Paperwhite is on the left and the Nook Simpletouch with Glowlight on the right.

Both of theses readers sell for about $120.  Other models with fewer features are available from both vendors at around  $70 to $80.  On the less expensive models however, if you read at night you need a lamp to provide illumination. 

The next pair is  shown below.
The Sony Reader at left and Kobo’s Glo Reader  on the right.  The Sony does not have internal lighting and sells for $129.99.  The Kobo Glo has lighting and sells for $129.99, also.  Kobo also sells a touch edition (without the internal lighting)  for $99.99. 

I cannot recommend either Sony or Kobo.  Sony is too expensive for what it does, although the build quality is typical of Sony products. Kobo has a poor reputation for build quality and service after the sale, and their selection of books at their website is poor when compared with Amazon and Barnes and Noble. 

All of the models shown use WiFi for downloading books, but 3G/4G models are available from Amazon at higher prices.

Tablets and Smartphones

Tablets are winning the battle of eReading.  Their versatility and power offer a full computer experience for users who surf, email and who use some of the apps that do many, many things.  They function more like a laptop without the weight and bulk of a keyboard.

They also do a great job with eReading.  The screens are internally illuminated, making reading in a dark environment easy, and the font and layout control I equal to or better than the dedicated E-Ink readers.  Colors are brilliant and well defined.

If you want to use a tablet as an eReader, that is easy to do and costs nothing extra.  But not all tablets are created equal when it comes to eReading.  In this task, a nine or twelve-inch screen is too much to carry around—to heavy and clumsy, and too heavy to hold for any length of time. 

In my case, I prefer two tablets—an iPad for regular tablet work of surfing, email and research, and a smaller 7-inch tablet for eReading.  If I had to have only one and I were buying one now, I would probably go for the iPad Mini with its 7.9-inch screen.  It is small enough to hold in one hand, light enough not to become a burden, and has the surfing abilities almost equal to the larger screen devices.  The iPad Mini sells for $330, but Walmart is discounting it now to $299.99.  A new model with an enhanced screen is expected by October.

There are other options, however, and one’s personal preferences for look, feel and features are your best guidelines.  If you are looking for a single-device solution, I recommend not going larger than the roughly 8-inch dimension.  Anything larger will not be suitable for eReading for long reading sessions.  Anything much smaller will be a burden for surfing the internet.

This intermediate dimension is gathering steam over the last few months.  The smaller 7-inch tablets have always trailed the larger tablets in sales because of the severe limitations of the smaller screen, although they are far better for eReading.  The middle sizes may be best for a single device.  Otherwise, I would use a 7-incher for eReading and a larger screen for internet work.  In my view Email on a 7-inch screen is fine, and both the Android and iOS devices have a robust email capability.

Below are pictures of some tablets to consider:  The far left is Google’s Nexus 7, which runs under to Android operating system. It is considered by many to be one of the best 7-inch tablets at the $200 price point.

Next is the Kindle Fire HD, also a 7-inch screen.  The Kindle Fire HD is “almost” a full featured 7-inch tablet, but now quite.  This tablet is also priced at $200 and is a decent tablet in its own right, but it is designed to give the owner exceptionally easy access to Amazon’s movies, gadgets, eBooks, magazines and newspapers. 

The iPad Mini is on the right end of the graphic. The sizes shown are

 

 

 

 

 

 

roughly accurate but not precise.

The tablet pictured at left is a new entry into the arena from Chinese manufacturer HiSense.  It offer specs similar to the Nexus 7 but sells for about $50 less.  It also has an even lower priced model that retails for $100, but the specs on that model are significantly reduced, especially on the processor and screen resolution. 

The less expensive model will probably be okay for eReading, since its screen resolution is about the same as many of the E-Ink screens.  But, surfing and email would be significantly slower than its full-featured brother.

To complete the tablet category, only a few more will be discussed.  There are probably a hundred if not more models of the larger screen tablets.  Operating systems run from Apple’s iOS for the iPad, Windows 8 for the Surface and Android systems from Samsung, Amazon, Asus, Acer, Lenovo and Dell, to name a few.

The pros and cons of these different models is too complex to consider in this article.  It is sufficient to note that all of them can run all of the available eReader apps from the major suppliers, so the brand will not affect you ability to use the tablet effectively as an eReader. 

Smartphones are another category that can be used for eReading. 
All of the apps available for tablets, with few exceptions, are available for iOS, Android and Windows Phones.  The problem, of course, is the small screen sizes.  Most are round 4-inches, and I find this while you can read on them, the experience is definitely second best.  I have used Android Smartphones with 4.5-inch screens and an iPhone for eReading, but if you have a tablet with you, that is the better option.

I haven’t used a Windows Phone for eReading, but the screen size controls the quality of the read more than any other specification—they all have good screen resolution.  So I cannot recommend any particular smartphone over any other.  The two top of the line phones, the Samsung Galaxy series and the iPhone series, generally have the highest screen resolutions, and that helps.  But it still is not a way of eReading I would recommend for your primary use. 

Laptops and Desktops

Laptops and desktops of all descriptions can run eReader software from all the major and minor vendors of eBooks.  But neither of these devices is convenient as an eReader.  I put the reader apps on my computers because there may be occasions when I need to press it into eReading duty.  But this is becoming more rare.

However, it costs nothing but a little disk space to download the eReader software from you favorite vendor, and you may find it worthwhile to make your laptop a secondary reading source.

Since the software is virtually the same on all the laptops and desktops, there are no inherent advantages of any one brand over any other.  Whichever brand and model you choose will work about the same as an eReader.

The next installment of this series will cover the specifics of the eReader apps available to computers, tablets and smartphones.

An Overview of eReading

Ray Hendon 

Reading books on a computer has a long history, but in 2006 when Sony introduced its Reader to American consumers, a revolution of the reading habits of Americans  began .

With a device dedicated to reading electronic texts with a (then) new process of E-Ink display, it was possible to read indoors or out, even in direct sunlight.  And, it was possible to carry the reader with you with a minimum of hassle.  This was the entry of eReading into the mainstream.

The picture at right is of the original Sony PRS-500  which was made available in the United States in September 2006 and priced as $329.99.  Books for the Reader were also offered in Sony’s bookstore.   The screen of the PRS 500 was six-inches, and sported a 4-level grey scale screen at 800 x 600 pixels.

The original Reader weighed 1.2lbs, could hold about 500 books, and read an impressive list of file types: PDF, TXT, RTF, BMP, EPUB and others.  The ePub file is now the most prominent file type for electronic books, but the existing Sony Reader continues to read a large number of file types.

Sales of the PS500  were slim by today’s standards.  In December 2008, Sony disclosed that since the device launched in October 2006 it had sold 300,000 units worldwide .  After the first couple of years, especially after the Kindle was introduced in late 2007,  sales for all e-book readers worldwide grew to 12.8 million in 2010 and 23.2 million in 2011.  

Technical progress of E-Ink readers has continued improving since its first introduction.  For comparison, today’s best E-Ink screens such as the Kindle Paperwhite have 16-level gray scale, weigh 7.5 ounces, and supports a 800x600 resolution.  Nooks’s high-end model weighs less than seven ounces. Most of the new Readers can now hold 1000 books and the battery life has been extended to four and even eight weeks, depending of use patterns.

Prices of eReaders today start at around $70 and extend up to $120 to $140, depending of features.  The pictures below are of current models of E-Ink screen readers.  The Amazon Kindles are shown at left.  Barnes and Noble Nooks are to the right.

The future for E-Ink screen Readers is not optimistic.  Sales have been falling annually since their peak year of 2011.  From the 23.2 million sold that year they fell to 14.9 million in 2012 and are expected to lose around 20% a year until 2014, where they are expected to be about 5.3 million units. 

The poor outlook for E-Ink readers in no way translates to a poor outlook for eReading, however.  The shift from reading only paper editions to electronic editions is continuing.  The dollar sales of eBooks in 2011 was estimated by BookStats at  $1.97 billion.  This was almost 16% of all trade book sales. (Trade books include the major categories of adult fiction and non fiction, but exclude children’s books and textbook sales).

The 2011 figure was up  from $838 million in 2010 where the sales of eBooks accounted for  6.7% of all trade dollar sales that year.

From Amazon’s perspective, the growth is even more pronounced.  Amazon began selling hardcover and paperback books in July 1995. Twelve years later in November 2007, Amazon introduced the Kindle and began selling Kindle books.

By July 2010, Kindle book sales had surpassed hardcover book sales, and six months later, Kindle books overtook paperback books to become the most popular format on Amazon.com. Today, less than four years after introducing Kindle books, Amazon.com customers are now purchasing more Kindle books than all print books - hardcover and paperback - combined.

The growth of eReading, though, has not been particularly kind to devices using E-Ink technology.  People reading electronically are switching to the internally illuminated screens of tablets, smartphone and laptops. 

The graph below shows how eReading is accomplished through 2012.  The figures in the graph represent the percentage of all electronic reading done in

the time period by each device. The Kindle Fire, Nook HD , Android tablets, smartphones and the iPad, are increasingly the most likely way of reading electronic editions of books.

Tablet eReading

For the last couple of years, tablets seem to be taking the lion’s share of eReading device sales.  The versatility of the iPad and its competitors has overwhelmed the E-Ink devices. The reality of it is easy to understand. A tablet can surf the internet, do email, show photographs and graphics in full color and play movies at full speed.  But they can also provide a good eReading experience.  All the major eBook sellers provide apps for tablets that can read the appropriate format and read it as well or better than a dedicated reading devices. 

---

The iPad Mini and iPad are shown at right.  The Mini starts at $329 and the iPad at $399, $499 and $599, depending on screen resolution, processor speed, memory and connectivity options.

---

Contrast these abilities to that of a dedicated eReader, and it is easy to see why a consumer would prefer a tablet over a dedicated eReader. Why carry two things when one will do the work of both.

---

Google’s Nexus 7 tablet is shown below.  It is priced at $199 for the base model.

---

It can be argued that the reading quality of the E-Ink machines is superior to that of a tablet, and that is a legitimate point.   A tablet cannot be read out of doors well, especially in direct sunlight, while a dedicated E-Ink device does well in direct sunlight.  But, that advantage and the longer battery life of an E-Ink reader  are not enough to offset the surfing qualities of a tablet, at least for most people. But the market has spoken and versatility wins over a single-use machine in spite of what is a marginal advantage of the reading quality.

---

Three of the Kindle Fire tablets are shown below.  Barnes and Noble also sells several tablets that double as eReaders for its content.

---

One lesson learned during the years from 2006 through 2012 is that the eReading industry is far from static.  Manufacturers of all stripe have taken aim at it, as have the major book sellers.  And now that eReading is indisputably engrained in Americans’ reading habits, the pace of innovation and price competition can only be expected to grow even more fierce. 

This is good news for those of us who enjoy reading. 

The next article in this introductory series will tackle way of combining the software and hardware options that are best for your personal needs for reading books, magazines and other digital content.

Layoffs Drop and Unemployment Rate Dips

The labor department estimates that July layoffs were the least since August of 2008.  The chart below, provided by the New York Times, provides a clear picture of how the economy is slowly pulling itself out of the worst recession in over fifty years.

Certainly the rate of fall in the number of layoffs has not been smooth—it never is.  But the trend is clear.  Earlier projection of a bottoming in the third or forth quarter of this year are still looking accurate.

Fewer layoffs also resulted in a slight drop in the rate of unemployment.  The chart below shows this:

It should be pointed out that much of the drop in the rate of unemployment was a result of 400,000 workers leaving the labor market.  This “discourage worker” effect is well known in economic circles.  When job get harder to find, many workers become so discouraged that they cease actively looking for work.  It happens in every recession, and the effects are reversed when the labor market improves with recovery.

Another effect of discouraged workers is that while it  cushions the rate of unemployment during the downturn, it is a drag on unemployment rates during the recovery.  As jobs become easier to find, many of those who left the labor market because of their discouragement, re-enter the market when things get better.  A higher participation rate of the labor force thus causes the unemployment rate to rise, or fall less, when things get better.

All in all, this is good news.  The economy does appear to be bottoming.  I guess that by October on November, the fall in GDP will reach zero, and there should be some recovery in December or January of 2010.

New Currency Bundle from WisdomTree

One of the casualties of the world financial crash of 2008 was the carry trade. For the investor to make money on the interest rate differential between two currencies, it is imperative that the currency prices remain stable. Many of the emerging market currencies fell almost 50% from the last quarter of last year. This forced carry traders to liquidate their currency exposures. The carry trade went into a tailspin, and since then it’s been a waiting game for stability to return to world trade and to currency prices.

The picture has changed over the last few months, however, as the graphs below show. The first chart shows prices of the Mexican peso ETF of Rydex Investments (FXM) over the last year. The prices are the dollar value of 1000 pesos. From its peak in August of last year, the peso fell over 35% to its low in early March of this year, at which time it began something of a comeback.

Mexican Peso/Dollar 1-Year Prices

Almost all of the emerging market currencies have made similar recoveries from their lows, and they continue to improve as the world’s economies head to recovery--we hope!

Even the developed currencies like the Euro and pound sterling have taken their licks. The pound fell about 30% over the same period.

£/Dollar (FXB) 1-Year

There is another casualty of the financial carnage of last year. Prior to August of last year, ETF and ETN providers were flooding the SEC with proposals for foreign currency exchange traded products. I was running out of disk space trying to keep up with all the new filings. The collapse of the currency markets brought all these plans to a virtual standstill, and there were no new offerings for the rest of 2008.

Now, however, things have changed enough for one of the providers, WisdomTree, to follow through with their plans. On Wednesday, May 6, they brought the WisdomTree Dreyfus Emerging Currency Income Fund (CEW) to market.

This new EM bundle includes 11 currencies, ranged around the world from Central Europe, Africa, Latin America and Asia. WisdomTree chose to put their new ETF under the Investment Act of 1940. This means, among other things, investors will have daily transparency of holdings and prices for their new product.

Initial sales look robust, with an average daily volume over 100,000 shares. It carries an estimated interest yield of about 4.6%.

This is a most interesting product. The inclusion of 11 currencies provides a degree of diversification not provided by single-currency ETFs. The list includes: Turkish lira, Brazilian real, South African rand, Polish zloty, South Korean won, Chilean Peso, Mexican peso, Israel shekel, Indian rupee, Taiwanese dollar, and the Chinese yuan.

I like the geographic diversity: it covers all the continents except Australia. I also like the equal weighting scheme they use to determine how much of each currency to hold. The fund will be rebalanced quarterly, and WisdomTree will remove a currency if, in their assessment, the political or economic environment becomes hostile to an orderly currency market.

This new ETF is similar to an older currency product, the Global Emerging Markets Strategy ETN, (JEM). I covered this ETN when it was first introduced in my June 26, 2008, article, Currency Bundles Pegged to the Dollar. JEM has fifteen currencies represented in their bundle. Ten of the currencies are the same as CEW, but JEM includes Russia rather than China, and it includes currencies in five countries not covered by the WisdomTree product: Columbian peso, Philippine Islands peso, Argentine peso, the Indonesia rupiah, and the Hungarian forint.

The recent price history of JEM is shown below. The share price fell from about $51 in July to its low of about $38 in February of this year, a 25% fall.

JEM was introduced at a decidedly unfortunate time, with political and financial instability just beginning in some of its target currencies. The results show in the relatively few assets this ETN has gathered since its inception (Bloomberg lists $2.98 million in assets in their latest data).

Yields on this bundle have been quite good, however, with the last dividend yielding about 9% annualized, but this return has been swamped by falling prices of some of the more unstable currencies.

I prefer the bundle offered by CEW, because some of the more volatile currencies have been omitted. For example, it does not have Russia, Hungary, Argentina, or the Philippines in its mix. Plus, the inclusion of China, which follows a relatively tight peg to the dollar, will help stabilize price fluctuations.

I also prefer the ETF form to the ETN. With last year’s carnage of supposedly unsinkable financial giants, I wonder if the ETN has much of a future.

WisdomTree’s website goes into detail about the expected interest earnings and the standard deviation of the returns of each country.

Although listed as an “income” fund, it will not behave like a normal income fund that is denominated in U.S. dollars. The dividend comes from interest earnings on short term cash instruments in each of the markets they include in their basket. Currency price fluctuations can eat up the interest earnings in a hurry.

Investors must also be aware that by including 11 countries in the mix does not necessarily completely diversify the risks of systemic failure. Emerging Market currencies are prone to move in the same direction during major disturbances, as they recently proved, so the normal safety in numbers is trumped by the herding instincts of investors.

WisdomTree properly recommends keeping currency investing to a 10% maximum of your total portfolio’s value. Part of their case for holding currencies is to moderate the downside risks of portfolios dominated by equities and fixed income holdings. Currencies are remarkably uncorrelated with equity and bond prices, so there is an advantage of lowering total portfolio volatility when currencies are included in the mix. In this case, adding a volatile currency may actually lower overall portfolio volatility because of the counter-cyclical properties of currency holdings.

Depending on your own preferences for risks, and whether you want to hedge your emerging markets equities against possible dollar depreciation, this new ETF may provide your portfolio with some important benefits. I welcome this new offering as a potential tool in balancing the risks when taking on emerging market equity investments. I hope that as the market recovers, some of the other filings of 2008 will see the light of day. Currency investing is not for everyone, but for those who can use it, a wider set of options is welcome.

Signs of Recovery are Sprouting

From Bloomberg today, two bright spots on the economic landscape:

• The Conference Board’s sentiment index climbed to 39.2, the highest level since November, from 26.9 in March, the New York- based research group said today. The gain was the biggest since November 2005.
• Home prices stabilize: A report from S&P/Case-Shiller today showed that the slide in home prices in 20 U.S. markets slowed in February for the first time since January 2007. Prices fell 18.6 percent in February from the same month last year after dropping 19 percent the previous month.

These are welcome developments.  In a financial and economic world beset with bad news, these data emphasize that the dragon of recession can be slain. The programs put in place in the U.S. are beginning to take effect.

Further analysis of the Conference Board sentiment index is also illuminating. The Conference Board’s measure of present conditions rose to 23.7 from 21.9 the prior month. The gauge of expectations for the next six months surged to 49.5, the highest level since the collapse of Lehman Brothers Holdings Inc. in September of last year.

This jump in optimism is encouraging, because if and when the economic recovery begins, it must be supported by strong consumer spending. But, if consumers are pessimistic about the future, their wallets are likely to remain closed. The hunker-down syndrome is strong when the outlook is sour.

As for housing prices, recent reports show government efforts to support housing and revive lending may be starting to work. Combined purchases of new and existing houses have hovered around a 5 million annual pace since November, and sales at retailers improved in the first two months of the year.

Add to these new developments the fact that the American and many foreign equity markets are on a fairly sustained up-trend, and you get more signals that the worst may be over, and that investors and consumers are loosening their retrenchment. It looks good for an actual recovery some time this year.

Good News Amid the Bad Employment Numbers

The three charts below explain our current economic state of affairs with good clarity.  Three additional charts show signs of a recovery in the making.

The first chart tracks job losses over the last one year and two month period, beginning in January of 2008 and ending in March, 2009. The bad news, we lost 663,000 jobs in March, similar to the February numbers, but less than January of this year and December of 2008. So far, at least, job losses have stopped getting worse.

The Next chart shows stock prices (Dow Jones Industrial Average) over the same period. From early March, equity prices have been improving, although it is too early to know if the trend will continue. If the six –nine month lead times holds during this recession, then the economy could be expected to turn around sometimes from September through November of this year. There are forecasts that also focus on the last quarter as the turnaround time for the economy. (See below)

The next chart shows the overall unemployment rate, and it has reached a new high with the March report of 8.5%. I expect this number to continue rising, perhaps to as high as 9.5-10%, although I hope I am wrong. Employment is a lagging indicator, so I wouldn’t look for much improvement in this measure until the last quarter, if the turnaround occurs at that time.

In support of an early last quarter turnaround, Professor David Beckworth of Texas State University in San Marcos, TX, posts the following chart:

Projection of Industrial Production based on yield spread from the BAA grade commercial bonds to AAA

Mr. Beckworth insists that the BAA/AAA spread is a clear and unambiguous indicator of investor sentiment with respect to risks. The turnaround in his projection is roughly August–October of this year. This projection is for industrial production, which is not the same as GDP, but it is a large component of GDP and a good indicator of the general health of the economy.

These are tentative signs that a recovery may be building for an American recovery. The world’s economies are following about the same signs. Stock prices have recovered for emerging markets equities, for example the ETF, VWO, which is Vanguard’s Emerging Markets Index, shows a bottoming process in the following 1-Year chart:

The last chart, below, is share prices of two ETFs: VWO, and Brazil (EWZ), except I change the time frame to the last three months.  This change will help highlight the recovery in prices of both VWO and EWZ during the first quarter of this year.

It’s too early to make a definitive call on this turnaround, but if it does hold, it bodes well for a general recovery, since the emerging markets are generally considered to more risky than developed economies. If investment money is beginning to flow once again into the developing economies, it indicates a strong reversal of risk preferences that characterized this market for much of the last year.

Another encouraging sign is the conclusion of the G-20 meeting yesterday, where a trillion dollars of new money was pledged to the IMF and World Bank to help the emerging markets with currency loans and international trade financing for those countries most strapped by the slowdown.

In my view, it is not Spring, yet. But there are some signs that the economic flowers are beginning to bloom.