Forbes’ Bob Lenzer reports Paulson’s saying:

“If you don’t own a home buy one.”

”If you own one home, buy another one, and if you own two homes buy a third and lend your relatives the money to buy a home.”

Paulson has been bullish on housing for a while now (he runs a housing recovery fund), but this is him hitting super-bull territory. His reasoning is that home prices are great, the bond market is dead, and commodities like gold, which he also has a big prediction for, are on the rise.

According to InfoWars, he told the audience that he thinks the price of gold will hit $2400-$4000. And a whopping 80% of his assets are in gold.

Given his expectation for further money printing by the Fed – and that in 1980 the gold price rose by 100% more than the correlation implied – Paulson noted that the price of gold could hit $2,400 based only on monetary expansion, and as high as $4,000 per ounce based on a projected overshoot.

Lastly, he noted that 80% of his assets are denominated in gold.

We rarely get to hear Paulson’s opinion on the market unless it’s filtered through his stiffer research reports. As a result, he has never been so extreme in his predictions as he seems to be now.

Here’s what Paulson sees coming:

• Low double-digit inflation by 2012, killing the bond market, and restoring strength to equities and gold.
• 2% GDP growth for 2011 and 2012
• Gold hitting $2,400 to $4,000

It’s worth noting that if gold goes to $4,000, Paulson will be a top contender for the richest man in the world.

shortlink:   http://wp.me/pyFSj-b1

Sept. 27 (Bloomberg) –

This year’s rally in Treasuries has pushed yields so low that a Federal Reserve measure of risk shows U.S. government securities are too expensive.

The financial model created by economists at the central bank that includes expectations for interest rates, growth and inflation shows Treasuries are the most overvalued since the financial crisis in December 2008, just before 10-year note yields almost doubled in the following six months. Investors who held 10-year notes through that period lost 13 percent, according to Bank of America Merrill Lynch index data.

While Treasuries have returned 8.2 percent this year on average, they are down 0.5 percent this month even though Fed Chairman Ben S. Bernanke and fellow policy makers hinted last week they are willing to embark on another round of so-called quantitative easing asset purchases to spur growth and support prices. Investors are concerned yields can’t fall much further without another recession.

Falling Yields

The benchmark 10-year note yield fell 14 basis points last week, or 0.14 percentage point, to 2.61 percent, according to BGCantor Market Data. The yield on the 2.625 percent note due August 2020 fell 7 basis points to 2.54 percent at 10:15 a.m. in New York. The two-year yield was little changed at 0.43 percent.

The Treasury plans to sell $36 billion of two-year debt today, the first of three sales this week. It’s also scheduled to auction $35 billion of five-year notes tomorrow and $29 billion in seven-year securities the following day.

The difference between short- and long-term yields signals less than a 20 percent chance of the economy slipping into another recession, according to research from economists the Federal Reserve Bank of Cleveland.

Projections of the three-month Treasury bill to 10-year note curve, using past values of the spread and gross domestic product growth, suggest the economy will expand about 1 percent, Joseph Haubrich, head of banking and financial institutions research at the Cleveland Fed, and Timothy Bianco, a researcher, wrote in a report last week.

‘Bottom End’

“There might be room for Treasury yields to move lower in the near term, but our view is that valuations are moving towards the bottom end of what is likely,” said John Stopford, head of fixed income in London at Investec Asset Management, which invests $65 billion. “Growth is in the process of slowing down, but the bond market is pricing in a 50 or 60 percent chance of a double-dip and deflation. That’s far too high.”

Investec had bought put options on U.S. interest-rate futures, Stopford said. A put option is the right to sell a security at a specific time and price.

The model created by Fed economists Don Kim and Jonathan Wright in 2005 uses forward expectations for the federal funds rate, the 10-year yield, short-term interest rates, inflation and real economic growth rate to calculate the risk of holding longer-duration securities. It is designed to separate basic money-market interest returns from additional yield for longer- term investment. Bernanke cited the model in a 2006 speech in New York as a useful guide in setting monetary policy.

‘Extremely Rare’

Zach Pandl, an economist at Nomura Holdings Inc., has used the model and made changes for the firm to figure out if the rally in Treasuries had run its course.

After hitting a low in December 2008, at the height of the financial crisis following the bankruptcy of Lehman Brothers Holdings Inc., Nomura’s version rose from negative numbers as speculation about a market collapse faded. Yields on 10-year notes then climbed from a record low of 2.035 percent on Dec. 18, 2008 to an eight-month high of 4 percent on June 11, 2009. The gauge rose to about 100 basis points before yields reached their highs and has since fallen to about zero, Pandl said.

“It’s the first time we’ve seen a negative term premium since the early part of 2009, post-Lehman bankruptcy,” he said. “Other than that time, it was extremely rare.”

Ending Bullish Call

The model recorded a reading of negative 0.18 percent for 10-year debt on Sept. 22, a day after the Fed indicated it may implement additional quantitative easing. It was the lowest on an intraday basis since January 2009.

The drop was one reason Nomura bond strategists changed their forecast on Treasury yields to “neutral,” ending a six- month bullish call.

“Yields have gone too low,” said George Goncalves, head of interest-rate strategy at Nomura, one of the 18 primary dealers of U.S. government securities that trade directly with the Fed. “Incremental easing will not push yields that much lower. It will just keep them at a lower range.”

In March the Fed completed a program of buying $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt. The Fed was the biggest buyer of Treasuries when it purchased $300 billion of U.S. debt in 2009.

The first round of quantitative easing lowered the 10-year yield between 50 and 60 basis points since November 2008, said Joseph Gagnon, a former Fed official who is a senior fellow at the Peterson Institute for International Economics in Washington. He estimated a second round would “likely be at least $1 trillion,” and have a smaller market reaction.

‘Go Back Up’

“If they do $1 trillion, the 10-year yield could move 10 to 20 basis points on top of what’s already been done,” Gagnon said. “If they don’t do it, yields will go back up.”

The Federal Open Market Committee’s Sept. 21 statement said it “will continue to monitor the economic outlook and financial developments and is prepared to provide additional accommodation if needed to support the economic recovery.”

The Fed’s statement indicates it’s focused on inflation that’s below the preferred long-term range as the main reason to provide additional stimulus. Consumer prices excluding food and fuel costs rose 0.9 percent in August from a year earlier, matching the smallest increase since the 1960s.

The Fed retained its policy, begun last month, of reinvesting proceeds from mortgage debt repayments into long- term Treasuries. It has bought $34 billion since it began the program on Aug. 17. Policy makers also kept the benchmark federal funds rate in a range of zero to 0.25 percent, where it’s been since December 2008, and reiterated the rate will stay “exceptionally low” for an “extended period.”

“Quantitative easing on the basis of past records caused a large decline in yields,” said Wright, co-author of the 2005 Fed paper and a professor at Johns Hopkins University in Baltimore. “If QE is used on a large scale, yields will probably drop even further, and the term premium will decline. If they are just keeping options open, then the term premium will move back up.”

To contact the reporters on this story: Susanne Walker in New York at swalker33 Anchalee Worrachate in London at aworrachate .

To contact the editors responsible for this story: Dave Liedtka at dliedtka Daniel Tilles at dtilles

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Sept. 27 (Bloomberg) — The panel of U.S. economists that calls the beginnings and ends of recessions may be a lot busier in the coming decade than it was in the past quarter century.

The average time between contractions might fall back toward its long-term average of about every four years compared with about eight years during the past two decades, said Robert C. Doll, chief equity strategist for BlackRock Inc. in New York, which oversaw about $3.15 trillion at the end of March.

“The cyclical recovery is under way now, but more recessions are down the line,” Doll said. While he says he’s buying U.S. stocks because he doubts the economy will relapse in the immediate future, he is betting returns in the next decade will fall short of their traditional average gains of about 12 percent.

This rebound “is very different from other cycles, especially 1981-82, when employment had grown vigorously by this time in the recovery,” said Robert Hall, a Stanford University economics professor who heads the National Bureau of Economic Research’s Business Cycle Dating Committee. “An important reason is that changes in the financial system resulting from the crisis, a factor absent in recoveries since the Depression, have hindered expansion” by limiting the supply of credit.

The worst recession since the 1930s ended in June 2009, the committee said on Sept. 20. At the same time, the panel “did not conclude that economic conditions since that month have been favorable or that the economy has returned to operating at normal capacity,” according to a statement.

Reluctant Lenders

Consumers are cutting back on spending to reduce debt and build savings, and banks are reluctant to lend, while policy makers have little room to assist growth because they’ve cut interest rates to near zero and pushed budget deficits to record highs.

Such imbalances leave economies that rely on leverage and credit such as the U.S. less resilient to shocks, making them “unusually vulnerable to the risk of recessions” at a time when their economic growth is already near “stall speed,” said Mohamed El-Erian, chief executive officer at Newport Beach, California-based Pacific Investment Management Co., which had more than $1.1 trillion of assets as of June 30.

Hunkering Down

His outlook was borne out in a quarterly poll this month of 1,408 global investors, analysts and traders who subscribe to Bloomberg. More than 40 percent of those surveyed are still hunkering down, while one in three is taking on more risk. The rest said they are returning to normal.

Lakshman Achuthan, managing director of the Economic Cycle Research Institute in New York, predicts “cyclical instability” in the U.S., with the next recession starting before employment has fully recovered. The jobless rate has stalled at or above 9.5 percent for more than a year, compared with a pre-recession average of 4.6 percent in 2007.

Given these conditions, stock investors should be wary of pursuing a buy-and-hold strategy, Achuthan said.

“Major equity bear markets are associated with recessions, so it follows that if there are more frequent recessions, there would also be more cyclical bear markets,” he said. That will “demand the ability to ride the cycle in both directions.”

Companies that may be able to cope are those with exposure to emerging markets, which are now better able to withstand slowdowns in major economies, said Ian Richards, an equity strategist at Royal Bank of Scotland Group Plc in London.

Asian Demand

Athletic-shoe maker Nike Inc. in Beaverton, Oregon, and Atlanta-based United Parcel Service Inc., the world’s biggest package-delivery company, are among U.S. businesses that cite demand from Asian nations as helping profits this year.

“When you look at the demographics of Asia, the undeveloped nature of their consumers and their lack of leverage, you have a structural-growth story,” Richards said. “Companies able to exploit that are well-positioned to manage lower and more volatile growth domestically.”

Frequent recessions once were the norm in the U.S., which had 19 in the 90 years until 1990 and only three since, according to the NBER. The recovery from the contraction that began in December 2007 has lost momentum, with growth slowing to an annualized 1.6 percent in the second quarter from 3.7 percent in the first and 5 percent in the fourth quarter of 2009, according to the Commerce Department in Washington.

‘Negative Shock’

“If an economy’s growing at 4 percent, it can live with a negative shock,” Harvard University professor Martin Feldstein, a member of the NBER’s business-cycle committee, said in an Aug. 27 interview. “If it’s stuck at 1 to 2 percent, then a negative shock can easily push it into recession territory.”

The U.S. government’s debt burden might intensify such a push. The deficit will reach $1.47 trillion, or 10 percent of gross domestic product, this year and $1.42 trillion, or 9.2 percent of GDP, in fiscal 2011, which begins Oct. 1, the White House Office of Management and Budget projected in July.

Among consumers, the ratio of U.S. household debt to disposable income was 118 percent in the second quarter, above the 30-year average of 90 percent, according to data from the Federal Reserve and the Commerce Department.

The need to pare such liabilities typically hampers expansion and leaves economies more vulnerable to events such as an oil-price spike, said Carmen Reinhart, a professor at the University of Maryland in College Park and co-author of a recent study warning that the U.S. and other developed nations face another seven years of weak growth and high unemployment.

‘Great Repercussions’

“Small shocks can have great repercussions” for countries that are “highly leveraged,” said Reinhart, who co-wrote the 2009 book “This Time Is Different: Eight Centuries of Financial Folly” with Kenneth Rogoff, a Harvard professor.

The credit crisis also ended a period of financial deregulation and innovation that smoothed economic performance even as it lay the groundwork for asset bubbles that later hurt economies when they burst, said Neal Soss, chief economist in New York at Credit Suisse Holdings USA Inc.

Now, banks are proving less willing to provide loans, and regulators are forcing them to hold more capital. Financial institutions worldwide have logged writedowns and losses totaling $1.8 trillion since the crisis began in 2007, according to Bloomberg data.

“There’s not going to be as much access to credit to absorb shocks,” said Soss, a former Fed economist. When they do occur, “they’ll be delivered to the body of the economy, and recessions will be more frequent and possibly more severe.”

Rate Support

The nightmare scenario is that the U.S. repeats Japan’s recent history. Having suffered 10 recessions in the four decades before 1991, it has fallen into four since then as it struggled to regain momentum after the 1980s asset bubble burst. That has thwarted recoveries in the Nikkei 225 Stock Average, which has failed to sustain rallies above 20,000, almost half its 1989 peak. The average stood at 9,471.67 at the 3 p.m. close on Sept. 24 in Tokyo, and the economy remains plagued by deflation.

The lesson is that authorities shouldn’t take early signs of a recovery for granted and must tackle their financial imbalances as they inject stimulus to restore growth, said Kenneth Kang, an International Monetary Fund economist in Washington and co-author of a December 2009 study of Japan.

‘Vulnerable’ Economy

“The financial weaknesses in Japan left its economy very vulnerable,” Kang said. “Macro stimulus can help but can only provide a supportive environment for restructuring. I can see the argument that as long as financial weaknesses remain, economies are more vulnerable to shocks, and this could lead to more frequent recessions.”

John Lipsky, the IMF’s No. 2 official, says he doubts economies such as the U.S. will suffer more regular recessions, in part because policy makers have learned from past mistakes and are now better adept at supporting recoveries, he said. New demand from developing countries also will counterbalance weaker domestic expansion in richer nations, said Harvard professor Niall Ferguson.

“The growth of Asia and other emerging markets like Brazil is the plus side of the story,” Ferguson said in a Sept. 3 “Global Connection” interview on Bloomberg Television. “It’s not, I think, time to get out the arsenic and plan a suicide.”

Modest Cycles

More frequent recessions would nevertheless confirm an end to the Great Moderation, a period economists hail for its modest business cycles. That’s no surprise to James Stock, the Harvard economist who coined the term and views the era as the result more of luck than a paradigm shift.

“It’s clear we’re in a situation where there is more fluidity and uncertainty than there was in the 1990s or 2000s,” Stock, also a member of the NBER committee, said in an Aug. 27 interview. “I do see substantial risks of increased volatility going forward.”

Sept. 22 (Bloomberg) — U.S. stocks fluctuated, with benchmark indexes hovering near four-month highs, as a drop in home prices and forecasts at technology companies that disappointed investors offset a rally in commodity producers.

Adobe Systems Inc., the top maker of graphic-design software, tumbled 21 percent. PMC-Sierra Inc. slumped 7.6 percent as the chipmaker reduced its third-quarter sales forecast. Newmont Mining Corp. gained 2.1 percent as gold rose to a record. Exxon Mobil Corp. and Chevron Corp. added as much as 0.8 percent as oil prices advanced before a report forecast to show U.S. inventories dropped for a third week.

The Standard & Poor’s 500 Index slipped less than 0.1 percent to 1,139.45 at 10:26 a.m. in New York, a day after the Fed said it’s willing to ease monetary policy further to spur growth. The Dow Jones Industrial Average rose 0.1 percent to 10,769.74.

“We’re navigating the slow-growth economy and trying to avoid pitfalls,” said Jack Ablin, chief investment officer at Chicago-based Harris Private Bank, which oversees $55 billion. “The Fed will do whatever it can to avoid a double dip, but it can’t keep on buying debt forever.

This is a ‘reflation’ story of weaker dollar, higher commodities and lower interest rates. This is not an environment that suggests a huge rally for stocks.”

The S&P 500 has surged 12 percent from this year’s low on July 2 as concern eased that U.S. unemployment and less spending from indebted European nations would stall the global economic recovery. The gauge has gained 2.5 percent so far this year, leaving it 6.1 percent below its peak for 2010.

Treasuries Rally

Treasuries rose for a fourth day. The gains drove the yield on the 10-year note to as low as 2.52 percent, the least since Sept. 1. Two-year yields fell to 0.4074 percent, the lowest ever, after the Fed said that it’s “prepared to provide additional accommodation if needed to support the economic recovery.” The central bank is scheduled to buy Treasuries due from March 2013 to August 2014 today as part of its effort to keep borrowing costs low.

Adobe, PMC

Adobe tumbled 21 percent to $26.20 after the company yesterday said fourth-quarter revenue will be $950 million to $1 billion, citing slower demand from back-to-school shoppers and Japanese buyers. Analysts surveyed by Bloomberg had projected sales of $1.03 billion on average for the period, which lasts through November.

PMC-Sierra lost 7.6 percent to $7.20. The chipmaker reduced its third-quarter sales forecast, saying it expects $163 million at most. That trails the average analyst estimate of $173.5 million in a Bloomberg survey.

Newmont Mining, the largest U.S. gold producer, gained 2.1 percent to $65.48. Gold climbed to a record in London and New York as the Fed’s willingness to increase its balance sheet triggered a slump in the dollar. The U.S. currency declined as much as 1 percent to $1.3396 against the euro.

Sept. 20 (Bloomberg) — U.S. stocks advanced, adding to a three-week rally, as homebuilder Lennar Corp. beat profit forecasts and International Business Machines Corp. announced a $1.7 billion takeover. The extra yield investors demand to own Ireland and Portugal’s government debt jumped to a record high.

The Standard & Poor’s 500 Index rose 0.9 percent to 1,136.08 at 12:04 p.m. in New York. The yield premium on Irish bonds versus German bunds exceeded 400 basis points for the first time, and Portugal’s gap increased to 392 basis points. Oil climbed 2 percent to $75.13 while cotton exceeded $1 per pound in New York for the first time since 1995.

Consumer companies such as cruise operator Carnival Corp. that rely on discretionary spending led the advance in the S&P 500 as investors speculated the recovery from the U.S. recession that ended in June 2009 will continue. While Moody’s Investors Service and Fitch Ratings affirmed their debt ratings on the U.K. and Germany, respectively, Ireland and Portugal’s funding costs increased. Irish central bank governor Patrick Honohan said his nation needs to cut its budget deficit faster.

“Better news out of the U.S. has offset bad news out of Europe,” said John Praveen, the Newark, New Jersey-based chief investment strategist at Prudential International Investments Advisers LLC, which oversees $690 billion. “We’ve been watching U.S. economic data stabilize. There’s also positive news on the M&A front as companies are sitting on a lot of cash. There’s concern about Europe, but they will probably make sure there will be no major defaults. People are more convinced that we’ll not have a double-dip recession.”

Erasing Loss

The S&P 500 erased its year-to-date slump last week and increased 5.7 percent during its three-week gain. The benchmark measure of U.S. equities had plunged as much as 16 percent from its April 23 high amid concern American unemployment near the highest since the 1980s and less spending from indebted European nations would stall the global economic recovery.

The longest U.S. recession since the Great Depression ended in June 2009, lasting 18 months, the National Bureau of Economic Research said today. The Cambridge, Massachusetts-based bureau’s business cycle dating committee is the accepted arbiter of when recessions start and end.

Lennar gained 8 percent after the fourth-largest U.S. homebuilder by revenue topped projections as margins widened. Netezza Corp. surged 13 percent following IBM’s bid for the analytics-technology company. IBM advanced 0.9 percent. Freeport-McMoRan Copper & Gold Inc. increased 1.9 percent after Goldman Sachs Group Inc. advised buying the shares.

‘Manageable’ Costs

The yield on Irish 10-year notes climbed to 6.46 percent from 6.29 percent, compared with 2.47 percent for German bunds that mature the same year, amid concern that nation will need more financial aid.

Irish Central Bank Governor Patrick Honohan said today that costs related to the country’s banking system remain “manageable.” Ireland will auction as much as 1.5 billion euros ($2 billion) of 2014 and 2018 notes tomorrow.

Portuguese 10-year bond yields jumped to 6.39 percent from 6.09 percent.

“The European situation is still a concern,” said Peter Jankovskis, who helps manage about $2.2 billion as co-chief investment officer at Oakbrook Investments in Lisle, Illinois. “Anything that affects the region will weigh on investors’ expectations in the U.S.”

Dollar Falls

The dollar fell against most of its major trading partners as stocks and commodities gained, boosting investor appetite for higher-yielding currencies. The U.S. currency touched a five- week low against the euro last week as traders speculated the Federal Open Market Committee will say after a meeting tomorrow that it’s considering more measures to keep borrowing costs low.

The dollar traded for $1.3074 per euro, compared with $1.3050 on Sept. 17, when it slid to $1.3159, the weakest level since Aug. 11. The U.S. currency fell 0.2 percent to 85.73 yen, from 85.86.

Australia’s dollar climbed against its U.S. counterpart after Reserve Bank Governor Glenn Stevens signaled policy makers may need to resume raising interest rates as a mining boom stokes the economy. Australia’s dollar, this quarter’s best- performing major currency against the dollar, is the most overvalued, according to data compiled by Bloomberg. Purchasing power parity, a measure of the cost of goods relative to other countries, shows the Aussie is 27 percent too expensive.

Aussie, Cotton

The Aussie appreciated 1.3 percent to 94.87 U.S. cents after reaching 94.94 cents, the strongest level since July 2008.

Cotton for December delivery jumped 3.3 percent to $1.015 a pound in New York as supplies plunged and demand increased from textile mills. It advanced to $1.0198, the highest price for a most-active contract since June 19, 1995.

Cotton inventories monitored by ICE Futures U.S. plummeted 98 percent since June 2 to 16,569 bales on Sept. 17. China, the world’s biggest grower and buyer, may boost imports after rain hurt crop quality and output, according to five China-based analysts surveyed by Bloomberg News this month.

Gold futures rose to a record for the third straight session on speculation that government programs to stimulate the economy will erode the value of the dollar and boost demand for the precious metal as an alternative investment. The price increased to $1,284.90 an ounce.

Corn rose to $5.2375 a bushel, the highest price in almost two years, and soybeans jumped to a 15-month of $10.995 a bushel as a cold snap threatens cops in China, the biggest consumer of grain and oilseeds.

To contact the reporter on this story: Rita Nazareth in New York at rnazareth .

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U.S. stocks have entered a new bull market, and the S&P 500 index could rise as much as 10 percent from current levels by the end of this year, Goldman Sachs strategist Abby Joseph Cohen said on CNBC on Thursday.

Goldman Sachs sees the benchmark Standard & Poor’s 500 index in a range of 1,050-1,100 toward year-end, said Cohen, the firm’s senior investment strategist and president of its Global Markets Institute.

That range, she said, “is where we should be toward the end of this year. “We do think the new bull market has begun,” Cohen said. “It may prove it began in March of this year.” Stocks have recovered sharply since hitting 12-year lows in early March, with the S&P 500 index now up 47 percent since trading as low as 666.79 points in March. In early afternoon trade on Thursday, the S&P was off 0.53 percent at 997.44 points.

Cohen also said she expects the labor market to improve, but in “an erratic way. “It appears job losses are slowing, and there is some job creation going on,” she said. But “we have many more months of difficult labor situation ahead, even if the recession, using GDP or industrial production, is almost over.” The U.S. labor market has remained weak even as other parts of the economy have improved, with the unemployment rate at just under 10 percent.

Friday’s July employment report from the Labor Department is forecast to show the jobless rate at 9.6 percent, its highest since June 1983, and 320,000 monthly job losses, according to a Reuters survey.

Cohen said sectors tied to economic improvement are likely to be the best stock picks for right now, including energy, technology and financial companies. “Many of us have lost track of the fact that most of these (financial) stocks do follow economic growth, so when the GDP is doing well, financial services tend to do well,” she said.

Goldman Sachs on Wednesday raised its gross domestic product forecast for this year’s second half to an annualized rate of 3 percent, from a prior outlook of 1 percent, citing an expected increase in production by companies. “Many companies trying to be very cautious over last year really squeezed inventories down to levels that are unsustainable,”

Cohen said on CNBC. “Even without any notable improvement in current demand, companies just need to have more stuff in the back room to get their business done.”

The 30-stock gauge climbed to more than 10 percent above its mean level from the previous 200 days, rebounding from 34 percent below the so-called 200-day moving average in November, according to data compiled by Bloomberg. Eighteen of the last 21 times the Dow rallied from at least 10 percent below the 200-day level to 10 percent above, it posted gains during the next 12 months, Bloomberg data since 1921 show.

The CHART OF THE DAY tracks the difference between the Dow’s last price and its 200-day average since 1989. The lower panel displays the measure’s price, along with the buy signals it sent near the start of rallies in 1991, 1999 and 2003.

“This rally, while it will have its fits and starts, is the beginning of a new trend, not just a bounce,” said Michael Williams, managing director of New York-based Genesis Asset Management, which oversees about $2 billion. “It is a significant opportunity.”

The Dow posted an average advance of 18 percent during the 12-month period following buy signals since 1921, Bloomberg data show. In the six-month period, there were 17 advances for an average gain of 8.2 percent. In three months, it climbed 18 times, averaging an increase of 5.7 percent.

Returns by the Dow Jones Industrial Average 12, 6 and 3 months after the buy signal.

Buy Signal            12 Months         6 Months      3 Months
June 11, 2003          13.36%             8.98%         3.01%
Jan 8, 1999            19.49%            15.38%         5.75%
March 5, 1991           9.05%             1.21%         1.11%
Jan  27, 1989          10.18%            13.46%         4.14%
Sept. 3, 1982          31.38%            23.02%        11.67%
July 18, 1980           3.78%             5.34%         3.48%
Aug. 9, 1978           -3.74%            -7.76%        -9.83%
March 7, 1975          26.43%             8.63%         9.11%
Dec. 7, 1970            4.73%            12.75%         9.69%
May 8, 1967             1.02%            -6.60%         1.41%
Jan. 25, 1963          15.20%             1.18%         5.68%
July 24, 1958          33.51%            19.91%         8.53%
Dec. 13, 1949          16.26%            15.04%         3.15%
Nov. 6, 1942           16.66%            18.21%         8.29%
Sept. 11, 1939        -16.61%            -4.49%        -5.20%
July 6, 1938           -3.05%            10.95%         7.49%
Feb. 18, 1935          43.10%            19.09%         8.06%
Apr. 19, 1933          54.47%            23.53%        51.63%
Aug. 29, 1932          37.72%           -31.68%       -21.87%
Aug. 18, 1924          35.82%            14.36%         5.46%
Dec. 12, 1921          21.89%            12.53%         8.12%

Average                17.65%             8.24%         5.66%

“The forecast recovery is based on a further easing in financial conditions,” Reserve Bank Governor Alan Bollard said in a statement in Wellington today after leaving the official cash rate at 2.5 percent. “If this easing does not occur, the recovery could be put at risk. In these circumstances we would reassess policy settings.”

New Zealand’s dollar fell the most in three weeks after Bollard said rates may fall further and won’t rise until late next year。The central bank cut borrowing costs by 5.75 percentage points between July 2008 and April to buoy an economy that began contracting in the first quarter of last year.

“We continue to expect the dollar to be strong over the next year, which does reinforce the prospect of the Reserve Bank having to cut the cash rate further,” said Nick Tuffley, chief economist at ASB Bank Ltd. in Auckland. He expects quarter-point cuts in September and October.

New Zealand’s dollar tumbled to 65.01 U.S. cents at 10 a.m. in Wellington from 65.74 cents immediately before the statement. The two-year swap rate, a fixed payment made to receive floating rates, fell to 3.94 percent from 4.07 yesterday.

More to Come

“We expect to see a patchy recovery get under way toward the end of the year, but it will be some time before growth returns to healthy levels,” Bollard said. The cash rate “could still move modestly lower over the coming quarters.”

Bollard said inflation is expected to remain comfortably within the 1 percent-to-3 percent range he targets.

Wholesale interest rates and the currency are higher than the central bank assumed, which “is not helping the sustainability of future growth and brings with it additional risks,” he said.

Finance Minister Bill English said this month the currency was “higher than fundamentals warrant” and may hamper his desire for the nation’s recovery to be based around exports and investment rather than consumption led by borrowing.

Exports fell 5.4 percent in the second quarter from the previous three months, the government reported this week.

“We need to see the Reserve Bank indicate a commitment to lowering the currency,” John Walley, chief executive of the New Zealand Manufacturers & Exporters Association, said this week in an e-mailed statement. He wanted Bollard to cut the cash rate.

Export Threat

Fonterra Cooperative Group Ltd., the world’s biggest dairy exporter, yesterday reiterated that its payment to New Zealand farmers will be 12 percent lower this year because of falling prices and the currency.

The payment would have been revised lower were it not for “encouraging signs” in some international dairy markets, the Auckland-based company said.

Bollard reiterated he “expects to keep the cash rate at or below the current level through until the latter part of 2010.” By contrast, traders expected 86 basis points of increase within a year, according to a Credit Suisse index. A basis point is 0.01 percentage point.

All 10 economists surveyed last week by Bloomberg News forecast today’s move. All expected the rate will also be unchanged at the next review on Sept. 10.

New Zealand’s economy is probably in its seventh quarter of recession, according to the central bank’s June 11 forecasts. Today’s statement contains no new forecasts.

“Overall economic growth is evolving broadly in line with our forecasts in June” Bollard said. “The outlook remains highly uncertain.”

Housing Market

New Zealand’s exports are heavily weighted to soft commodities such as butter, cheese and wool and haven’t benefited from recent gains in hard commodity prices, he said.

The housing market may lead a recovery after second-quarter home prices rose for the first time since late 2007. There were 40 percent more property sales in June than a year earlier, the Real Estate Institute said on July 9.

Consumers are less pessimistic and business confidence is recovering, recent polls show.

The proportion of consumers who expect the economy will deteriorate over the next year fell to 41 percent in early July, the lowest level since March last year, according to a survey of 1,039 people by Melbourne-based Roy Morgan Research.

Business confidence rose to a 10-month high in July, ANZ National Bank Ltd. said yesterday, citing a survey of 402 companies. Firms were less pessimistic about profits and fewer expected to fire workers over the next year.

The jobless rate rose to a five-year high of 5 percent in the first quarter and may increase to 7.2 percent by mid-2010, the central bank forecast last month.

Winstone Pulp International Ltd. this week said it would close a North Island saw mill and fire 65 workers. Earlier this month, New Zealand Post, the state-owned postal service said it had cut 380 jobs since the start of the year.

Investors in riskier assets will get “haircuts” because U.S. economic growth will be closer to 3 percent than the range of 5 percent to 7 percent for the past 15 years, Gross said. The U.S. economy will begin to recover in the second half of 2009, he wrote in his August investment outlook on Pimco’s Web site.

U.S. corporate bonds are outperforming Treasuries in 2009, the first time in three years, as signs of improvement in the economy led investors to seek higher-yielding assets. Franklin Templeton Investments, a mutual fund company that oversees $450 billion, and JPMorgan Chase & Co., the second-largest U.S. bank, are also recommending company bonds.

“There is no investment potion for this new environment other than steady income-producing bond and equity investments in companies with strong balance sheets and high dividend yields,” Gross wrote. “A journey to 3 percent nominal GDP means default/haircuts for assets on the upper end of the risk spectrum, as well as extremely low yielding returns for government and government-guaranteed assets at the bottom end.”

Gross also favors emerging markets where growth prospects are “tilted upward,” according to the report.

‘Tangible Earnings’

“Stock prices will ultimately depend on tangible earnings growth in the form of increased dividends, not green shoots hope,” Gross wrote. High-risk bonds, commercial real estate and lower-quality municipal bonds “may suffer,” the report said.

Federal Reserve Chairman Ben S. Bernanke used the term “green shoots” in an interview aired March 15 on CBS Corp.’s “60 Minutes” to describe signs of improvement in the economy.

U.S. corporate bonds rated A to AAA by Standard & Poor’s returned 7.3 percent this year, according to indexes compiled by Merrill Lynch & Co. The U.S. Treasury Master Index handed investors a 4.9 percent loss, according to Merrill. MSCI’s World Index of stocks has returned 13 percent so far in 2009.

The Templeton Global Bond Fund is avoiding debt issued by the U.S., the U.K., and Germany and has sold Japanese yen it purchased last year, said John Beck, the company’s co-director of international bonds.

‘Bullish View’

Templeton is favoring U.S. bank debt and municipal bonds, Beck, who is based in London, told reporters on July 27 during a trip to Singapore. The company, which is in San Mateo, California, is also investing in a mix of local-currency and dollar-denominated securities in emerging markets, he said.

JPMorgan has a “bullish view” on high-grade corporate bonds, it said in a report July 24.

“Money continues to be allocated to the high-grade bond asset class,” said the report by JPMorgan analysts including Eric Beinstein, co-head of U.S. credit strategy, in New York.

For the week ended July 22, high-grade bond funds drew $1.4 billion, above the 13-week average of $1 billion, the report said.

The Federal Reserve said yesterday that most of its 12 regional banks detected a slower pace of economic decline in June and July, further signs the worst U.S. downturn in at least five decades is closer to an end.

U.S. Contraction

The financial crisis, which started with the collapse of the U.S. property market in 2007, has triggered $1.52 trillion of writedowns and credit losses at banks and other institutions and sent the global economy into its first recession since World War II.

The U.S. economy shrank 1.5 percent in the second quarter according to the median forecast in a Bloomberg News survey of economists before the Commerce Department reports the figure tomorrow. The first-quarter contraction was 5.5 percent.

Gross’ $161 billion Total Return Fund returned 10.9 percent in the past year, beating 96 percent of its peers, according to data compiled by Bloomberg. Pimco, based in Newport Beach, California, is a unit of Munich-based insurer Allianz SE.