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Recessionomics 101: How to Make Extra Money

Source: WSJ - Jennifer Winslow wanted to earn some extra cash without giving up the flexibility of working part time.

An avid cook, she and a friend initially planned to cater meals for busy families. When that turned out to be too time consuming, she tried baking. More than five years later, she has a thriving bakery business in Winslow, Maine (her husband's family has been in town a long time).

Now on her own, she supplies four restaurants with cakes and other sweets and makes desserts for individuals and weddings.

A growing number of Americans would like to follow Mrs. Winslow's example. Job loss, tighter credit and a renewed appreciation for savings is persuading more people to cut expenses.

But you can cut only so far. Two full years of recession have not left many unexamined family expenses. Meanwhile, prices -- from gasoline to utilities to food -- haven't fallen. And incomes, if you still have one, aren't exactly shooting through the roof. It's time to make some money.

Fortunately, there also are many ways to earn extra cash even when full-time jobs and extra shifts aren't an option. They include taking in boarders, starting a small business and getting paid for your opinion. Some of this work provides only a free meal and $10 fee but others, such as tutoring or selling Grandma's diamond broach, could be quite lucrative.

The key, according to Gail Cunningham, a spokeswoman for the National Foundation for Credit Counseling, is to "find your skill or what you think would be fun to do." She says, for example, someone with computer skills may want to teach a class, install computers or create Web sites.

"Think about what are people willing to pay for," says Ms. Cunningham. "Who do you know and how can you leverage existing relationships." For example, does your dentist need someone to clean the office or does your accountant need someone to cater the Christmas party?

1. Sell It: One of the fastest and easiest ways to get extra cash is to sell unwanted and unused stuff. And it's never been easier to make hundreds or even thousands of dollars. You could post a few signs in the neighborhood and sell everything at a Saturday garage sale or you could try the online route with services such as eBay or Craigslist.

Linda Lightman first tried eBay more than 10 years ago because she wanted to help her sons get more for their old videogames. It was so easy that the former lawyer started selling her old suits. Then, friends asked her to sell theirs.

Today, shoplindasstuff.com has 50 employees and expects to reach $7 million in sales this year on eBay. "The economy has been the perfect storm for my business," Ms. Lightman says. "More people need cash, and more people are looking for bargains."

Auction houses also are a popular place to sell potentially valuable items. Alexander Eblen, head of the jewelry and fine timepieces department at Leslie Hindman Auctioneers in Chicago, says people often don't realize the value of an old watch or grandmother's Art Deco jewelry. For example, a Tiffany broach recently sold for about $68,000.

Don't overlook some of the more mundane items, such as books and sports equipment. Many bookstores provide cash or store credits for "gently" used books. Similarly, stores like Play It Again Sports provide cash and store credits for gently used sports equipment. Check with local stores but they often need golf clubs, ice skates, lacrosse equipment and other gear.

2. Rent It: Your home, probably your biggest asset, is a potential source of extra cash. A growing number of people are renting out a room or grabbing a roommate for extra income. It's less difficult for residents in "destination" locations near colleges, resorts or cities to rent a room or even the house for a few weeks, months or long term.

Some homeowners prefer using a real-estate agent, others like finding renters themselves, online or through friends. Either way, it's crucial to vet the potential tenant and spell out expectations. Rents vary from a few hundred dollars to thousands in large cities.

Another option that's a longtime favorite of students and young adults is earning extra cash for house and pet sitting.

3. Say It: Many businesses are willing to reward individuals for taking opinion polls, testing products or being a secret shopper. The compensation varies, and it's crucial to avoid scams. Work only with reputable companies and avoid anything that requires a membership fee. One place to start is OpinionPlace.com, which lets poll participants choose Amazon.com gift cards, PayPal credits or American Airlines AAdvantage miles. There also are stores such as CVS, whose Advisor program provides consumers who complete surveys with ExtraBucks coupons.

People won't make much but they might have fun working in a focus group or evaluating products or services as a mystery shopper. Once again, watch out for scams. Don't pay any fees or respond to unsolicited emails. A good place to start is Volition.com or Mysteryshop.org, the Web site for the Mystery Shopping Providers Association.

4. Do It: One of the best ways to earn extra cash is by creating a business using existing skills and interests. An artist may teach a class, a photographer may do weddings and a sports enthusiast may referee or caddy.

"What are you volunteering for that you could get paid for?" asks Ms. Cunningham. She says it could be as simple as getting paid for office work or watching your child's classmate after school.

One of the most popular and lucrative part-time jobs is to tutor, either for a college-prep class or a specific subject. Typical pay ranges from $30 to more than $100 an hour, depending on where you live.

Mrs. Winslow always loved to cook. "People would always ask me if I could bring the dessert if I was going somewhere for dinner," she says.

A master at multitasking, she works about 20 hours a week for Jennifer's Edibles. Her advice: "Start small and do things that are manageable. Don't get so overwhelmed that you want to quit."

Letters to the Editor: Keep the Faith!

Submitted by Farshad Farzad - "On September 30th, 2009, I was no longer employed.  I had made the decision to move to a new state to pursue a dream but most importantly my heart.  Sometimes in life you have to sacrifice things, so you can gain others.  In this instance, I sacrificed friends, work and comforts.  However, I gain so much more in this move.

All along I have tried to stay positive and keep faith that things will work out. I told myself that things will only improve from here. For seven weeks I have struggled to find a new job. Outsiders pressured me to take jobs that I was just not comfortable taking.  The old mantra, "it's a job just take it in this economy."  I didn't want to take it.  When you pick a mate or a school or a car you don't pick the 2nd or 3rd best just to have it, you always strive to do better. That's what I did. I waited and waited and waited.

Yet in my heart of hearts I just knew that my patience in the end would pay off.  I kept the faith.  Faith in myself and most importantly faith in my decision to move to my new state and hold strong. It hasn't been easy but I just kept chugging along. I knew in my heart and soul that this is where I had to be, where I needed to be and where I wanted to be.

After 7 long weeks my patience paid off. I found a job. It was not easy but having that faith that I would succeed carried me through the last 7 weeks.  I am so grateful for the opportunities that have been created for me. Most importantly I am grateful for having the courage to remove myself from what is comfortable to pursue something I believed in.

Faith does not have to be in a higher being (it can be but not necessary).  Faith is a powerful tool and it can certainly help you get through times of the unknown.

How to Make $20 Billion During the Crisis

WSJ - "Even as the financial system collapsed last year, and millions of investors lost billions of dollars, one unlikely investor was racking up historic profits: John Paulson, a hedge-fund manager in New York.

His firm made $20 billion between 2007 and early 2009 by betting against the housing market and big financial companies. Mr. Paulson's personal cut would amount to nearly $4 billion, or more than $10 million a day. That was more than the 2007 earnings of J.K. Rowling, Oprah Winfrey and Tiger Woods combined.

How did he do it? Believing that a housing-market collapse was coming, Mr. Paulson spent over $1 billion in 2006 to buy insurance on what he then saw as risky mortgage investments. When the housing market cracked and the mortgages tumbled, the value of Mr. Paulson's insurance soared. One of his funds rose more than 500% that year. Then in 2008, he shorted financial shares, or wagered that they would fall in price, profiting again when these companies collapsed.

And are there any investing skills that average investors can learn from his success? Yes. There are no guarantees, of course, but the success of Mr. Paulson and a few other underdog investors lends encouragement to individuals trying to compete with Wall Street's pros.

Here are eight investing lessons of Mr. Paulson's $20 billion gamble, the greatest trade in financial history:

1. Don't Rely on the Experts

Many investors lost big in 2007 and 2008 as housing crumbled and the stock market tumbled. But no one lost more than commercial and investment banks caught with toxic mortgage-related securities. These bankers were the very same ones who created these investments, and Wall Street's top analysts had vouched for their safety, even as Mr. Paulson and others bet against the investments.
Lesson: When Wall Street is wheeling out its latest can't-miss product, be skeptical.

2. Bubble Trouble

Some academics argue that financial markets have become more efficient. But a rash of financial bubbles in recent years -- including housing, energy, technology and Asian currencies -- suggests that markets are becoming harder to navigate, and are more prone to overshooting. Today, investors of all sizes read the same articles, watch the same business-television programs and chase the same hot tips. They invariably head for the exits at the same time. Lesson: Have an exit strategy -- and cash to cushion any tumble.

3. Focus on Debt Markets

Most investors track the ups and downs of the stock market but have only a vague sense of moves in debt markets. That's a mistake. Early signs of trouble were seen in sophisticated markets that don't get much limelight, like the subprime-mortgage bond market. These problems eventually felled the housing and stock markets, and the overall economy, a set of falling dominos that Mr. Paulson and his team correctly anticipated.
Lesson: Debt markets can do a better job predicting problems than stock markets.

4. Master New Investments

Mr. Paulson scored huge profits by buying credit-default swaps, a derivative investment that serves as insurance on debt. When risky mortgage bonds tumbled in value, Mr. Paulson's insurance soared. But many experts were flummoxed by CDS contracts or shied away from educating themselves about these relatively new investments.

Mr. Paulson and his team had no experience with CDS contracts. But they put the time into learning about them.
Lesson: Educate yourself about the range of exchange-traded funds being introduced, some of which can play a valuable role in a portfolio.

5. Insurance Pays

A number of investors worried about a bursting of the housing market, but few did much about it, even though insurance, such as CDS contracts, at the time were selling at dirt-cheap prices. Out-of-the-money put contracts -- options that pay off only if the market tumbles -- also were trading at reasonable levels. As cheap as this insurance was, many pros ignored it.
Lesson: Don't underestimate the value of a safety net, such as put options.

6. Experience Counts

Some of the biggest winners in the meltdown were middle-aged investors dismissed by some as past their prime. But they had experienced past market downturns, while some of the bankers and analysts caught flat-footed knew only good times.
Lesson: A historical perspective can be a valuable tool.

7. Don't Fall in Love

With an Investment. In early 2009, Mr. Paulson became more bullish about the banks and financial companies that he had wagered against in 2008, after determining that these companies had improved their balance sheets. The moves resulted in profits this year.
Lesson: Even the greatest trade doesn't last forever.

8. Luck Helps

In early 2006, Mr. Paulson determined that housing was in trouble and set out to profit from the impending fall. But some housing experts already had determined that real estate was overpriced; others had wagered against housing but could no longer stomach their losses. Just months after Mr. Paulson placed his historic trade, U.S. housing prices began to fall. Lesson: Don't risk too much in any one trade, even one that seems like a sure thing.

Brazil Takes Off

Economist - "WHEN, back in 2003, economists at Goldman Sachs bracketed Brazil with Russia, India and China as the economies that would come to dominate the world, there was much sniping about the B in the BRIC acronym. Brazil? A country with a growth rate as skimpy as its swimsuits, prey to any financial crisis that was around, a place of chronic political instability, whose infinite capacity to squander its obvious potential was as legendary as its talent for football and carnivals, did not seem to belong with those emerging titans.

Now that scepticism looks misplaced. China may be leading the world economy out of recession but Brazil is also on a roll. It did not avoid the downturn, but was among the last in and the first out. Its economy is growing again at an annualised rate of 5%. It should pick up more speed over the next few years as big new deep-sea oilfields come on stream, and as Asian countries still hunger for food and minerals from Brazil’s vast and bountiful land. Forecasts vary, but sometime in the decade after 2014—rather sooner than Goldman Sachs envisaged—Brazil is likely to become the world’s fifth-largest economy, overtaking Britain and France. By 2025 São Paulo will be its fifth-wealthiest city, according to PwC, a consultancy.

And, in some ways, Brazil outclasses the other BRICs. Unlike China, it is a democracy. Unlike India, it has no insurgents, no ethnic and religious conflicts nor hostile neighbours. Unlike Russia, it exports more than oil and arms, and treats foreign investors with respect. Under the presidency of Luiz Inácio Lula da Silva, a former trade-union leader born in poverty, its government has moved to reduce the searing inequalities that have long disfigured it. Indeed, when it comes to smart social policy and boosting consumption at home, the developing world has much more to learn from Brazil than from China. In short, Brazil suddenly seems to have made an entrance onto the world stage. Its arrival was symbolically marked last month by the award of the 2016 Olympics to Rio de Janeiro; two years earlier, Brazil will host football’s World Cup.

In fact, Brazil’s emergence has been steady, not sudden. The first steps were taken in the 1990s when, having exhausted all other options, it settled on a sensible set of economic policies. Inflation was tamed, and spendthrift local and federal governments were required by law to rein in their debts. The Central Bank was granted autonomy, charged with keeping inflation low and ensuring that banks eschew the adventurism that has damaged Britain and America. The economy was thrown open to foreign trade and investment, and many state industries were privatised.

All this helped spawn a troupe of new and ambitious Brazilian multinationals (see our special report). Some are formerly state-owned companies that are flourishing as a result of being allowed to operate at arm’s length from the government. That goes for the national oil company, Petrobras, for Vale, a mining giant, and Embraer, an aircraft-maker. Others are private firms, like Gerdau, a steelmaker, or JBS, soon to be the world’s biggest meat producer. Below them stands a new cohort of nimble entrepreneurs, battle-hardened by that bad old past. Foreign investment is pouring in, attracted by a market boosted by falling poverty and a swelling lower-middle class. The country has established some strong political institutions. A free and vigorous press uncovers corruption—though there is plenty of it, and it mostly goes unpunished.

Just as it would be a mistake to underestimate the new Brazil, so it would be to gloss over its weaknesses. Some of these are depressingly familiar. Government spending is growing faster than the economy as a whole, but both private and public sectors still invest too little, planting a question-mark over those rosy growth forecasts. Too much public money is going on the wrong things. The federal government’s payroll has increased by 13% since September 2008. Social-security and pension spending rose by 7% over the same period although the population is relatively young. Despite recent improvements, education and infrastructure still lag behind China’s or South Korea’s (as a big power cut this week reminded Brazilians). In some parts of Brazil, violent crime is still rampant.

There are new problems on the horizon, just beyond those oil platforms offshore. The real has gained almost 50% against the dollar since early December. That boosts Brazilians’ living standards by making imports cheaper. But it makes life hard for exporters. The government last month imposed a tax on short-term capital inflows. But that is unlikely to stop the currency’s appreciation, especially once the oil starts pumping.

Lula’s instinctive response to this dilemma is industrial policy. The government will require oil-industry supplies—from pipes to ships—to be produced locally. It is bossing Vale into building a big new steelworks. It is true that public policy helped to create Brazil’s industrial base. But privatisation and openness whipped this into shape. Meanwhile, the government is doing nothing to dismantle many of the obstacles to doing business—notably the baroque rules on everything from paying taxes to employing people. Dilma Rousseff, Lula’s candidate in next October’s presidential election, insists that no reform of the archaic labour law is needed (see article).

And perhaps that is the biggest danger facing Brazil: hubris. Lula is right to say that his country deserves respect, just as he deserves much of the adulation he enjoys. But he has also been a lucky president, reaping the rewards of the commodity boom and operating from the solid platform for growth erected by his predecessor, Fernando Henrique Cardoso. Maintaining Brazil’s improved performance in a world suffering harder times means that Lula’s successor will have to tackle some of the problems that he has felt able to ignore. So the outcome of the election may determine the speed with which Brazil advances in the post-Lula era. Nevertheless, the country’s course seems to be set. Its take-off is all the more admirable because it has been achieved through reform and democratic consensus-building. If only China could say the same.