Real Estate Crash Hit Lower-Priced Homes The Hardest

When the housing bubble popped — in 2006, 2007, or 2008, depending on where you were — chances are that the value of your home took a nose dive. But who got hit worse, the top of the market or the bottom?

In an effort to answer this question, Clear Capital, a valuation and analytics firm in Truckee, Calif., (near Lake Tahoe) analyzed the market in terms of “tiers.” Take as a starting point the national peak of the market, that glorious, golden-haze summer of 2006.

At that point, any home that sold for less than $150,000 was in the bottom quarter of properties — what Clear Capital calls a “low-tier” house. Any home that sold for more than $395,000 was in the top quarter of properties — a “top-tier” house. The remaining two in the middle were — of course — “mid-tier.”

(MORE: Boomer Kids Out-Saving Their Parents)

What Clear Capital has found is that not all those layers fell by the same amount. The average mid-tier house fell in value by 41%, while homes in the low tier fell 46.3%. Homes in the top tier, though, have lost only 26.8% of their value since the crash. If you picture a wedding cake with three even layers, what happened is that the bottom layer pancaked more than the other two.

So is this another tale of the rich getting off relatively easy? Maybe not, according to Alex Villacorta, director of research and analytics for Clear Capital.

“You may argue that by percentage, what happened in the top tier is an easier hit to take,” Villacorta notes. “But for people who are a little bit overextended, that’s an absolute hit of $106,000.” The low tier, by contrast, saw valuation suffer by an average of $69,500. The average mid-tier house, for its part, dropped $100,900.

That’s the bad news. The good news is that, according to Villacorta, it looks like all tiers of the market have adjusted to the large numbers of foreclosures and the subsequent resale of those properties by banks. In other words, while your local market may not be great, it’s probably fairly stable. And even if there’s an onrush of more foreclosures — which some analysts predict will happen in 2012 — prices are unlikely to tank.

(MORE: 5 Most Surprising Findings from the 2010 Census)

That relative stability is due in large part to the rental market. Former homeowners still need to live somewhere, of course, and their demand for rentals has led to the recovery of those low tier homes. Villacorta says investors have been buying empty properties from banks and improving them for renters. The result: The decline in home prices slowed during 2011.

“In terms of our Home Data Index, we see stabilization on a national level,” Villacorta says. “We’ve seen only a 1% drop in prices since January — and no change at all in the past six months.”

The Blackberry Moral (Or: The Trouble With Too Many Options)

We were intrigued but not surprised by a recent article in the New York Times detailing troubles at Research in Motion, maker of the Blackberry. Among several problems facing the Canadian tech company is an overabundance of models; dozens, in fact—so many the company can’t say for sure how many different versions of the once cutting-edge device are actually on the market. This situation is hurting sales, which anyone with a basic knowledge of behavioral economics could have predicted. TMO—Too Many Options—is not just tricky for realizers and other marketers to navigate; it’s harmful to almost everyone’s well-being, financial and otherwise.
One of the core principles of behavioral economics is a concept called “choice conflict,” whereby people become less likely to choose as the number of options they face increases. What’s tricky, of course, is that people are often attracted to wide selections of items and services. In one of the more well-known experiments in all of behavioral economics, conducted by psychologists Sheena Iyengar and Mark Lepper, grocery store shoppers randomly encountered a jelly-tasting table offering one of two selection sets: six kinds of jam, across the taste and price spectrum; or 24 jars, equally diversified. Although shoppers were 40% more likely to stop at the table with 24 varieties on display, those who stopped when there were only six jellies to taste were 10 times more likely to actually buy a jar!
(MORE: Brace for a January Blizzard — Of Credit Card Offers)
The lesson here, more often than not, is that we think we want many options in life, but what we really desire is the illusion of choice and a trusted screener—someone (friend, relative, colleague or adviser) or something (an affinity group like AARP or an unbiased evaluator like Consumer Reports) to narrow our choices and help us choose. Not only is there good reason to think that fewer choices will simplify our lives, there’s also considerable evidence to suggest we’ll be happier for the simplicity.
As we detailed in our book, Iyengar and Lepper conducted another shopping experiment, setting up a chocolate-tasting booth that alternated between six options and 30. After making their choice, shoppers were then asked to rate their satisfaction level on a scale of 1 to 10. The result: Those who picked from the smaller selection of chocolates were nearly 15% happier with their choice. With six choices, you can only imagine a few ways that your decision to pick one chocolate over the others might have been “wrong.” But with 30 options, you’re left thinking that however much you like the chocolate you chose, there are 29 possible ways you might have chosen better.
Such self-doubt, conscious or otherwise, is not uncommon. Decades ago, the political scientist-sociologist-economist-psychologist-computer scientist Herbert Simon (a future Nobel Prize winner) began to think about and describe people as being one of two types of decision makers: “maximizers” or “satisficers.” You doubtless know many folks in each camp. Maximizers want to understand everything about a choice before making it. They devote much time, effort and emotion to seeking out and examining options, hoping to make the best possible choice. Satisficers, meanwhile, generally make choices through a combination of the best available information, intuition and advice from smart people they trust.
(MORE: 5 Most Surprising Findings From the 2010 Census)
There are benefits to each strategy, of course, and some people toggle back and forth between each approach depending on the choice in question. But for many people in many situations, maximizing may not be as virtuous or rewarding as they imagine it to be. Consider a 2001 paper, “Doing Better but Feeling Worse.” In it, Iyengar (along with Columbia University colleague Rachael Wells and Swarthmore psychology professor Barry Schwartz) described an experiment that tracked college seniors through a year of job hunting and subsequent employment. Not surprisingly, students who leaned heavily toward a maximizing approach got jobs that paid more — 20% more, on average — than students who were more satisficing by nature. But satisficers were much happier with their decisions — and they stayed that way throughout their early careers.
Obviously, we’re not advocating a world of severely limited options for consumers. But we are suggesting that those of us who consistently pursue the perfect decision among an ever-increasing set of choices might be heading in the opposite direction from the most satisfying result.

Guru Gaffe: Investors Losing Faith in ‘Bond King’

Andrew Harrer / Bloomberg via Getty Images

For heralded bond fund manager Bill Gross, 2011 was one of his worst years on record.

Bill Gross, a legendary bond fund

Bill Gross, a legendary bond fund manager, is about to close the books on a terrible year for his $241 billion PIMCO Total Return Fund. His missteps underscore the risks of a concentrated investment and in staying too long with a flawed strategy.

Gross is known as the bond king and has been likened to both Peter Lynch and Warren Buffett. That’s how good he’s been at buying and selling bonds over the years. But earlier this year he made a big bet that interest rates would rise, and when rates fell instead his fund began to lag badly.

(MORE: Real Estate Crash Hit Lower-Priced Homes the Hardest)

The fund is up less than 4% this year, about half the gain of the average comparable bond fund in what has been a good year for most bond investors. In the bond world, where yields typically drive returns, such underperformance is epic. Gross ranks in the bottom 10% of bond fund managers this year.

His long-term record remains stellar. But in a what-have-you-done-lately world, investors have begun to exit his fund. Last month, his fund had net outflows of $500 million as the universe of comparable funds enjoyed net inflows of more than $10 billion. Gross likely will record his first calendar year of net outflows when 2011 draws to a close. His fund was launched in 1987.

What went wrong? Gross underestimated the European debt crisis and the punishing effect of last summer’s Congressional wrangling over the debt ceiling. These events eroded confidence in the global economy and sent interest rates plunging. Gross had been positioned for higher rates, evidently thinking that the economy would soon show signs of recovering.

He apologized to his investors for the misread—but not necessarily for the outsized gamble. Indeed, in an effort to get ahead of the next trend he has been loading up on mortgage-related securities that should rise if the Federal Reserve ramps up a program to buy mortgages in an attempt to prop up the U.S. housing market, as some believe the Fed plans to do.

(MORE: The Beginning of the End of the 9-to-5 Workday?)

That’s how Gross earns his millions. He makes bold bets and is right often enough to keep getting more chances. But his misstep this year is eerily reminiscent of another guru gaffe—stock picker Bill Miller’s bad bet on financial shares in 2008, which caused his stock fund to lose 55% of its value and sent loyal investors fleeing from his Legg Mason Value Trust fund. Despite years of outperforming, Miller retired last month with a diminished reputation.

No one is saying it’s time for Gross to hang it up. Gross has said that “the competitive fire burns even hotter.” Odds are he’ll rebound. But Gross’s near-term troubles are one more example of how a concentrated bet (Do you have too much company stock in your 401(k)?) and staying with a flawed strategy too long (Are you saving too little and counting on unrealistic returns?) can damage your portfolio and maybe your retirement dreams.

More Shoppers Hit Dollar Stores for Holiday Gifts

According to a new survey, there are now more chain dollar stores than drugstores in the U.S.

The past few years of economic

The past few years of economic struggle have been a boom time for dollar stores. One study has it that business has been so strong in recent times at dollar stores, they now outnumber drugstores in the U.S. Consumers now rank dollar stores as their second-favorite resource for buying holiday gifts (after online shopping). And now it appears that the group most responsible for dollar stores’ soaring popularity is one you might not expect: wealthy shoppers.
Let’s face it: For many people, when it comes to the piles of presents tucked under Christmas trees and stuffed into stockings, quantity matters at least as much as quality. So it’s no wonder that during the holiday season—recent holiday season especially—everyone looks for creative ways to get more, no matter what the size of the family budget.
(GALLERY: 10 Retailers Thriving During Tough Times)
In the same way that business has soared at pawn shops during the holidays, sales at dollar stores are likewise humming along.
One reason why dollar store sales are so strong, according to the Los Angeles Times, is that the chains are doing more than usual to cater to holiday shoppers. Family Dollar, for instance, is stocking 10% more toys this holiday season, compared to 2010, and is also carrying pricier gift items like MP3 players and flip cameras.
In a recent Nielsen survey, consumers named e-retailers as the top category of places to shop for holiday gifts. Holding the #2 spot on the list, though, is the dollar store. The fact that dollar stores are popular with low- and middle-income consumers should come as no surprise, especially given the economy.
(MORE: Shocker! The Rich Expected to Go on Big Shopping Sprees This Holiday Season)
What’s more surprising is that wealthier individuals are also turning to dollar stores in significant numbers. Shoppers with more than $100K of annual income are making 11% more trips to dollar stores since 2008. They’re spending more too, with the average purchase rising by 23%.

Read more: http://moneyland.time.com/2011/12/23/more-shoppers-hit-dollar-stores-for-holiday-gifts/#ixzz1hc2MuQY9

Asian Stocks Up on U.S. Economic Health Signs

Asian stock markets rose Friday in thin holiday trading on signs the U.S. economy is improving.
China's benchmark in Shanghai gained 0.9 percent to 2,206.23 and Hong Kong's Hang Seng rose 1.1 percent to 18,577.91. Japan's financial markets are closed for a public holiday.
Sydney's S&P/ASX 200 jumped 1.2 percent to 4,140.40, Seoul's Kospi was up 1.3 percent to 1,871.72 and Singapore added 0.3 percent to 2,673.75.(See more on Bank of America's recent settlement.)
Investors have been cheered in recent weeks by evidence of a rebound in the U.S. — the world's biggest economy and a crucial export market for many countries in Asia.
The number of people applying for unemployment benefits dropped last week to the lowest level since April 2008, the third week in a row that applications fell. The Conference Board reported that its measure of future economic activity jumped last month, the second straight gain.
Investors were also encouraged by an agreement in the U.S. Congress to extend a payroll tax cut for two months.
Trading volume is normally low during the next week as many investors take vacations over Christmas and New Year. Global markets are closed Monday for Christmas.
Credit ratings agency Fitch said it expects growth in Asia's developing economies will slow slightly next year but still expand by a robust 6.8 percent, which should help bolster the region's wealthier nations.
"Emerging Asia's resilience provides some support for high-income Asian countries relative to other advanced economies," Fitch said in a report.(See more on the Euro crisis.)
Other analysts are more pessimistic. HSBC is forecasting Europe's economy will contract next year by 1 percent while the U.S. grows a weak 1.5 percent as Europe's debt crisis undercuts business confidence.
"Despite signs of greater urgency to deal with the problem, investors remain mostly unconvinced," HSBC said in a report. "This loss of faith is reminiscent of the collapse in confidence in 2008, when the wheels came off the global economy."
"Back then, forecasters completely failed to grasp the gravity of the situation," HSBC said. "The same may be true today."
On Thursday, the Dow Jones Industrial Average rose 0.5 percent while the broader S&P 500 index gained 0.8 percent.
Benchmark crude for February delivery was up 7 cents to $99.60 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose 86 cents to finish at $99.53 on Thursday.
In London, Brent crude was down 2 cents at $107.87 on the ICE futures exchange.
The euro was steady at $1.3076. The dollar was little changed at 78.08 yen.

U.S. Economy Ends 2011 on Upswing

The economy is ending 2011 on a roll.
The job market is healthier. Americans are spending lustily on holiday gifts. A long-awaited turnaround for the depressed housing industry may be under way. Gas is cheaper. Factories are busier. Stocks are higher.
Not bad for an economy faced with a debt crisis in Europe and, as recently as last summer, scattered predictions of a second recession at home. Instead, the economy has grown faster each quarter this year, and the last three months should be the best.
"Things are looking up," says Chris Rupkey, chief financial economist at the Bank of Tokyo-Mitsubishi UFJ.
When The Associated Press surveyed 43 economists in August, they pegged the likelihood of another recession at roughly one in four. The Dow Jones industrial average was lurching up or down by 400 points or more some days. (Read "Can the U.S. Recovery Continue Without Europe?")
There was plenty of reason for gloom. A political standoff over the federal borrowing limit brought the United States to the brink of default and cost the nation its top-drawer credit rating.
Most analysts now rule out another recession. They think the economy will grow at an annual rate of more than 3 percent from October through December, the fastest pace since a 3.8 percent performance in the spring of last year.
Many economists still worry that the year-end surge isn't sustainable, in part because the average worker's pay is barely rising. And Europe may already be sliding into a recession that will infect the United States.
The outlook could darken further if Congress can't break the impasse blocking an extension of a Social Security tax cut for 160 million Americans and emergency unemployment benefits.
Yet for now, the economy is on an upswing that few had predicted:
— JOBS: The number of people applying for unemployment benefits came in at 366,000 last week, down from a peak of 659,000 in March 2009. Even in good economic times, the figure would be between 280,000 and 350,000.
Employers have added at least 100,000 jobs five months in a row, the longest streak since 2006. And the unemployment rate fell from 9 percent in October to 8.6 percent last month, the lowest since March 2009. (See the top 10 business blunders of 2011.)
Small businesses are hiring again, too, according to the National Federation of Independent Business.
Business is up at AG Salesworks in Norwood, Mass., which helps technology companies like Motorola find new customers. The firm has hired 26 workers to restore its staff to 56, erasing the job cuts from the recession. CEO Paul Alves plans to add an employee or two a month as long as growth continues.
"I do see more confidence than I saw 12 months ago," Alves says. "But it's good, not great. Robust isn't the word I'd use."
— SPENDING: The holiday shopping season has turned out better than anyone expected. Sales from November through Saturday were up 2.5 percent from last year. Americans have spent $32 billion online, 15 percent more than a year ago. Retails sales were up in November for the sixth month in a row. People are spending, in particular, on clothes, cars, electronics and furniture.
— CONSUMER CONFIDENCE: Americans felt better about the economy in November than they had since July, according to the Conference Board, a business group that tracks the mood of consumers.
The board's consumer confidence index climbed 15 points to 56 in November, the biggest one-month jump since April 2003. During the Great Recession, the index fell as low as 25.
"It seems like the confidence of the traditional American consumer is higher right now," says Jim Newman, executive vice president of operations at the digital marketing company Acquity Group, which has added 100 jobs since summer.
— GAS: Falling prices at the pump have freed more money for consumers to spend on appliances, furniture, vacations and other things that help drive the economy. The national average for regular unleaded has sunk to $3.21 a gallon since peaking at $3.98 in May, according to the AAA Daily Fuel Gauge.
— INVENTORIES: Businesses are restocking shelves and warehouses, more confident that customers will buy their products. In October, their inventories were up 8.7 percent from a year earlier. An increase in inventories is expected to account for perhaps a third of growth this quarter. (See photos of the recession of 1958.)
The battered housing market might be showing signs of recovery. Home construction rose more than 9 percent in November from October, driven by apartment building. And the National Association of Realtors said Wednesday that sales of previously occupied homes rose 4 percent in November.
But housing is climbing out of a deep hole: The existing homes sold at an annual rate of 4.4 million — well below the 6 million that would signal a healthy housing market. And the real-estate agents' trade group revealed Wednesday that it overstated sales by 3.5 million during and after the Great Recession.
Once they peer into 2012, economists turn cautious. Bernard Baumohl, chief economist with the Economic Outlook Group, says that stronger consumer spending "is absolutely unsustainable. .... Wages have not kept pace with inflation all year."
The government says that once you adjust for inflation, weekly earnings dropped 1.8 percent from November 2010 to last month. Consumers have used savings or credit cards to finance their purchases. Once bills come due in early 2012, Baumohl foresees a cutback in spending.
Baumohl is so pessimistic that he expects the economy to shrink at a 0.2 percent annual rate in the first three months of 2012 and to end the year with no more than 1.8 percent growth.
Europe is almost sure to slide into recession, even if its policymakers find a solution to the continent's debt crisis. In the worst case, a chaotic breakup of the euro currency could ignite a worldwide financial panic.
Joe Echevarria, CEO of the accounting and consulting firm Deloitte LLP, says his company's clients are delaying hiring or expansion decisions to see if Europe's crisis will be resolved.
Another worry — again — is Washington. President Barack Obama and Republicans in Congress still had not broken their impasse Wednesday on how to extend a Social Security tax cut. Without an extension, taxes will go up $1,000 in 2012 for someone making $50,000. A couple making $100,000 each would pay $4,000 more.
Failing to extend the tax cut, combined with the end of long-term unemployment benefits and other federal budget cuts, could shave 1.7 percentage points from growth in 2012, warns Mark Zandi, chief economist at Moody's Analytics.
Forecasters are also chastened by the past two years. Since the Great Recession officially ended in June 2009, the economy has stalled twice just when it appeared to be gaining momentum.
In mid-2010, businesses slowed spending sharply. This year, the damage came from protests in the Middle East that drove oil prices higher at the start of the year, the earthquake in Japan in March, budget cuts by state and local governments and the stalemate in Washington.
But Joel Naroff of Naroff Economic Advisors says he thinks the fears about next year are overblown and the economy will grow 3 percent in 2012. Next year will be all about jobs. If job growth keeps accelerating, the economy is much more likely to meet Naroff's predictions than the pessimists'.
In addition, Naroff says, that's because consumers and businesses have grown more confident. If Europe averts disaster — a crackup of the eurozone — and endures only a mild recession, as Naroff expects, the impact on the United States will be minimal, he says.
"If you stopped the average person on the street and asked, 'Are you slowing your spending because of what's happening in Europe?' they'd ask, 'What planet are you from?'"

BofA to Pay $335M Discrimination Claim

 

The Bank of America building stands in downtown Los Angeles November 17, 2011.

Bank of America agreed to pay $335 million to resolve allegations that its Countrywide unit engaged in a widespread pattern of discrimination against qualified African-American and Hispanic borrowers on home loans.
The settlement with the U.S. Justice Department was filed Tuesday with the Central District court of California and is subject to court approval. The DOJ says it's the largest settlement in history over residential fair lending practices. (See TIME's video: "Molly Katchpole Helps Abolish Debit Fees.")
According to the DOJ's complaint, Countrywide charged over 200,000 African-American and Hispanic borrowers higher fees and interest rates than non-Hispanic white borrowers with a similar credit profile. The complaint says that these borrowers were charged higher fees and rates because of their race or national origin rather than any other objective criteria.
"These institutions should make judgments based on applicants' creditworthiness, not on the color of their skin," said Attorney General Eric Holder. "With today's settlement, the federal government will ensure that the more than 200,000 African-American and Hispanic borrowers who were discriminated against by Countrywide will be entitled to compensation."
Charlotte, N.C.-based Bank of America Corp. bought the nation's largest subprime lender, Countrywide Financial Corp., in 2008.
Dan Frahm, a Bank of America spokesman, said in a statement that the bank does not practice lending based on race.
"We discontinued Countrywide products and practices that were not in keeping with our commitment and will continue to resolve and put behind us the remaining Countrywide issues," Frahm said.
The United States' complaint says that Countrywide was aware that the fees and interest rates that its loan officers were charging discriminated against African-American and Hispanic borrowers, but failed to impose meaningful limits or guidelines to stop it.
By steering borrowers into subprime loans from 2004 to 2007, the complaint alleges, Countrywide harmed those qualified African-American and Hispanic borrowers. Subprime loans generally carried costlier terms, such as prepayment penalties and significantly higher adjustable interest rates that increased suddenly after two or three years, making the payments unaffordable and leaving the borrowers at a much higher risk of foreclosure.
"Countrywide's actions contributed to the housing crisis, hurt entire communities, and denied families access to the American dream," said Thomas E. Perez, Assistant Attorney General for the Civil Rights Division.
The settlement amount will be used to compensate victims of Countrywide's discriminatory mortgage loans from 2004 through 2007, when Countrywide originated millions of residential mortgage loans as the nation's largest single-family mortgage lenders.

 

Possibility of North Korea's New Leader Looking for Advice from Megawati

If North Korea's new leader is looking for advice on how to carry on his family's dynasty, he could turn to Rahul Gandhi, who is on a quest to become the fourth generation of his family to rule India. Or to Joseph Kabila, who is celebrating his questionable re-election to the Congolese presidency he inherited from his father. Or to former Indonesian President Megawati Sukarnoputri, daughter of the country's first president.

North Korea's preparations to transfer power to a third generation of the Kim family, following the recent death of Kim Jong Il, is by no means an anomaly: In both democracies and dictatorships, political dynasties abound across the world.

While former President George W. Bush — the son of a president and the grandson of a senator — was never dubbed "the Great Successor," and Pakistan's Benazir Bhutto — who followed in her assassinated father's footsteps — was never said to have been "born of heaven," just like Kim Jong Un they ended up in the family business of running a country.

While some dictators pass on power to their children as a veritable inheritance, dynasties exert a powerful pull in democracies as well. The identity of a party might be deeply linked to a family. A familiar name might give a political scion an edge on the ballot, further strengthened by the family's established political and fundraising machines.

Sometimes the heir is a puppet, a brand name needed to rally the public, while backroom power brokers pull the levers. Or a nation in mourning over the death of its leader might turn to the grieving child for comfort and continuity. Stephen Hess, a Brookings Institution scholar and author of "America's Political Dynasties," sees nothing unusual about politics becoming a family business.

"Aren't bakers more likely to be bakers if their fathers were bakers?" he said in an email.

The most successful dynasty in the world is probably India's Nehru-Gandhi family, which held the prime minister's post for 37 of the country's 64 years of independence and is working on bringing another generation to power.

In the huge, multiethnic tapestry of India, the Gandhis are seen as among the few with a nationwide appeal that cuts across language, region and caste, said historian Ramachandra Guha.

Less than two years after the death of India's first Prime Minister Jawarhalal Nehru, leaders of his Congress party turned to his daughter, Indira Gandhi, to head the country, incorrectly judging her as a weak and pliant puppet.

After her assassination in 1984, the mourning nation looked to her son Rajiv to take her place. After his 1991 assassination, his widow Sonia eventually became the most powerful politician in the ruling party even as she groomed her son, Rahul, to eventually take over.

But Guha believes dynastic politics are waning in the country, with voters more focused on development and other issues. "Rahul Gandhi has by no means shown anything like the popular appeal that his father or grandmother or great grandfather had," he said.

Then there's the Philippines, where President Benigno Aquino, son of former President Corazon Aquino, took over last year from Gloria Macapagal-Arroyo, daughter of former President Diosdado Macapagal.

Unlike in many countries, where voters might feel a loyalty to a political party, in the Philippines, they identify with a family that has traditionally looked out for their welfare, said political analyst Ramon Casiple. The dynastic system is so entrenched it survived and thrived during centuries of Spanish and American rule and even the transition to democracy, he said.

When party leaders die in the Philippines, their children nearly always replace them. If the party chooses someone else, the spurned heir often forms a new party, leaving the old one to wither, Casiple said.

"The party is not that strong. It doesn't have an independent life. They depend on the good will of the family on top of it," he said.

The passing of power is a delicate maneuver in authoritarian regimes. While Fidel Castro managed the transition to his brother, Raul, in Cuba, dynastic politics were strongly rejected in the Arab world this year.

Hosni Mubarak's efforts to pass on the Egyptian presidency to his son Gamal were among the main causes behind the wave of street protests that toppled his 29-year authoritarian regime. Before he was overthrown and killed, longtime Libyan dictator Moammar Gadhafi appeared to be grooming his son Seif al-Islam Gadhafi to take over.

And Syrian President Bashar Assad, who inherited his office upon his father's death in 2000, has been fighting off a rebellion with a crackdown that has killed more than 5,000 people this year, according to U.N. figures.

Perhaps Pakistan might be Kim Jong Un's best bet for finding out how to cope with the surreal experience of being thrust, with little political background, into a leadership role in a mourning nation.

Just three days after the 2007 assassination of former Prime Minister Benazir Bhutto — herself the daughter of slain Prime Minister Zulfikar Ali Bhutto — her 19-year-old son Bilawal Zardari was declared the new chairman of her party.

Looking deeply uncomfortable in front of more than a dozen microphones on national television, he answered a single question, saying he would continue his studies at Oxford and talking of political leadership as something that can be willed from generation to generation. "When I return, I promise to lead the party as my mother wanted me to," he said.

Within days, Bilawal Zardari began calling himself Bilawal Bhutto Zardari, and over the past four years has become increasingly known simply as Bilawal Bhutto. 

But when his party won elections in 2008, there was no talk of handing authority over a nuclear nation rife with political intrigue and wracked by tensions with a powerful neighbor to someone whose only qualification was his bloodline. Instead, his father was named president.

Thousands Descend on Little Town of Bethlehem

Fuad Twal, the head of the Roman Catholic Church in the Holy Land, leads a procession of worshippers to the Church of the Nativity

Thousands of pilgrims, tourists and local Christians gathered in the biblical West Bank town of Bethlehem to begin Christmas Eve celebrations in the traditional birthplace of Jesus.

Visitors gathered near the 50-foot Christmas tree at Manger Square this morning, taking photographs and enjoying the sunshine. The main event will be Midnight Mass at the Church of the Nativity, built on the location where Jesus is believed to have been born.

Israel's Tourism Ministry said that 90,000 tourists were expected to visit the Holy Land for the holiday. Ministry spokeswoman Lydia Weitzman said that number is the same as last year's record-breaking tally, but was surprisingly high considering the turmoil in the Arab world and the U.S. and European economic downturns.

Bethlehem Mayor Victor Batarseh said he hopes this year's celebrations will bring Palestinians closer to their dream of statehood. With peace talks stalled with Israel, Palestinians this year made a unilateral bid for recognition at the United Nations and were accepted as a member by UNESCO, the U.N. cultural agency.

'We are celebrating this Christmas hoping that in the near future we'll get our right to self-determination, our right to establish our own democratic, secular Palestinian state on the Palestinian land. That is why this Christmas is unique,' Batarseh said.

Bethlehem is today surrounded on three sides by a barrier Israel built to stop Palestinian militants from attacking during a wave of assaults in the last decade. Palestinians say the barrier damaged their economy.

Latin Patriarch Fouad Twal, the Roman Catholic Church's head clergyman in the Holy Land, crossed through a massive metal gate in the barrier, in a traditional midday procession from Jerusalem earlier today.

'We ask the child of Bethlehem to give us the peace we are in desperate need for, peace in the Middle East, peace in the Holy Land, peace in the heart and in our families,' Twal said before heading to the Church of the Nativity, where he was to celebrate Midnight Mass.

The number of Christians in the West Bank is on the decline. Their fragile status in a majority Muslim society, ongoing Israeli-Palestinian violence and better economic opportunities abroad have led many of them to leave for the United States, South America and Europe.

Christians have even lost their majority in traditionally Christian Bethlehem, where more than two-thirds of the 50,000 Palestinian residents are now Muslim. The biblical town was bustling today, however, with Christian tourists and pilgrims.

'This is my first time in Bethlehem and it's an electrifying feeling to be here at the birthplace of Jesus during Christmas,' said 49-year-old Abraham Rai from Karla, India.