Monday, January 31, 2011
When all the figures are in, S&P has estimated that earnings will increase by about 32 percent over 2009. That's almost entirely a reflection of the strong earnings that we've seen reported already; before this earnings season began, Standard & Poor's had forecast that earnings would be up a mere 9.8 percent this year.
This sort of outperformance has become a real trend. Bloomberg found that the profits of 70 percent of the companies in the S&P 500 have exceeded analysts' estimates for each of the past six quarters. Companies do have a tendency to beat the estimates, as we've discussed before, but that's still a nice little winning streak.
Friday, January 28, 2011
But there is a very telling detail in the report, one that shows why these sorts of crises will continue to be so hard to avert. It tells the story of two managers at Citigroup who had different reactions to the mortgage meltdown: One noticed that defaults were increasing, and smartly reduced her department's purchases of securitized loans. At the same time, a Citigroup risk manager decided to raise his department's limits on purchasing a form of risky mortgage-backed securities. Two officers, getting the same reports and attending the same meetings, who moved in totally different directions.
In the end, it doesn't matter if many - or even most - of a financial institution's managers move in a more prudent direction. If just a few key decision-makers decide to roll the dice, the whole organization can be at risk.
Thursday, January 27, 2011
Not really, because the Fed is looking at something different from the price of wheat. The Fed governors are talking about core inflation, which excludes the prices of food and energy, which are seen as too volatile to be reliable indicators of overall costs. The Fed's preferred measure of inflation is the Personal Consumption Expenditures Price Index, or PCE; the one that includes food and energy costs is the Consumer Price Index.
Which is better? If you're strictly measuring the inflationary effects on the economy, we'll trust that the Fed knows what it's doing. But if you're worried about how much this week's trip to the grocery store will cost you, you want the Consumer Price Index.
Wednesday, January 26, 2011
The breakdowns are interesting: Baby Boomers are more wary of the market, with just 15 percent of them saying they've invested more money in the market. By contrast, 34 percent of Generation Y's investors - people born between 1979 and 1988 - are back in the market. This might be a generational thing, or it might just be a result of where people are in their investing lives; in general, younger people ought to seek out more risk in their investments.
More surprisingly, men reported acting more cautiously than did women. Only 21 percent of the women surveyed had moved their money from the market to safer instruments, but 33 percent of the men had done so. Given that men are generally more risk-tolerant than women, that finding is pretty counterintuitive.
Tuesday, January 25, 2011
This may sound like a bit of regulatory "inside baseball," but it could actually have a significant impact on the individual investor. Stockbrokers have traditionally not been held to this standard, but rather had license to push onto their clientele whatever securities they deemed "suitable." According to the SEC study, many investors are unaware that the two types of professionals operate under different standards.
The next step is for SEC commissioners to write new regulations, based on this study. This could be a critical step toward reforming the financial landscape for many American investors. Watch the Echelon Wealth Strategies Web site for a more detailed explanation of this important issue, and how it might affect your own financial goals.
Monday, January 24, 2011
That doesn't mean, though, you'll see the prices of wheat cereals or cotton shirts rising by those amounts. According to the USDA, the price of an individual commodity affects only about 7 percent of an item's final retail cost. But we're likely to feel some effect of it: An agricultural economist for Wells Fargo has forecast that food prices will rise somewhere between 3 and 4.5 percent in the coming year.
The irony is that the factor fueling this inflation isn't any governmental policy but severe weather last summer that devastated corn, soybean and coffee crops. Demand from growing economies in India and China has also helped fuel the higher prices.
Friday, January 21, 2011
There were many noxious things about the Serritella story, including the fact that he preyed largely on firefighters and police officers. He never even tried to make any horseshoes, instead using his investors' money for personal purposes. Perhaps most telling: Serritella sold shares in his company, International Surfacing, that weren't registered with the Bureau of Securities, and Serritella was not authorized to sell securities in New Jersey in the first place. Anyone looking to fund a legitimate business will do these kinds of things on the up and up.
Also, Serritella enticed investors by telling them he had already made a sale to a prince in Dubai, who was buying rubberized shoes for his camels. But unlike horses, camels don't wear shoes.
Thursday, January 20, 2011
Although people often think of Goldman Sachs as an investment bank, the bulk of its profits in recent years have come from fixed-income, currency and commodities trading. Goldman's profit from stock-trading activities slipped by 5 percent and investment-banking revenues fell by 10 percent, but those three other trading desks - known collectively as FICC - were off by 48 percent. The European debt crisis depressed the market for bond buyers, and Goldman's CEO blamed uncertainty about the economic recovery for investors' reluctance to buy more securities.
At any rate, the concerns seem to be either temporary or isolated to Goldman and other investment banks. In the 1950s, people used to say that what was good for General Motors was good for America, but Goldman Sachs' problems don't seem to fall in that category.
Wednesday, January 19, 2011
You can see the same dichotomy at work at individual retailers. Tiffany and Coach both have reported strong sales lately, while the Family Dollar's sales forecast fell short of analysts' expectations when they were released earlier this month. Sales via American Express cards have rebounded more strongly than sales via MasterCard or Visa.
Strong retail sales are a positive for the economy, no matter where they're coming from. But it would be a better sign for this economic recovery if the retail gains had been a little more broad-based.
Tuesday, January 18, 2011
The consensus was that we'd see an 11 percent gain in the S&P 500 in 2011. The least-optimistic forecast came from Wells Fargo strategist Gary Thayer, who sees the S&P rising by just 3 percent over the course of the year. The most optimistic came from David Kostin of Goldman Sachs, who sees stocks gaining a solid 15 percent on the year.
It's even easier to get excited about Kostin's prediction when you realize he predicted the S&P's growth in 2010 at 13 percent - which is exactly what the market ended up returning. For more predictions, see here.
Monday, January 17, 2011
Now, the private sector added only 1 million jobs in 2010, so the ABA economists are expecting more than twice as many to be created this year as last. So that's the good news. The bad news is that they also estimated that the unemployment rate would still be at a lofty 9.4 percent by the end of 2011. We appear to have reached the point where even healthy economic growth will not significantly budge the unemployment rate; it's going to take something greater than that.
Friday, January 14, 2011
The following week, they went to pay their mortgage, and found that their paychecks, which were usually direct-deposited into their account, never showed up. When they asked why this had happened, the bank told them their account had been closed, due to fraud. The problem was that a computer had "read" the red-inked checks, decided they were blank, and declared them fraudulent. The bank's check-imaging system functions in blank and white, so it can't see red very well, just blue or black ink.
After a couple of weeks of wrangling, and getting the San Francisco Chronicle involved, the couple got their checking privileges restored, with the bank covering all overdraft fees from when the account was closed. But you can bet they won't be depositing any more red checks.
Thursday, January 13, 2011
To approach the jobs situation from a slightly different angle, the outplacement firm Challenger, Gray & Christmas has calculated that in the year 2010, there were 529,973 job cuts announced in the U.S. That was a substantial drop from 2009, when there were 1,288,030 layoffs. That adds up to a 59 percent decrease in layoffs between the two years.
On the other hand, 2009 had really been an outlier in this area, even moreso than the earlier years of the recession. We lost more jobs in 2009 that in any year since 2002, when 1,466,823 were cut.
For December 2010 alone, there were 32,004 layoffs. That’s the lowest such number for any month in more than a decade, since August 2000, when the economy shed just 17,241 jobs. Overall, the 2010 total was the lowest since just 434,350 jobs were cut in 1997.
Wednesday, January 12, 2011
For comparison, the total wealth held by American households is about $65.9 trillion. So the Baby Boomers are getting the equivalent of roughly one sixth of all American wealth.
About $2.4 trillion of this has already been handed over. In the end, two thirds of all Baby Boomers will receive some sort of inheritance, and the median amount of inheritance received is $64,000. For more information, see here.
Tuesday, January 11, 2011
State and local governments have been facing revenue shortfalls lately, with their tax bases eroding. Those deficits have pushed a lot of investors out of the muni market, and resulted in an overall loss of 4.5 percent for municipal bonds in the fourth quarter of 2010. Hence, you get results like a municipal bond fund that outperforms because it doesn't act like a municipal bond fund.
For the record, the top five muni-bond funds for 2010, according to Zacks Investment Research:
Pioneer High Income Municipal A
Invesco Van Kampen High Yield Municipal A
Aim High Income Municipal A
Waddell & Reed Municipal High Income A
Black Rock High Yield Municipal A
Monday, January 10, 2011
So that's the good news. The bad news is that the biggest reason the unemployment rate fell, a larger factor than the job growth itself, was the departure of 260,000 Americans from the labor force. That's the biggest such group to do so since July.
What may happen, as the economy gains strength, is that some of these discouraged workers will try to re-enter the workforce - and paradoxically, a stronger economy may be accompanied by a rise in the unemployment rate. It probably makes more sense to look more closely at the raw number of jobs created than the overall unemployment rate.
Friday, January 7, 2011
The situation started in May 2009, when Capital One sent Perry a bill for $4,807 in charges she hadn't incurred. After that, the amount of money she supposedly owed fluctuated, peaking at $286 million. "It went down and up and down and up," said Perry's lawyer. "The only thing I can associate that with is that they were trying to confuse my client."
Capital One has finally admitted that the charges were a mistake. But Perry is not satisfied with that. She has sued Capital One for - appropriately enough - $286,651,237.
Thursday, January 6, 2011
It's probably no coincidence, then, that the ADP estimate of jobs produced by the private sector was very strong as well. ADP has the private sector adding a whopping 297,000 jobs in December, which is the most for any month since they began doing these estimates in 2001. If the official government unemployment report, which is due out on Friday, is anything like that, it will be the best news this economy has seen in a long time.
Wednesday, January 5, 2011
The best 20-year period since 1920? That would be money invested in 1948 and withdrawn from the markets in 1968. Accounting for dividends, inflation, taxes and fees, an investor in that time frame would have made 8.4 percent a year. The second-strongest 20-year period was from 1979 to 1999, when an investor could have made 8.2 percent a year. This was the time in which many of us came to learn about investing, and for a lot of people, 8 percent a year came to be seen as a reasonable, expected return. We know now that that isn't the case.
The worst 20-year period in the study stretched from 1961 to 1981, when investors could have expected to lose an average of 2 percent a year. More recently, of course, we've had more bad news: Anyone who invested in 1995 or later, then took their money out of the market in 2007, was likely to end up losing on their investment.
To see the entire graphic, click here.
Tuesday, January 4, 2011
Like a lot of things in this economy, our state's housing starts are headed in the right direction, but they're a long way from healthy. One economist predicts that housing units in New Jersey will be up to 15,000 in 2011, which is a step up, but would still be the third-lowest figure in history.
These figures come from this very thorough - and somewhat pessimistic - look at the state's real estate landscape. If you're interested in where New Jersey's housing market is headed, I recommend you give it a click.
Monday, January 3, 2011
But seasonal adjustments, of course, are at their most drastic during the Christmas season. If you disregard the seasonal adjustment, the number of new jobless claims was actually up 25,000 over the previous week; with the seasonal adjustment, jobless claims fell by 34,000.
Even discounting any uncertainty over the adjustment, though, in the longer term, things are still positive. The four-week moving average dropped by 12,500, to 415,000, up through that last week of December. Just as with the weekly average, the four-week average is now at its lowest point since July 2008.