Friday, March 30, 2012
It hasn't always been this way. When this same question was asked back in September of last year, both the unemployment rate (cited by 83 percent of investors) and the deficit (cited by 79 percent) were of greater concern than the divided government, which was cited by 74 percent of the respondents. While the last of these is pretty much unchanged in the new survey, with 73 percent of the investors calling it a major concern, those worried by the deficit dropped to 66 percent, and those worried by unemployment dropped to 62 percent.
Interestingly enough, one issue that has fallen off in importance for investors is the price of energy. Back in September, 62 percent cited it as something that could affect the investing climate, but in the latest survey - after a month of constantly rising gas prices - only 53 percent now say so.
Thursday, March 29, 2012
A whopping 81 percent of the respondents said they expect their corporation's sales to be up over the next six months. That's up from 69 percent who said so when this survey was conducted in the fourth quarter of 2011. Nearly half, or 48 percent, said their company's capital spending would be increasing, up from 32 percent who said that in the previous quarter. Forty-two percent said their hiring would increase, versus only 16 percent who said it would be decreasing.
The 128 CEOs surveyed also predicted that U.S. GDP would increase by 2.3 percent in 2012. That's up from the 2.0 percent that the same group predicted last quarter, and up from the 1.7 percent the American economy grew by in 2011.
Wednesday, March 28, 2012
The fastest-growing sectors in terms of offering dividends are financials, materials and technology. In the past year, those three sectors have increased their average dividends by 40 percent, 28 percent and 23.5 percent, respectively.
The most surprising among these is the technology sector. Traditionally, tech stocks have resisted offering dividends because they're perceived as something offered by older companies, ones that have gotten past their growth phase. But now most tech stocks - 53.5 percent - are offering dividends. Ten years ago, in 2002, that figure was just 18 percent.
Tuesday, March 27, 2012
During the recession, in 2008 and 2009, manufacturing was really in the doldrums, with profits of less than $300 billion in each year. So the 2011 figure is more than double where we were just a couple of years ago. It's also well above the pre-recession high, $470 billion, set in 2006.
All told, the manufacturing output in this country grew by 4.7 percent in 2011, more than three times the overall rate of GDP growth, which was 1.7 percent. And manufacturing has continued on that track into the new year: for the past 12 months ended in February, that growth rate is now up to 5.2 percent.
Monday, March 26, 2012
But that's nothing compared to what happened to BATS Global itself. Its shares went on sale at $16, and within seconds had plunged all the way down to four cents a share before trading was halted. Before the day was over, BATS - which blamed a software glitch for all the problems - announced it was canceling the IPO.
What's most embarrassing about all this is that BATS - which stands for Better Alternative Trading System - markets itself as an alternative to the NYSE and Nasdaq. This was the first IPO traded on the new system. It remains to be seen if there will ever be a second.
Friday, March 23, 2012
Thursday, March 22, 2012
That's after suffering huge losses up front, which the hedge funds were able to mitigate somewhat. In 2008, the first year of the bet, the fund of hedge funds lost 24 percent of its value - while Buffett's Vanguard fund was losing 37 percent. The S&P has tended to outperform the hedge funds since then, but what really harms the hedge fund side is the massive fees that its investors have had to pay. Hedge funds normally charge a 2 percent management fee and a 20 percent performance fee, while the fund of funds tacks on additional charges of 1.25 percent of assets and 7.5 percent of gains.
Buffett was banking on those fees being enough of a handicap to push his side of the bet over the top. The plan is that on December 31, 2017, the winner will get the loser to donate $1 million to the charity of his choice.
Wednesday, March 21, 2012
It's not unusual for high-tech companies to refrain from offering dividends. Fast-growing companies generally don't pay out dividends until they become settled, profitable businesses, so there's some sense among tech companies that only those that are past their primes pay out dividends. Google, for example, doesn't pay a dividend, even though it has roughly $45 billion in cash on hand. Amazon.com, Dell and eBay also don't pay dividends.
Paying out the dividend doesn't figure to slow Apple down very much. The first year's payout will cost the company roughly $10 billion. Meanwhile, over its last fiscal year, Apple's cash hoard grew by $31 billion.
Tuesday, March 20, 2012
Even better is that the trend has continued. It wasn't just a one-day blip; the price of ten-year Treasury notes has now, as of yesterday, fallen for nine straight days. That's the longest such stretch we've seen since June 2006.
Yields, remember, move in the opposite direction from bond prices, so the yield on the ten-year Treasury was up 8 basis points on Monday, finishing the day at 2.38 percent. That's the highest that figure has been since last October 28.
Monday, March 19, 2012
Not necessarily. The increase in prices for last month is almost entirely attributable to the rise in gasoline prices, which tend to move independently of other consumer prices. That's why the government strips out food and gas prices for its so-called core inflation measure. That rose just 0.2 percent in February, and has risen 2.9 percent in the previous 12 months. It's down a full point from the 12-month increase as of last September.
Nationwide, the price of gasoline has risen 31 percent in the past month. We continue to get a break compared to the rest of the country in this area: The average price of a gallon of gas is just $3.62 here in New Jersey, as opposed to the national average of $3.81.
Friday, March 16, 2012
That's a record for that figure. The highest number previously recorded was $28.96 in June 2008, just before the market crash. It bottomed out little more than a year later, in August 2009, when the dividend level reached $21.44. The biggest issue with that drop were the financials, which accounted for 30 percent of all of the S&P 500's dividends as recently as 2007. They now contribute just 13 percent.
On the other hand, while the raw number is at a peak, the percentage is far from it. The average company in the S&P 500 is now paying out just 30 percent of its profits as dividends, while the historical average is 52 percent.
Thursday, March 15, 2012
So what were these stress tests? Basically, the regulators simulated another financial crisis or a return to a recessionary economy, and noted the amount of capital the banks would then have on hand. The idea is that banks should still have enough money to lend businesses in an economic downturn, so we don't suffer through the kind of credit freeze that exacerbated the last recession.
It turns out that the previous round of stress tests helped the banks get through this one much more healthily. As a reult of the earlier tests, lenders were asked to raise an additional $75 billion in capital, while no funds had to be raised after the most recent round. All told, the regulators found that banks had increased their Tier 1 common capital - reserves kept on hand in order to absorb losses - by 81 percent.
Wednesday, March 14, 2012
The Fed has a dual mandate of bolstering employment and restraining inflation, so it was interesting to see what they had to say about the recent increase in gas prices. Rising gasoline prices can help fuel inflation because it's so important to so many corners of the economy, but the Fed thinks the effects will be short-lived. "The recent increase in oil and gasoline prices will push up inflation temporarily," the report said, "but the FOMC [Fed Open Market Committee] anticipates that subsequently inflation will run at or below the rate it judges most consistent with its dual mandate."
The economy itself generated some positive news yesterday as well. Retail sales were up strongly in February, by 1.1 percent over the same month a year earlier. Not only that, but sales figures from January were revised upward, from the 0.4 percent initially reported to a healthier 0.6 percent.
Tuesday, March 13, 2012
And recently, the ratio has been moving in the wrong direction. By the end of February, the sell-to-buy ratio stood at 6.56 to 1. A month earlier, at the end of January, it was at 5.77 to 1. Back in October 2011, the ratio dropped below even, with more insiders buying their stocks than selling them.
The insiders certainly knew what they were doing in October, since the Dow Jones industrial average has risen by about 25 percent since then. It remains to be seen whether the current insider outlook reflects the state of the market now - where the Dow has stubbornly refused to surge past the 13,000 mark in recent weeks - or is an indicator of where we're still headed.
Monday, March 12, 2012
American families borrowed $43 billion in the final three months of 2011. Even in 2008, the last time we saw that number above water, the amount of household debt incurred for the entire year was just $13.7 billion. Americans racked up $170 billion in consumer credit in the fourth quarter alone, which is more than we've seen in any year since before the recession started in 2007.
We watch the consumer confidence numbers pretty carefully to see whether Americans are ready to start spending again, but this provides much more concrete evidence that they are, in fact, confident about this economy. And the fact that so much more money has begun circulating through the system is good news for all of us.
Friday, March 9, 2012
So the 227,000 new jobs were just enough to keep up with increases in the population of the work force. Where did those jobs come from? The professional and business services sector added 82,000 jobs, although 45,000 of those were in temporary help services, which isn't a good sign. Health care and social assistance added 61,000 jobs, leisure and hospitality added 44,000, and manufacturing added 31,000. The food and drink industry, which is a subsector of leisure and hospitality, continued to be very strong, with 41,000 new jobs created in February.
Very few job sectors suffered losses of that magnitude. The biggest losers for February were construction, which lost 14,000 jobs, and, surprisingly enough, general merchandise stores, i.e., Target and Wal-Mart. That group dropped 35,000 jobs on the month.
Thursday, March 8, 2012
The Investment Company Institute, which is the trade association for the mutual fund industry, has just come out with its profile of the fund business for 2011. Last year, the average owner of mutual fund shares was "middle-aged, employed, educated, married or living with a partner, and shared investment decision making with his or her spouse or partner." That's all to be expected, but the financial picture the report paints is a little more interesting.
The ICI describes the typical fund owner as "of moderate financial means, with $80,000 in household income and $200,000 in household financial assets." That makes mutual funds sound like a very middle-class investment, yet these households had an average of $120,000 invested in four mutual funds, including at least one equity fund. Of all mutual-fund-owning households, 42 percent, or nearly half, had assets greater than $250,000.
Many investors are retired, of course, and living off their investments. That would explain why assets for mutual fund investors are fairly high, while their annual income is relatively low.
Wednesday, March 7, 2012
That's right: If you had paid $1,000 for a one-year bond from the Greek central bank on Monday afternoon, you could have expected to receive a whopping $10,000 when it comes due in a year. The government there has become so untrustworthy that it was forced to promise ten times what it borrowed just to get investors to loan it money.
Part of the issue there is that Greece is expected to reach an agreement with its bondholders in a couple of weeks to give a haircut to all its bonds and reduce its indebtedness. So it's likely that no investors will ever see that tenfold return. At any rate, by Tuesday, the yield on the Greek one-year bond had settled back to 949 percent.
Tuesday, March 6, 2012
The Dow has nearly doubled since that point. On its way back up from that historic low, it has risen much faster than it did the first time it climbed this high. Here's a look at some of the historic milestone numbers the Dow passed on its way down prior to hitting bottom three years ago, as well as on the way back up (dates are noted for when the Dow closed at each figure):
- 12,000 On the way down: June 19, 2008. On the way up: February 1, 2011
- 11,000 On the way down: September 26, 2008. On the way up: October 8, 2010
- 10,000 On the way down: October 3, 2008. On the way up: October 14, 2009
- 9,000 On the way down: January 2, 2009. On the way up: July 23, 2009
- 8,000 On the way down: February 9, 2009. On the way up: April 3, 2009
- 7,000 On the way down: February 27, 2009. On the way up: March 12, 2009
Monday, March 5, 2012
Those trends have been in evidence for a long, long time. In December 1981, energy expenses accounted for 7.8 percent of all the disposable income in the United States, but in December 2011, that figure was down to 5.5 percent. Interestingly enough, the inflation-adjusted price of a gallon of gas was approximately the same at both times, at around $3.30.
The basic laws of supply and demand would indicate that lowered use of oil should help bring its price down. That may be the primary thing that will dampen the prices we've been paying at the pump recently.
Friday, March 2, 2012
What kind of effect does a runup in oil prices have on the stock market? Recent research shows that it could have a positive impact on your portfolio. For one thing, oil prices tend to signal an inflationary trend, and while inflation may make some things more difficult, stocks tend to rise along with that inflation figure. Rising oil prices can also be a sign of a strong economy, which is also good for stocks.
Nadeem Walayat, writing for the Market Oracle site, has demonstrated that the graph of the price of a barrel of oil and the trendline of the Dow Jones industrial average have moved in the same direction more often than not over the past decade. Especially since the financial meltdown in 2008, the two have tended to be highly correlated with each other.
The one prominent exception to that relationship is an oil shock. A sudden spike in oil prices is likely to curb demand for energy from all corners of the economy, and create a slowdown in economic activity. There is a huge difference in economic effects between an orderly movement in crude oil prices and a sudden shock. The current upswing in oil prices has not – at least not yet – risen to the level of an oil shock.
Thursday, March 1, 2012
But the question is, how long is that going to last? The bad news is that Federal Reserve chairman Ben Bernanke threw a little bit of cold water on the numbers yesterday in his semiannual report on the economy. The Fed's forecast calls for GDP growth of 2.2 percent to 2.7 percent for 2012. That's somewhat down from the fourth quarter of '11.
Bernanke cited flat incomes as part of the reason for his pessimism, meaning the Fed may not have processed another bit of revision from yesterday: Commerce also revised upward its estimate of income growth from both the third and fourth quarters of 2011. Incomes are now believed to have grown a relatively robust 1.4 percent in the fourth quarter, and rose 0.7 percent in the third - after the initial estimate had pegged it at a 1.9 percent drop. That's a huge turnaround, and is probably a reason to believe the good news rather than the bad news.