Thursday, December 31, 2009

Year's End

As 2010 draws to a close, it might be helpful to see where we've been this past year:

* The Dow Jones average started the year just over 9000, plunged to 6547 in March, then climbed all the way up over 10,500, to finish with a positive gain of around 20 percent on the year.

* The S&P 500 followed the same trajectory: It opened at 931, fell to 676 in March, and finished at just over 1100. Same thing for the Nasdaq, which went from 1632 to 1268, then all the way back up to about 2300. Overall, the Nasdaq climbed more than 40 percent on the year.

* Inflation mostly hovered around zero. July saw the biggest rate of deflation on the year, when prices fell 2.1 percent on an annualized basis. The bad news about inflation is that the highest number was also the most recent one we have: It rose 1.8 percent on an annualized basis in November.

* Unemployment remains the big problem. In January we were at an already lofty 7.6 percent unemployment, but the number just kept going up, peaking at 10.2 percent in October, although it slipped back slightly to 10.0 percent in November, the most recent figures we have.

* Gold started the year at about $875 an ounce, then sagged a bit to $813 in mid-January. A big run in the precious metal, based in large part on the weak dollar, pushed it as high as around $1200 an ounce in early December, but it's now dipped back to just under $1100.

All in all, 2009 was a brighter year than most investors expected a year ago. Let's hope for even more good news in 2010. Happy new year!

Wednesday, December 30, 2009

Rising Confidence

The consumer confidence numbers released yesterday were up for December, which is another step in the right direction for this economy. But for 2009 as a whole, they represented the worst year on record, according to ABC's polling. Americans this past year felt worse about their economic situations than they had since at least 1985, when ABC began its Consumer Comfort Index.

That's not a reason for worry, though. As we've said repeatedly, economic statistical reports are always backward-looking, and the pessimism of the American people in the summer of 2009 isn't going to have anything to do with where the economy goes from here.

That's why it's a bit comical that the Conference Board revised its consumer confidence figures (taken from a different poll than the ABC one) for November. When it announced this week that December's reading had come in at 52.9, it also said that November's number had changed from 49.5 to 50.6. Why would they bother? It's not like a record of housing starts or GDP that's grounded in specific data; it's a measure of how people feel, and no one should mistake it for a hard-and-fast fact. So why would anyone care if people were, by this measure, slightly more optimistic in November than we initially thought?

Tuesday, December 29, 2009

The Season for Giving

The recent runup in the stock market, combined with the holiday season, may have left you in more of a giving mood than you expected to be at this time of year. There are still a few days left in which you can make charitable contributions and deduct them from your taxes.

In fact, if you're supremely indecisive about these things, you can wait until nearly midnight on December 31st nowadays, thanks to the Internet. Even if you're moving funds from a brokerage account, some places let you make an electronic funds transfer to the charity of your choice right up to the last minute on New Year's Eve.

But if you need to get a check from your account and send it to the church or charity of your choice, the rule is that it has to be postmarked by December 31st. So if this is something you want to pursue by year's end, you should call your brokerage or financial adviser now - as in today - to see what you need to do to make it happen.

One common option this time of year is to donate appreciated stock, which means you don't need to pay capital gains tax on the runup. But because of the unusual mature of this year's market, with a deep plunge in March, be careful that the stock is indeed worth more now than what you paid for it - you can't just measure the appreciation from the lowest point. And you must have held the stock for at least a year in order to qualify for the cap-gains writeoff.

Monday, December 28, 2009

A Light Week

Like we discussed during Thanksgiving week, the upcoming week in the stock market promises to be very quiet, which can also lead to greater volatility. Many traders remain on vacation this week, which has only four trading days to begin with. The news this week will be driven by a few different things:

* Tuesday, there will be a new consumer confidence report. The consensus is that the number will be up slightly.

* Also on Tuesday, the Case-Shiller report on home prices is due.

* Wednesday, the December index of business activity in the U.S. Midwest region comes out. The estimate is that the number will be down slightly from November, but still expansionary.

* Thursday, we'll have a new weekly jobless report.

Any of these could have an outsize effect on the market indexes on a very light trading day. Don't take the resulting market swings all that seriously.

Friday, December 25, 2009

Thoughts for Christmas

"When we recall Christmas past, we usually find that the simplest things - not the great occasions - give off the greatest glow of happiness." ~ Bob Hope

"Once again we find ourselves enmeshed in the Holiday Season, that very special time of year when we join with our loved ones in sharing centuries-old traditions such as trying to find a parking space at the mall. We traditionally do this in my family by driving around the parking lot until we see a shopper emerge from the mall, then we follow her, in very much the same spirit as the Three Wise Men, who 2,000 years ago followed a star, week after week, until it led them to a parking space." ~Dave Barry

"There's nothing sadder in this world than to awake Christmas morning and not be a child." ~Erma Bombeck

Merry Christmas, everyone!

Wednesday, December 23, 2009

Last-Minute, Big-Spending Gift Ideas

Still have a few presents to buy? If you really blow your budget, your loved ones will never guess you waited till the last minute to do your shopping. Here are some of this holiday season's most outrageous selections:

* Want to go with a simple gift card? Injet offers a private jet gift card, offering your favorite executive ten hours of flight time on a private jet. The price tag: $42,000.

* Do the kids still need a stocking stuffer? Goldstriker International has created the Nintendo Wii Supreme, coated in 22-karat gold and sporting front buttons decorated with 78 quarter-cut diamonds weighing a total of 19.5 carats. The price tag: $481,250.

* Looking for a high-fashion accessory that also offers everyday utility? Christian Dior has gone into the cell-phone business, with a slim model featuring the House of Dior's signature pattern and the exclusive "CD" initials. The price tag: starts at $5,000.

* One big-ticket item that's not so extravagant this year is Neiman-Marcus' famous fantasy offering from its Christmas catalog. For the first time in ten years, there's no million-dollar item; your friends and family will have to settle for "his and hers" two-seater airplane, plus flying lessons, going for a bargain-basement $250,000.

The Future of the Estate Tax

So where does the estate tax go from here? Senator Max Baucus, who is the chairman of the Senate Finance Committee, plans to introduce legislation early in 2010 to reinstate the estate tax. Baucus also seems determined to have the rates and exemption level stabilize: "It is an outrage that the Congress allows estate taxes to change so much," he said last week.

The tax is set to expire on January 1, and the new estate tax won't be settled until sometime thereafter. That has led some policy analysts to suggest that the tax couldn't be made retroactive, and any person who passes away during the first weeks of 2010 would end up not being subject to the tax. But that's not the case. For over a century, the courts have found retroactive taxes to be perfectly constitutional. They would surely find an estate tax, passed to retroactively cover what would be no more than a month or two, to be legal as well.

Even the Republicans have resigned themselves to an estate tax, suggesting a 35 percent rate on estates worth more than $5 million. The Democratic-controlled House has already passed a bill extending the current rate of 45 percent. Either way, it seems clear that you should expect to keep your estate plans in order and up to date, to ensure that your heirs will be treated fairly.

Tuesday, December 22, 2009

The Estate Quirk

Yesterday we mentioned that as things stand now, the estate tax is scheduled to go away for the entirety of 2010. But that doesn't mean the your heirs will be free of tax if you pass away during the next twelve months. A quirk in the capital gains tax law means they are likely to owe something anyway. Here's how it works:

In the past, estates have been taxed solely on the basis of what they were worth at the time of the decedent's passing. So if your grandfather had bought IBM at 5 in 1970, and it had risen to 100 by the time you inherited it in 2000, you would have owed estate tax on the stock at it present value of 100. But no one would have ever had to pay capital gains tax for that rise from 5 to 100.

In the absence of the estate tax in 2010, such transactions will be treated as gifts. So even though there would be no estate taxes due, there would be capital gains taxed owed on the entire appreciation of the gift, dating back to when the decedent acquired the asset. In this example, you would owe capital gains taxes on the entire 95-point appreciation in the stock.

This will have the result of subjecting more people to taxes on inherited property, not less. It will also lead to lots of scrambling through old paperwork to figure out exactly when someone bought a few shares of stock 40 or 50 years ago. Don't be surprised if horror stories arising from this situation lead Congress to finally address the estate tax again.

Monday, December 21, 2009

The Moving Target of the Estate Tax

As we approach the end of 2010, there is a nagging problem in most people's financial plans that looks like it will not be resolved by the end of the year: the estate tax. The estate tax is scheduled to be repealed as of January 1, but only for 2010. In 2011, it's scheduled to return, at an even higher rate than it's at now. All these changes are likely to play havoc with the type of estate planning that people have invested years of time and money in.

Here's how we got to this place: There was a law called the Economic Growth and Tax Relief Reconciliation Act, passed in 2001, that slowly phased out the estate tax. The exemption gradually increased from $1 million per person ($2 million for families) to the current $3.5 million ($7 million for families), while the tax rate fell from 55 percent to 45 percent. And the law allowed the estate tax to end completely in 2010 - after which the law itself would expire as well.

Lawmakers back in 2001 were scared by how future deficits would look after the permanent loss of revenue from eliminating the estate tax, which is why they didn't remove it for good. They just kicked the can down the road and figured lawmakers ten years hence could take on that responsibility. Now here we are, with ten days left in the decade, and nothing has been done. And if nothing gets done, after an estate-tax-free year in 2010, the figures automatically return to their 2001 levels in 2011: a $1 million exemption and a 55 percent tax rate.

It's a bit of a mess, and something no one seems happy with, either Republicans or Democrats. But at the same time, no one has stepped forward to fix it. Tomorrow, we'll talk about what an unchanged tax situation could mean for your estate in 2010, and what might happen in the years to come.

Friday, December 18, 2009

Million-Dollar Bill

We've all dreamed of stumbling across a big pile of money, but we recognize that it's just a fantasy. A man in Illinois refused to let go of his hopes when he came across a million-dollar bill recently. That's right, a million-dollar bill, with a picture of our 19th president, Rutherford B. Hayes, that was lying in a phone booth in East St. Louis, Illinois.

The gullible finder took the bill to a bank in downtown St. Louis, but the teller didn't quite know what to do with it and advised him to take it to the Federal Reserve Bank. The Federal Reserve told him to take it to the Bureau of Printing and Engraving. So he put it in the mail - a million dollars! - to the Bureau, in D.C., and awaited a reply, which finally arrived four months later. "I regret," the letter said, "that my reply is not favorable."

For the record, the most valuable bill printed in the U.S. today is the hundred. The largest ever printed by the U.S. Treasury was the $100,000 bill, last issued in 1935. The luckless fellow in Illinois had found a bill printed by a ministry in California, with a tiny religious tract on the back - too tiny for many people to even read. At least in this case, it didn't work.

Thursday, December 17, 2009

Housing and Hovnanian

Just when you thought the recovery might be in place, there's news like yesterday's from Hovnanian Enterprises, the Red Bank-based construction company that is the state's largest homebuilder. Hovnanian's net loss for the quarter ending in October was $3.21 a share, compared with $5.79, a year earlier, they announced yesterday. Even though the losses are headed in the right direction, they were still worse than expected by Wall Street, which had a consensus estimate of a loss of $1.72 a share. Revenues, as we've said many times, are the key to growth, and Hovnanian's were down 39 percent.

For a while, the housing news appeared good on Wednesday, as the Commerce Department reported U.S. housing starts rose about 9 percent in November, exceeding expectations. Hovnanian was up 11 percent on the day, but when its figures were released at the end of the day - including an underwhelming 1 percent rise in new home contracts - the stock lost 6.6 percent in after-hours trading.

Hovnanian is moving in the right direction, but it still has a long way to go. I guess you could say the same about this economy.

Wednesday, December 16, 2009

Inflation and the Market

The big news moving the markets yesterday was the government's report that inflation rose higher than expected in November, with the producer price index jumping 1.8 percent. Most of that was because energy prices were up 6.9 percent, but even so-called soft goods rose 0.5 percent for the month, their biggest increase in over a year.

And since the Dow was down for the day, much of the press leapt to equate the two. MarketWatch wrote: "US stocks finish lower amid signs of inflation." "Spike in wholesale inflation sends stocks lower," said the AP. "European, US stocks drop after inflation data," said Business Week.

But that's probably not what happened. Inflation is actually good for stocks; when everything starts to get more expensive, one of the prices that tends to rise is the price of stocks. In fact, there was a research paper on this subject not too long ago, by an economics professor at Columbia and a statistician for the Fed, which found that "bond and equity yields comove strongly and positively with expected inflation."

Inflation could play all kind of havoc with our economy, if it does return with a vengeance. But it's not likely to have a negative effect on the stock market - and it almost certainly didn't drive stocks lower on Tuesday.

Tuesday, December 15, 2009

The Return of the Hedge Fund

The bull market of the past several months has created a renewed interest in hedge funds, which had a disastrous 2008, with record losses. But in the first nine months of 2009, roughly $150 billion was invested in hedge funds. The biggest winners were the biggest funds: Those with assets between $5 billion and $10 billion saw the most net inflows, while the largest outflows came from funds with less than $1 billion in assets.

The growth in hedge fund money has also led, predictably, to more hedge funds. During the third quarter of 2009, there were more hedge funds being created than there were hedge funds being shut down. That might not seem like much of a milestone, but it is the first time in over a year that that's happened.

The amount of money invested in hedge funds peaked in the summer of 2008, when they had $2.5 trillion in assets under management. By the end of this year, even with the rebound, the number will be roughly half of that.

Monday, December 14, 2009

The Value of Intelligence

Are you smart enough to pick the stocks you invest in? Obviously, brains are a big part of successful stock investing, but new studies from UCLA and the University of Chicago have helped to quantify just how much.

It turns out that investors with higher IQs do show stronger returns on their short-term investments. Specifically, high-IQ investors make 11 percent more on an annualized basis than lower-IQ investors after the first two days of an investment.

But after a month, the differences begin to wash out. In the long term, smart investors do no better than less-intelligent investors. In other words, in the long term, the market itself is smarter than any of the individual investors.

Friday, December 11, 2009

Bank Fraud of the Silliest Kind

Just in case you missed it: A 25-year-old man named Tita Nyambi arrived at the drive-through window of the Chase Bank in Franklin on Monday intending to withdraw some cash. But he apparently had no money of his own, so he tried to get the funds from his mother's account. He handed the teller his mother's driver's license, and he wore a pink blouse and a scarf on his head. He even spoke to the teller in a high-pitched voice.

The tellers were not fooled. They called the police while Mr. Nyambi was still in the drive-through lane, and he was arrested on charges of attempted theft by deception and forgery for faking his mother's signature.

Mrs. Nyambi does not appear to have commented on her son's thievery, nor whether he does a good imitation of her voice. Mr. Nyambi is still in jail, where he is still presumably wearing that pink blouse.

Thursday, December 10, 2009

Rolling Back the TARP

The TARP program continues to slowly wind down with the news that Bank of America, now the largest bank in the nation, has repaid the $45 billion it received from the federal government. It had gotten $25 billion at the height of the banking crisis, back in the fall of 2008, then another $20 billion to help with its purchase of Merrill Lynch in January 2009.

BofA had been critical of the plans of Obama's pay czar, Kenneth Feinberg, to limit the compensation for executives at companies that were beholden to the U.S. government. That probably helped spur the payback.

Next up is Citigroup, which also got $45 billion in aid and is reportedly negotiating to pay that back as well. All told, the administration now expects the entire TARP program to cost taxpayers $141 billion, out of an original outlay of $700 billion. A big chunk of that lost money went to the Big Three automakers and to AIG, and that money is never coming back. But most of the money that went to banks will eventually be recovered.

Wednesday, December 9, 2009

Dollar Muscle

The recent rise in the price of the dollar has been highlighting some of the interrelations between various pieces of the financial landscape. Yesterday, the dollar gained against 14 of the 16 other leading currencies around the world. That helped fuel all of the following:

* Gold dipped to a three-week low. It's lost almost $200 per ounce from its recent peak, much of that simply due to the fact that the resurgent dollar now buys more of the precious metal; the underlying price of gold may not have changed much at all.

* Oil dropped $1.31 a barrel to $72.62. The price of oil is now down 7.3 percent in the past week.

* Treasurys were up somewhat, as investors sold off gold and other commodities for the safety of the American dollar.

* Both the Dow and the S&P 500 were down about 1 percent, as the stronger dollar put a little dent in the profits of companies with international operations.

That's not to say there's a one-to-one relationship between the dollar's strength and each of these other outcomes, but they are definitely influenced by the dollar's performance. In a sense, it's unfortunate that we refer to a "stronger" or "weaker" dollar, because it's not an unalloyed good to have the dollar up, nor is it all bad to have the dollar down. It's just another piece of the puzzle.

Tuesday, December 8, 2009

Credit Report

Consumer credit has been falling lately in lockstep with consumer confidence, as people with precarious employment situations have been reluctant to go into debt. So the fact that it shrunk by less than expected in October - and at less than half the rate on an annualized basis than it had fallen in each of the first three quarters - is good news indeed.

But that's not the whole story. The total drop in consumer credit was $3.51 billion in October, but revolving credit, which is primarily from the use of credit and charge cards, dropped by $6.95 billion. Nonrevolving credit, which includes fixed-term loans for items such as cars, boats and college education, rose $3.44 billion. (Mortgages and other loans linked to real estate aren't considered part of consumer credit.)

Both types of credit expand the nation's wealth in a sense, but the nonrevolving credit is a better measure of consumer confidence. People can charge items to a credit card on a whim, but buying a car is something that takes careful planning. And apparently, Americans are planning on having some reasonable income in the next few years.

Monday, December 7, 2009

November's Good News

Friday's report on the employment figures was the most heartening news we've had on that front in years, and could signal we're about to reach a turning point. The number of new jobless, at 11,000, was the smallest in two years, since the very start of the recession in December 2007. The consensus estimate from economic analysts had been 100,000 - meaning the real number was about a tenth of that.

Just as important, the numbers for the previous two months were revised downward; it turns out we lost 159,000 fewer jobs than the original reports indicated. Add it all together and the unemployment rate dropped from 10.2 percent to 10 percent.

There were still job losses in the construction, manufacturing, and information
industries, but those were offset by gains and professional and business services, and in health care. Professional and business services added 86,000 jobs in November, and health care another 21,000. It's nice to see that the growth is not in government-related areas; these increases aren't just from the stimulus package.

At the same time, let's not lose sight of where we are. There are still 15.4 million unemployed people in the country. At the start of the recession two years ago, when the unemployment rate was 4.9 percent, there were just 7.5 million unemployed people - less than half of what we have today.

Friday, December 4, 2009

Job Growth, at Last?

The latest jobless figures seem like more of the same: Last week the number of new people filing for unemployment dropped to 457,000, down 5,00 from the previous week, which is another step in the right direction although it's still much too high. Sounds like most of the jobless reports we get, doesn't it?

At the same time, the previous week's number of new jobless claims was revised downward as well, so there was a little bit of extra good news. And all these little bits of good news have added up to the point that some people are speculating that in December, we might actually turn the corner and begin adding jobs to the payrolls. See, for instance, this piece from The Economist.

The November unemployment figures are due out today. The consensus seems to be that we will have lost 125,000 jobs or so in the month, although estimates range as low as 50,000. If the numbers today come in much lower than expected, we may be approaching that long-awaited turning point.

UPDATE: The November report on job losses came in much better than anyone predicted, with the economy losing only 11,000 jobs for the month. The job-loss figures for the previous two months were revised downward as well. We'll have more to say about this on Monday.

Thursday, December 3, 2009

New Jersey in the Beige Book

The latest edition of the Fed's Beige Book - a report on the U.S. economy, issued eight times a year - found the two districts that cover New Jersey moving in slightly different directions. The New York district was one of eight in which economic activity has generally improved, but the Philadelphia district was one of four that reported either little-changed or mixed economic conditions.

What's different between the two? One area is car sales. The northern half of the state has remained strong in auto sales after the end of the Cash for Clunkers program, but the southern half continues to be plagued by dealer closings. Commercial real estate on the New York side wasn't especially good - "steady to moderately weaker" was the phrase they used. But on the Philadelphia side, commercial real estate is still just plain weak.

Nationwide, the bright spots remain consumer spending and manufacturing, which has benefited from a rise in exports because of the falling dollar. Housing and employment both look better than they have been. The bad news: Lending conditions are still extremely tight, and the commercial real estate market looks worse than ever.

Wednesday, December 2, 2009

The Fallout From Cyber Monday

Cyber Monday - the day when holiday shoppers supposedly all sit down in front of their computers to spend money - seems even more gimmicky than Black Friday, but apparently there's really something to it. The average online order on Monday was $180.03, compared to $170.19 per shopper on Black Friday. That's up from $130.24 on last year's Cyber Monday. Shoppers on Cyber Monday also bought 10 percent more individual items than on Friday, and 30 percent more items than last year.

And Cyber Monday is not even the biggest online shopping day of the year. This year, the date to watch might well be December 14th. Why is that date significant? It's the last day to order products online and have them arrive before Christmas.

But it's easy to overstate the impact of all that. Online purchases still account for only 6 percent of all shopping. Even 15 or so years into the Internet era, it's going to take a long time before Web shopping takes a sizable chunk out of bricks-and-mortar shopping.

Tuesday, December 1, 2009

The Repercussions of Black Friday

Things move fast in the modern age: Investors were able to track sales figures from Black Friday on Monday and digest them quickly enough to move some stocks as a result. And even though overall sales inched higher than last year, up 0.9 percent by one estimate, there were plenty of losers in the retail sector on Monday:

* Kohl's was down 2.4 percent
* Coldwater Creek was down 3.2 percent
* GameStop was down 3.6 percent
* J.C. Penney was down 3.8 percent
* AnnTaylor Stores was down 4 percent
* Macy's was down 6 percent
* Saks was down 8.4 percent
* Talbots was down 6.9 percent
* Zale was down 8.9 percent

So were there any retail winners? Oddly enough, the biggest jump among retailers on Monday took place at two major online companies, who should have profited less from Black Friday and more from yesterday's so-called Cyber Monday: and eBay.

Monday, November 30, 2009

What Happened in Dubai?

Last week's news that Dubai World, an arm of the emirate of Dubai, was seeking to reschedule its debt sent some shivers through the market. (As we noted, it didn't take a whole lot to move the market on those days of such low volume.) There were also many misconceptions that arose, in part because news is received so sketchily over a long holiday weekend.

First of all, it wasn't the emirate that is having trouble with its debts; it's a wholly owned but separate corporation. Dubai World bears a similar relationship to the Dubai government that Fannie Mae and Freddie Mac pay to our own, except that its business is investing in real estate rather than buying up mortgages.

Many people had expected that the emirate itself would cover Dubai World's debts if the real estate entity got into fiscal trouble, but that has turned out not to be the case. That shouldn't be so surprising - one reason wholly owned entities are set up in the manner of Dubai World is so that the government is shielded from things like bankruptcy.

Like a lot of locales here in America, Dubai crazily overbuilt during the real estate boom of the past decade. One of seven members of the United Arab Emirates, Dubai tried to build itself into another Hong Kong, a little world power. One specialty was man-made islands, one of which was to have its own Trump Tower had been planned (canceled earlier this year). There was even an indoor ski run along the shores of the Persian Gulf. And like a lot of other places, when the crash hit, Dubai couldn't handle the losses.

So now Dubai World is left with $59 billion in liabilities. That may sound like a lot, but the International Monetary Fund estimates that U.S. and British lenders will lose $1.8 trillion between 2007 and 2010. So it's not Dubai itself that presents a danger, but rather the idea that other governments may follow. But until that happens, this is merely another aspect of the real estate crisis, not a governmental crisis.

Friday, November 27, 2009

Black Friday

Black Friday unofficially kicks off the holiday shopping season, which will be watched even more closely than usual this year as investors looks for hints that the recovery is strengthening. What can we expect today? It depends on who you ask.

The National Retail Federation predicts holiday-season sales to decline 1 percent, to $437.6 billion. But the International Council of Shopping Centers, another industry group, expects holiday sales to rise 1 to 2 percent. The industry research firm IBISWorld forecasts retail sales on Black Friday alone to increase 2.8 percent from last year.

A total of 76.9 million people are expected to hit the stores today, about 52 percent of American consumers, up from 42 percent last year, according to the consulting firm Accenture. As many as 134 million people say they will shop over the weekend — up from the 128 million people who planned to do so last year.

But they're not planning to spend a whole lot of money. The Accenture survey found that 86 percent of shoppers won't buy anything without a 20 percent discount, and a quarter said they won't buy anything less than 50 percent off. The global business advisory firm AlixPartners says that 87 percent of consumers plan to spend the same or less than they did last Christmas.

The National Retail Federation projects that the average shopper will spend $683 this year, or $23 less than last season. Some 26 percent of families plan to spend $500 or more this holiday, down slightly from last year's 27 percent.

But is Black Friday really what we should be watching? Paul Dales of Capital Economics notes that today is not usually the biggest sales day of the season, which is in reality the last Saturday before Christmas. Dales found that since 1992, it has often been the case that stronger Black Friday sales resulted in weaker performance overall. Shoppers who spend more on Black Friday may end up spending even less the rest of the season.

Happy shopping!

Thursday, November 26, 2009

Thoughts for Thanksgiving

"Let us remember that, as much has been given us, much will be expected from us, and that true homage comes from the heart as well as from the lips, and shows itself in deeds." - Theodore Roosevelt

"There is one day that is ours. There is one day when all we Americans who are not self-made go back to the old home to eat saleratus biscuits and marvel how much nearer to the porch the old pump looks than it used to. Thanksgiving Day is the one day that is purely American." - O. Henry

"If you count all your assets, you always show a profit." - Robert Quillen

Wednesday, November 25, 2009

The Fed Looks Ahead

As I mentioned on Monday, the Fed released its Open Market Committee minutes yesterday, a day earlier than usual in deference to the holiday. The key elements of their forecast:

* The U.S. economy is expected to expand by around 2.5 percent to 3.5 percent in 2010. This is up from the Fed's June estimate of 2.1 percent to 3.3 percent.

* Core inflation is expected to rise 1.25 percent in 2010, the same prediction the Fed made in June. That would be an increase from an inflation rate so far in 2009 of minus 0.2 percent.

* The unemployment rate is expected to average between 9.3 percent and 9.7 percent by the fourth quarter of 2010. The earlier forecast had seen unemployment between 9.5 percent and 9.8 percent. That's only a slight improvement from the current rate of 10.2 percent, though, and suggests that unemployment will be a problem for far longer than any of us would like.

Tuesday, November 24, 2009

The Turkey Economy

The recession has affected a topic near and dear to most of us this week: turkey production. Wholesale turkey prices are down as much as 20 percent due to an oversupply of the big birds, leading to some really great deals at the grocery store. Turkey farmers have also had to deal with higher feed prices - feeding the bird accounts for 70 percent of the cost of raising it. Turkey production is down by roughly 9 percent this year, but that's not been enough to compensate for the decline in consumption.

But it's still a staggering amount of meat. The projection for the fourth quarter of 2009 is that we will produce 1.48 billion pounds of turkey in this country. Fully one-fifth of all the turkey we fix each year is for Thanksgiving.

Overall, the average cost to feed a gathering of ten this year is $42.91, down $1.70 from last year, according to the American Farm Bureau Federation. Just don't skimp on the cranberries: Although poor weather in cranberry-producing states like Massachusetts and Wisconsin has depressed their crop, New Jersey's cranberry production is up 5 percent this year. So those tart red berries on your turkey could very likely be helping our economy.

Monday, November 23, 2009

Short Week Ahead

Thanksgiving Week is here, meaning a short week for the stock market, which will be closed on Thursday and have abbreviated hours on Friday. Even on the days the market is open, volume is expected to be fairly low.

But that doesn't mean there won't be news made. Lower volume means greater opportunity for volatility, so we could see some sizable overall swings in the major indexes. In addition, the usual week's worth of economic reports will be squeezed into the first three days of the week, so the market's reaction to those pieces of news will be compressed as well.

We'll see new consumer confidence numbers on Tuesday, and the Fed's minutes will be released, a day earlier than normal. Then on Wednesday, we'll have durable goods and new home sales figures, plus the new jobless claims, which will also be arriving a day earlier than normal.

That adds up to the possibility of some wild swings on the indexes. But the lower volume means they will likely not be worth paying attention to - even moreso than usual.

Friday, November 20, 2009

Seeing the Future

Unemployment has been a huge problem around the nation, but there's one profession that's actually been benefiting from the recession. A report in the Arizona Republic last month found that psychics have been weathering the downturn quite well. But it's not because their clients are asking the age-old questions of whether they'll find true love; they want to know when the recession will end, and whether they should sell their house.

"I'm seeing many more people that are in real crisis situations," said one astrologer. "They're coming to me with questions about whether they're going to be fired, and with more general questions about when the economy is going to improve. Even my wealthy clients are desperate."

It's certainly difficult for even those of us who work at this full-time to divine what's going to happen next with the economy, but that doesn't mean it's time to throw up your hands and turn to a psychic. We can provide you with a little better forecasting than someone with a crystal ball and a pack of tarot cards. But it's nice to see one sector of the economy thriving.

Thursday, November 19, 2009

Earnings Losers

This blog has been discussing for a while the effect that earnings reports have on stock prices, and particularly the notion of a company beating its expected earnings. Last month we noted that 61 percent of companies beat their expected earnings, while another 18 percent match expectations. Only 21 percent fall short of their expected earnings, so it's mighty bad news when that happens.

Yesterday, the semiconductor products firm Semtech posted an earnings per share of 19 cents, just 2 cents off the consensus estimate. Wall Street responded by dropping Semtech's stock price by 6 percent. Another big loser was Jacobs Engineering Group, which was expected to report earnings of 68 cents per share, but actually reported only 63 cents per share. For that missing 5 cents, Jacobs lost 11.5 percent of its value.

Overall, for this quarter, the average stock that missed its earnings estimate lost 3.4 percent, while the average stock that beat estimates went up only 1.3 percent. The moral: People expect you to make your earnings estimate, and they'll punish you for missing them.

Wednesday, November 18, 2009

Buffett Goes Bargain Shopping

Yesterday we mentioned that Wal-Mart had tamped down expectations for its holiday-season sales. Then came word that Warren Buffett, the Oracle of Omaha, had made a sizable investment in Wal-Mart. Buffett nearly doubled his investment in the nation's biggest retailer in the quarter that ended in September.

Wal-Mart would seem to be the ultimate recessionary stock. Not only are its goods famously inexpensive, but they also tend to be the kinds of things that people still need to buy even when they're struggling or out of work. Among its other distinctions, Wal-Mart is the country's largest food retailer. Does Buffett think the recession is going to continue for some time, that we'll all be buying cut-rate goods for the foreseeable future? Let's hope not.

What else is Buffett shopping for? Here are his other purchases for that third quarter:

* Travelers
* Nestle
* Republic Services
* Exxon Mobil

Tuesday, November 17, 2009

Holiday Forecasts

So we learned this morning that retail sales were up in October, the last month before Black Friday and the kickoff of the holiday shopping season. One more positive note from today's report: The Commerce Department said that inventories at U.S. businesses fell to their lowest level in almost four years in September, signaling that orders might rise as spending picks up.

Here are some of the holiday forecasts that are out there:

* The National Retail Federation predicts a decline in holiday sales of 1.0 percent from last year.

* A survey of chief marketing officers at leading U.S. retailers, taken by BDO Seidman, expects sales on Black Friday and on "Cyber Monday" - the first Monday after Thanksgiving - to be up 1.8 percent.

* Americans expect to spend $638 on holiday gifts, same as last year's holiday season, according to a Gallup poll.

* Wal-Mart expects U.S. sales for the quarter ending in January to be flat to plus-or-minus 1 percent. A year ago, the same sales rose 2.4 percent.

Monday, November 16, 2009

Watching Retail Sales (Now Updated)

The retail sales for October are to be released this morning, and are expected to be a key predictor for the recovery. September's figures dropped by 1.5 percent, but that's a bit misleading, since it includes auto sales, which spiked over the summer with the Cash for Clunkers program. Excluding car sales, retail sales were up 0.5 percent in September, after a 1.0 percent jump in August.

October is an important month to watch as it comes just before the holiday sales period, which gets under way in earnest in November. While September was up from August, the trend was not good; we'll let you know what this morning's figures say about our future.

UPDATE: The October retail figures came out surprisingly good: up 1.4 percent for the month. Economists had forecast the number would be more like 0.9 percent.

But as we've seen so often in this recovery, the signals were mixed. While October struck a positive note, the government's economists revised the September numbers; retail sales had been reported as dropping 1.5 percent, as we noted above, but now the Commerce Department has pegged that September figure at a loss of 2.3 percent. One step up, and one step back.

Friday, November 13, 2009

Good News and Bad

The economic picture in New Jersey continues to move, ever so slowly, in the right direction. The number of initial jobless claims was 11,569 for the week ending Oct. 31, down an almost-imperceptible 203 from the previous week.

At the same time, there was also a story this week about New Jersey being on the brink of collapse. The Pew Center on the States listed our own state as one of ten in the nation that is in danger of economic disaster, because of budget deficits, continuing unemployment, foreclosure rates, and other dire factors. The biggest problem here: Our $44 billion debt. (California was the only state listed in worse peril than New Jersey.)

Of course, these problems are interrelated. If we can get the employment figures moving - not just reducing unemployment, but actually increasing the number of jobs - that's going to make it much easier to wrestle with our budget problems. The economic woes of the state government certainly have many causes, but the best cure for them is a thriving private economy.

Thursday, November 12, 2009

The World Is on Fire

While the Dow has been on a tear this week, just completing its sixth positive day in a row, foreign stock markets have been even hotter. Emerging markets have just finished their strongest six days since July, and the average nation in the 82 countries with major equity indexes has seen a pop of more than 33 percent on the year. The S&P 500, by contrast, is up 20 percent.

Of those 82 national indexes, 71 are up on the year. The biggest gainer of them all is Russia, up a whopping 127 percent. The stock markets in the Ukraine, Argentina and Peru are also up more than 100 percent, meaning the value of their markets has doubled within the space of a year.

For many of these nations, the rebounds have been so strong because their losses were so great when their markets collapsed. The Russian market that looks so valuable this year lost some 70 percent of its value in 2008. But looking forward, the opportunities for diversification around the globe look very enticing.

Wednesday, November 11, 2009

Financial Services Reform

A financial-services reform bill introduced by Connecticut senator Chris Dodd yesterday could have long-term ramifications for the people who provide you with financial advice as well as the entities who oversee them. One of the keys to the legislation is that it would require stockbrokers who act as investment advisers to register as investment advisers and act as fiduciaries - which simply means they must always put the interest of their clients ahead of their own. That is simply good sense, and should be applied to everyone who provides financial advice.

The bill also puts advisers with more than $100 million in assets under the purview of the SEC, as opposed to the current limit of $25 million. Those in the $25 million - $100 million range would fall under the regulatory mechanisms of the individual states, which should help make it easier to find and weed out the bad apples.

And there are steps in there to help prevent another Madoff situation. It would call for investment advisers to use independent custodians - the people actually executing the buying and selling of securities. Bernie Madoff served as his own custodian, which is one reason he was able to hide his nonexistent trades. Investors would also be allowed to sue people who help commit securities fraud.

Some form of the bill is expected to pass in early December. We'll keep you posted.

Tuesday, November 10, 2009

The Dollar Effect

Monday was a big day for the stock market, with the Dow soaring to a new high for 2009 and closing at its best level in over a year. It was also a big day for gold, with the precious metal climbing above $1100 an ounce.

What's the connection between the two? The weak dollar. A sinking dollar is obviously a key to the rising price of gold, since when the dollar loses value, it takes more of them to buy an ounce of gold - even when nothing happens to gold's underlying price.

But there's also the theory that the weak dollar also bolsters the stock market, for reasons that are less obvious. Any major American company that exports goods - which is most of them - benefits when the dollar is low, and they can make more money for selling their wares overseas. And investors run to the safe haven of the dollar when the markets drop, returning to equities and selling off dollars when the markets rise. It makes sense: As long as the dollar remains depressed, investors are better off putting their assets into other investments, whether that's stocks or gold.

Monday, November 9, 2009

Looking for Mutual Fund Money

There was a fascinating and somewhat scary article in yesterday's New York Times by veteran mutual fund watcher Mark Hulbert, pointing out that even in the bull market of the past few months, inflows into mutual funds have been barely more than a trickle. From the market's bottom on March 9 to the yearly high last month, equity funds took in only $7.8 billion in new money. By contrast, over the five years of bull market from 2002 to 2007, those same funds took in $250 billion.

Hulbert attributes this loss of money to investors who are wary of the stability of this market, and while I respect his credentials as a fund expert, I think he's missing an important point here. Unemployment is over 10 percent, and many of those who still have jobs have seen their employers slash or eliminate 401(k) funding. For most people the primary way they invest in mutual funds is through their 401(k).

If not the biggest reason for the dropoff in mutual fund purchases, that is at least a significant reason. And like so many other things in this screwy economy, it's a vicious circle. Companies won't beef up their employer match again until unemployment goes down and they have to compete for talent again. So we won't return to a free flow of money into the markets until the economy improves - which means we better hope the improvement of the economy isn't dependent on those mutual funds getting hundreds of billions of dollars again.

Friday, November 6, 2009

Fraud Alert

There has been a fake email going around lately, purporting to be from the FDIC warning consumers that their bank has gone under, and they need to click on a link to find out about their deposit insurance. If you get this email in your inbox, delete it immediately. When you click on the provided link, what you're really doing is inviting malware, spyware and adware onto your computer.

The subject line of the e-mail reads "Check your Bank Deposit Insurance Coverage.” The e-mail itself says something like this: "You have received this message because you are a holder of a FDIC-insured bank account. Recently FDIC has officially named the bank you have opened your account with as a failed bank, thus, taking control of its assets." Then you're told to "visit the official FDIC website and perform the following steps to check your Deposit Insurance Coverage," but the link provided is fraudulent.

If your bank fails, and you somehow don't notice, you won't get notified by the FDIC - you'll hear from the bank. Even if you do get an unsolicited email from your bank, remember not to click on any links in it or offer up any personal information.

Thursday, November 5, 2009

Buffett's Gamble

Standard & Poor's warned yesterday that they are considering a downgrade to the creditworthiness of Berkshure Hathaway, Warren Buffett's legendary investiment vehicle. Why? Because of Buffett's $34 billion bid for the Burlington Northern Santa Fe railway company. S&P is concerned that the massive outlay could hamper the liquidity of Berkshire Hathaway's core insurance businesses. Berkshire got downgraded eariler this year by the two other main rating agencies, Moody’s and Fitch, after Berkshire's first quarterly loss since 2001.

Berkshire Hathaway already owns 22 percent of Burlington Northern. Buffett famously says his favored time for holding onto a stock is forever, so he must feel that if owning a fifth of a company is good, owning all of it is even better.

But the concerns of the ratings agencies would be familiar to any knowledgeable investor. In a sense, it's just a matter of diversification. Buffett is going to have to take cash out of his existing position to quadruple his position in another holding. It wouldn't be an especially judicious allocation of assets for an individual investor, so why would it necessarily work for Berkshire Hathaway?

At the same time, it's never a good idea to bet against Warren Buffett.

Wednesday, November 4, 2009

Layoffs at J & J

We got a reminder very close to home yesterday that even though the recession might technically be over, the hard times aren't. Johnson & Johnson announced it was planning to lay off more than 8,000 workers, and even though most of them are expected to be away from the New Brunswick headquarters, it's chilling that one of New Jersey's major employers is still shedding workers.

It's also a reminder that the improvement we've been seeing lately in the jobless figures has resulted from the fact that the number of people losing their jobs has been getting smaller. We haven't seen any growth in employment yet, and we may be a long way from seeing it.

J&J CEO William Weldon tried to put a brave face on all of this and said the move was an attempt to position the company to invest in itself and get even stronger at some point in the future. But he alluded to one of the key issues we've faced in this recovery when he admitted: "Until we get unemployment under control and people feel safe and comfortable, I don't think people are going to be spending in areas where they've spent previously." He said this, mind you, at the exact moment his company was adding to the unemployment numbers.

But he's right: Consumer spending won't really grow until more people have jobs. Jobs won't grow until consumers are able to start spending more. It's a maddening problem.

Tuesday, November 3, 2009

Buying Season?

As we mentioned at the beginning of last month, October tends to be pretty volatile in the stock market. Measuring the standard deviation of the daily change in the Dow, October has historically been 40 percent more volatile than the other 11 months. And October did turn out to be pretty blah for investors. So maybe we should be glad that we turned the page on the calendar over the weekend.

So what can we expect from November? It's historically been a very good motnh, for a couple of reasons. Many financial institutions mark the end of their fiscal year on October 31, leading many money managers to take a fresh look at the markets starting on November 1 and start buying again. And November has now become the unofficial start of the Christmas season, making it a strong time of year for consumer spending and leading many retailers to post positive numbers.

Add it all together, and November is, historically speaking, the best month of the year for the S&P 500. On average it's gained 1.7 percent in November dating back to 1950. Actually, it's tied with December, which also averages a 1.7 percent gain; if you add up the next three months, November through January, they have historically accounted for more than half of all gains on the stock market. Let's hope we have another season of good cheer ahead of us.

Monday, November 2, 2009

A Very Scary Halloween

Friday was a rough day for the markets. After seven straight months of gains, both the S&P 500 and the Nasdaq broke those streaks by ending October with a loss. After three months of solid gains, the Dow Jones ended October up only 0.45 points - as close to a flat month as you can get.

The spookiest thing about it was how remarkably broad-based the decline was. All 30 stocks in the Dow Jones Industrial Average closed down for the day.

For the NYSE as a whole, 84 percent of the stocks declined, and only 15 percent advanced. The Nasdaq was slightly better: 79 percent of its stocks declined, and 18 percent advanced.

Within the S&P 500, only 18 stocks advanced on the day. That leaves a whopping 482 issues that declined.

That's what you call a marketwide disaster.

Friday, October 30, 2009

It's (Almost) Official

The Commerce Department released figures on Thursday showing that the American economy expanded at a annual pace of 3.5 percent from July through September. That growth for an entire quarter would mean that the recession has ended - except that the "official" numbers come from the private-sector National Bureau of Economic Research. They will generally take months to make a thorough, unchanging assessment of the economic conditions before issuing a formal declaration on growth.

And while we've seen many economic figures revised well after their release, it would seem strange for the government's initial numbers to be off by 3.5 percentage points. Over the past five years, we have had only four quarters with a GDP growth rate that high.

Assuming this is the real conclusion to the recession, it's a welcome end. The four consecutive down quarters mark the longest stretch of declines since these records started to be kept in 1947. The 3.8 percent contraction in the economy for the 12 months ending in June was the worst in 70 years.

Thursday, October 29, 2009

Bad News for the Rich and Shady

The IRS has announced that it has created a task force called "the Global High Wealth Industry group," targeting taxpayers who have assets or income in the tens of millions of dollars. The idea is that agents will be specially trained to ferret out highly complex financial arrangements like "royalty and licensing agreements, revenue-based or equity-sharing arrangements, private foundations, privately held companies, and partnerships and other flow-through entities that require looking at the entire, and often huge, spectrum of transactions and entities," says an IRS official.

At bottom, it sounds like there are two main triggers for all of this: someone with ownership of several related business entities, and individuals who invest in hedge funds that are set up, or raise money, offshore.

You can certainly understand why the IRS would want to take a closer look at those things to make sure people are paying their fair share. But on the other hand, shouldn't they already have tax agents who know how to dissect an equity-sharing arrangement or an offshore fund?

Wednesday, October 28, 2009

Swaps in New Jersey

You may have seen the story in the news recently about how the state of New Jersey is paying Goldman Sachs $1 million a month for protection against rising interest rates affecting bonds that the state paid off last year. This story is really about credit swaps, and how they have ended up affecting each of us.

The details in the New Jersey case are still a bit murky, as they tend to be with these Wall Street rocket-scientist deals. But what happens, in a nutshell, is that the state sells bonds at an auction rate, which fluctuates with the market on either a daily or weekly basis. A banker like Goldman Sachs comes along and offers a swap, in which the state sells the bonds to Goldman at a rate that has historically tracked the auction rate. In return, the state agrees to pay off Goldman at a fixed relatively low rate of, say, 3.6 percent.

As long as the auction rate continues to track the rate of the swap, New Jersey has essentially traded the uncertainty of selling bonds at the variable auction rate with the certainty of the fixed rate. But what happens when those rates fall out of sync with each other, and the auction rate goes up? That's exactly what happened when the credit markets began freezing up last year. The state ends up paying the difference between those two rates and the 3.6 percent to Goldman.

The whole purpose of the swap was to protect the state against interest rates rising much above 3.6 percent. Now, though, interest rates are close to zero - and the state is stuck paying the higher rate to Goldman as well as the out-of-whack auction rates.

So even if the state has redeemed those now-toxic variable-rate bonds, it can still end up owing huge sums to the bankers who presented it with the swap in the first place. Even in this simplified version of the saga, you can see that what was sold as a way to guard against higher interest rates has become, in an age of sinking interest rates, a massive bill for our state's taxpayers.

Tuesday, October 27, 2009

Earnings in Bloom

We've talked before about the difference between companies reporting strong revenue numbers and those reporting strong earnings numbers. Businesses can bolster revenue by slashing costs, such as inventories and headcount, but the only way to really boost your earnings is by selling more product. So especially in turbulent times such as these, earnings is the number you want to keep your eye on.

There was some concern that the market rally had been fueled by budget-cutters, but now we've seen a bona fide trend on the other side. According to the business-news service Thomson Reuters, 81 percent of the 199 S&P 500 companies that have reported results this quarter have beaten those estimates. In a typical quarter, 61 percent of companies beat their earnings estimates - which tells you something right there. Most earnings estimates come in low to begin with, so you can expect a little good news - and a stock pop - on earnings report day.

But this quarter has been different. If that 81 percent figure stays that high, it would be a record high. In total, earnings have come in 18 percent above the analysts' estimates so far this quarter.

As you can see, we've still got 60 pwercent of the S&P 500 yet to report this quarter, but so far, we're sitting mighty pretty indeed.

Monday, October 26, 2009

Which Way for Housing?

Last week we mentioned that there was a fresh round of home-sales figures due at the end of the week. And it turned out to be doozy: Purchases of existing homes in the U.S. rose to their highest level in more than two years in September. Sales surged 9.4 percent to an annual rate of 5.57 million units, after they had risen at a 5.09 annual rate in August. It was the highest rate of existing-home sales since July 2007.

But the other number we mentioned last week, the number of new housing starts, turned out to be a dud. New-home starts came in at a seasonally-adjusted annual rate of 590,000 in September, when economists were expecting the number to jump to 610,000. It was up just 0.45 percent from the previous month.

There's a common factor in both of these. Many analysts attributed the jump in home sales to the $8,000 first-time buyer tax credit that's due to expire at the end of November. That's what is supposedly fueling all those home sales.

But those same people are probably driving down the new housing starts. If they need to complete their home purchase by November, there's no point in builders starting construction on a new house for them now. And by rushing to buy a house before the tax credit expires, these people are also taking themselves out of the pool of potential new-home buyers for the foreseeable future.

There's now talk that Congress will extend that $8,000 credit past November. If that happens, we could continue to see anomalies like this in the housing market for quite some time.

Friday, October 23, 2009

Penny Watching

Got any old pennies in your car's ashtray or on top of your dresser? Take a closer look at them - they might be worth a few hundred dollars. A coin collector named Scott Travers bought a pretzel in Times Square a while back and paid for it, in part, with a rare 1914 penny worth $300. He also spent a 1909 penny - the first to feature Lincoln, on the occasion of the centennial of his birth - worth about $1,000 and a 1908 penny worth about $200.

The purpose of Travers' stunt was to foster the love of coin collecting in some unsuspecting change-recipient. It's not clear whether it worked, because no one has ever reported getting back one of those rare pennies. It's been three years now since they were put into circulation, and they can't have just disappeared.

If you're really lucky, you'll dig out of your pocket a 1943 penny made entirely of copper, which had been mostly taken out of circulation for the war effort. About 40 of them are known to exist. That one's worth about $200,000.

Thursday, October 22, 2009

New Jersey, America

In many ways, New Jersey remains a microcosm of the United States as it emerges into recovery. The unemployment rate for the U.S. as a whole in September was 9.8 percent; the unemployment rate here in New Jersey was 9.8 percent. A year ago, the state's jobless rate sat at 5.8 percent, while the nation's was 6.2 percent.

On the other hand, we're laggards in the Northeast Region. The region as a whole has a 9.0 percent unemployment rate, the lowest of the Labor Department's four regions of the nation.

The two behemoths at either end of the state have jobless rates pretty much in line with the Northeast average. The New York City metropolitan area is at 9.3 percent, while Philadelphia is at 8.8 percent. Within the state itself, the unemployment rates are all over the place, from Ocean City at 7.6 percent to the Vineland-Millville area at 12.7 percent. Here in Somerset County, the jobless rate is a relatively low 7.9 percent, third-lowest among New Jersey counties after Hunterdon and Morris.

Wednesday, October 21, 2009

The Housing Crisis and Your Retirement

One of the most difficult things about the meltdown in the housing market is the effect it will have on so many people's retirement plans. One recent study showed that home equity represents 21 percent of the typical pre-retiree's net worth, second only to their investment in Social Security. For most people, even the affluent, their home represents a huge portion of their retirement plan.

But the housing crisis has meant that that leg of the retirement strategy has suffered as much as our 401(k)s. That's a double whammy that's going to be tough to get out of. According to a survey conducted earlier this year by the Employee Benefits Research Institute, only 13 percent of all workers feel very confident about having enough money for a comfortable retirement. This is the lowest figure in the survey’s history and represents a 50 percent drop just since 2007.

How can you avoid losing your confidence in your ability to retire? It's important to keep in mind that your home is a big part of your portfolio, and should be managed as such. That doesn't mean that you should buy and sell houses like you do a basket of stocks, but your real estate holdings should be, for example, accounted for in your asset allocation. And you should always keep your long-term housing decisions in mind when plotting out your long-term financial strategies.

To talk more about how your housing situation fits into your financial goals, feel free to give me a call.

Tuesday, October 20, 2009

The Week in Housing

We'll get a real good view of how the housing market is shaping up this week. Yesterday afternoon, the National Association of Home Builders released its monthly Market Index, which measures builders' confidence in the market for newly built single-family homes. It dipped slightly, from dipped to 18 in September from 19 in August. The drop was attributed to the fact that the government's $8,000 tax credit for first-time buyers expires on November 30, which means that just about everyone who was going to take advantage of this has done so already.

Today, we get a more real-world version of this, when the U.S. Housing Starts and Building Permits numbers for September are released. For housing starts, the consensus expectation is 610,000, up a bit from 598,000 in August. Building permits are expected to post an even smaller increase, from 580,000 in August up to 590,000 in September.

To conclude the week in housing, we'll have fresh numbers on existing home sales on Friday. The projections for all these are pretty conservative; if we can exceed them, we'll have further signals that the housing market is moving in the right direction.

Monday, October 19, 2009

Around the World

So now the Dow Jones average has crossed the 10,000 mark, and is up about 14 percent on the year. That's pretty good, but how do we compare to the rest of the world?

Well, it depends on how you frame the question. The Dow hasn't done nearly as well as some of the other indexes around the globe. The German DAX index is up 19 percent this year, while the Amsterdam AEX index is up 31 percent, and the Shanghai Composite Index is up 63.5 percent.

But most of those indexes had more ground to make up than the Dow did. The Dow is still off 29 percent from its high in October 2007. But the German index is also off 29 percent, the Dutch index is off 43 percent from its high, and the Chinese index is still down 51 percent from its high. So other countries have seen more upside so far in 2009 - because they fell that much further from their peaks.

Who's done the best if you look at both 2009 and the distance from the peak? Probably Chile. The Chile Stock Market is up 45 percent in 2009 - and that's down a mere 1.5 percent from its peak, reached in July 2007.

Friday, October 16, 2009

Recovery Numbers Round-Up

Lots of fresh data on the economic recovery came out this week. Here are some of the key figures:

* Some good news on the unemployment front, where the Labor Department reported that first-time jobless claims dropped somewhat, to 514,000 from 524,000 the previous week. The number remains headed in the right direction - but we're still losing half a million jobs a week.

* The Labor Department also said consumer prices rose 0.2 percent in September. Over the past 12 months, consumer prices have fallen 1.3 percent. Inflation, if it indeed returns, still looks a long way off. Gold prices, which many take as a bellwether of inflation, made a small retreat this week as well.

* Bad news on housing: Third-quarter foreclosures were up 5 percent from the second quarter - up 23 percent from the same period in 2008. Overall, third-quarter foreclosures totaled 938,000.

* And of course, the Dow made it back to five figures, closing above 10,000 for the first time in more than a year.

Thursday, October 15, 2009

Shady Planning

There was a scary story yesterday out of Ohio, where two estate planning companies were forced to pay a fine of $6.4 million after providing fraudulent financial services to more than 3,800 people. The scheme worked like this: Older Ohioans were subjected to high-pressure, in-home presentations where they were told that buying living trusts would save them a lot of money over a traditional will.

The cost for this living trust: $1,995, even though it came from the company that was doing the presentations and was a canned living trust agreement drawn up by people in California who weren't even lawyers. And once a consumer had signed up for the living trust, the companies had sales agents descend on them trying to push deferred annuities. The Better Business Bureau had expelled these companies in Pennsylvania back in 2006, and a North Carolina judge had ordered them out of that state as well.

Sales representatives for financial products are always required to identify themselves as such and not claim to be estate planners or financial advisers. This kind of thing is related to what we were talking about last week with regards to the advantages of hiring a fee-only adviser (as I am): When you're making any sort of key decision about your financial future, make sure the person giving you recommendations has your best interests at heart. There are 3800 people in Ohio who could have used that advice.

Wednesday, October 14, 2009

The State of the Garden State

New Jersey has its own version of the monthly consumer confidence report with the quarterly consumer survey conducted by Fairleigh Dickinson University's Silberman College of Business. The latest version showed that a frightening 53 percent of New Jerseyans still say they are worse off now than they were a year ago. As high as that sounds, it's down six points from the previous quarter. Not surprisingly, the hardest cases are at the bottom of the ladder: 65 percent of those making less than $50,000 a year say they're worse off than a year ago.

Credit remains tight in our state: 86 percent of consumers say they will not let their unpaid credit card balances increase, and even among the well-off, just 2 percent of those making over $150,000 say they'll let their credit card balances increase. It seems very telling that even the more comfortable are remaining cautious in their spending. Overall, more than 36 percent of Garden Staters say that paying their outstanding credit card balances is somewhat or very difficult.

For those who might still be in danger of losing their jobs - New Jersey's jobless rate is 9.8 percent, same as the national average - 48 percent say they could live off their savings for more than six months if necessary. But the number who say they could live for less than three months off their savings rose by 6 percentage points from the previous survey. Life may slowly be getting better around here, but it is still very precarious.

Tuesday, October 13, 2009

The Economists Speak

More indication that the recession is over: The National Association of Business Economists has declared it to be so, following in the footsteps of Ben Bernanke. These people watch the economy - and especially how it affects the nation's corporations - as well as anyone, so their opinions are worth a little something. At the same time, it bears repeating that the recession is over when the GDP starts expanding again, and not when someone opines that the recession is over.

The economists' panel foresees a bit of a jobless recovery coming up: Like a lot of people they forecast it to hit 10 percent before it eases back down. The economists see unemployment as high as 9.5 percent by the end of 2010, a full year after the end of the recession. The jobless rate hasn't been that high since June of 1983 - about the same time frame after the end of the 1981-82 recession.

They do expect the housing market to be turning around, with housing starts expected to be up a solid 38 percent next year. But they see the dollar continuing to fall, remaining weak well into 2010.

Monday, October 12, 2009

Fund Watching

Mutual funds have been greatly benefiting from the recent runup in stocks. The third-quarter numbers - for the period that ended on September 30 - are now in, and some sectors looked very strong. These were the leading mutual fund sectors for the quarter:

Real estate: up 32.6 percent
Financial: up 22.0 percent
Equity precious metals: up 20.2 percent
Equity energy: up 18.8 percent
Technology: up 17.6 percent
Communication: up 15.1 percent
Natural resources: up 14.7 percent
Health: up 11.6 percent
Utilities: up 9.7 percent

Overall, U.S. stock funds were up 16.0 percent for the quarter. International stock funds did slightly better, up 18.7 percent.

Friday, October 9, 2009

Credit Card Woes

Two news stories from the credit card industry caught my eye this week. First of all, the government came out with a report showing that consumer credit dropped in August, for the seventh straight month. Credit is important, as I've written before, because it expands the wealth we have and creates new wealth. All the consumer confidence in the world doesn't matter if people aren't out there spending money.

The other story reported that Wells Fargo was planning to increase its credit card rates, in anticipation of Congressional regulations that will limit their ability to do so. Someone at Wells Fargo seems to think this will boost its bottom line, and maybe it will. But think about it: Imagine your annual credit card rate is now 14.9 percent. If your bank raised that to 17.9 percent, are you going to use that card more than you do now, or less? If your bank cut the rate to 11.9 percent, do you think it would get more charges out of you?

It's certainly not my place to tell Wells Fargo how it should run its business, but it seems like it would be worth a try for one of the credit card issuers to drop its rates and see how much that improved its bottom line. But more importantly, at a time when we need to expand credit to help get this economy going, it's frustrating to see issuers of credit doing the exact opposite.

Thursday, October 8, 2009

The Revenues Game

The other day we mentioned that much of the positive news in the stock market was the result of companies increasing earnings by cutting costs rather than boosting their revenue. We had an important test case of this yesterday: Alcoa was scheduled to release its numbers for the third quarter, with the consensus forecast being that the aluminum giant would report a loss.

But Alcoa not only beat expectations, it beat them in the right way. Its revenues were $4.62 billion for the third quarter, up 9 percent from the previous quarter. Earnings came in at 4 cents a share, handily beating the consensus estimate of a 9-cent loss. It was Alcoa's first quarterly profit of the year.

There are other key stocks due to release earnings reports this week, including PepsiCo and Marriott International. Remember, the most important factor will be the movement in their revenues, how much money people are willing to spend on their products. That will help us understand not just how these companies are doing but how our American economy is doing.

Wednesday, October 7, 2009

Taking the Investor's Side

To follow up on yesterday's post, there is a bill called the Investor Protection Act that has been floating around Congress since this summer that would also tighten up the fiduciary responsibilities of financial professionals. One provision would require broker/dealers to live up to the same fiduciary standards that financial advisers are already required to adhere to.

Fiduciary simply means that that a person is ultimately obligated to act in their client's behalf. That's what a wealth manager such as myself has been doing along, but it would be a new role for brokers, who may have your interests at heart but also require a considerable amount of stock sales to make their living.

Other provisions in the IPA are designed to prevent another Madoff-type scandal, by increasing the number of people investigating potential frauds and rewarding whistleblowers who help the SEC catch such people. It would also bar the inclusion of mandatory arbitration clauses in securities contracts; as it stands now, most people who feel they've been wrong by a brokerage have to take their case to an arbitrator rather than having the right to sue. We'll keep you posted on the progress of this bill.

Tuesday, October 6, 2009

Citigroup Catches Up to Us

Citigroup discovered yesterday what many of us in the financial services industry have known for years: The best and most honest way to serve your clients is through a fee-only structure. We here at Echelon Wealth Strategies have always been fee-only, meaning we charge our clients a small percentage of the assets we manage for them. Until yesterday, Citigroup's financial advisers worked for commissions, but now they're switching to fee-only.

Why is that important? A fee-only adviser has no incentive other than to increase his clients' assets. On the other hand, a commission-based adviser has other incentives. A client who wants to pursue a buy-and-hold strategy, for instance, may get pushed into stock trades he or she doesn't want, because there's no commission to be earned on money that simply holds on to a stock for ten years. To earn commissions on asset management, there must be transactions.

We do earn commissions on such things as insurance sales, but when it comes to managing assets, we are purely fee-only. That frees us up to serve our clients' interests and only our clients' interests. It's an attitude that has served us well, and we wish Citigroup all the best now that they've seen the light.

Monday, October 5, 2009

Expenses vs. Revenues

There was a fascinating piece in yesterday's Times looking at an important aspect of the stock market's recovery. The writer, Paul Lim, points out that the surge in many companies' earinings - which has been accompanied by a surge in their stock prices - has been fueled more by cost cutting than by growth in sales. Selling and administrative costs among the S&P 500 companies fell by 5.7 percent in the second quarter of '09 as opposed to the second quarter of '08. But corporate revenues fell by almost 20 percent in the same time period.

Obviously, there's a limit to how much businesses can cut expenses. If these companies don't start increasing sales some time soon, earnings will start to suffer, as will their share prices. (This also helps explain why unemployment keeps rising even as the stock market is showing signs if life.) At some point, revenues will need to rebound.

And when will that happen? Warning: This isn't good news. According to Lim, research says that sales hit bottom and start to turn back upward approximately nine months after a recession ends. If the recession is ending now, that puts the next upward movement in revenues early next summer.

Friday, October 2, 2009

October Winds

Well, October is off to lousy start, with the Dow losing more than 200 points yesterday. What does the rest of the month have in store? History suggests that it will be a bumpy ride.

Stockwatcher and columnist Mark Hulbert points out that October has historically been the most volatile month on the investing calendar. Measuring the standard deviation of the daily change in the Dow, October has been a whopping 40 percent more volatile than the other 11 months.

For long-term investors, this shouldn't be much of a problem. As hard as it can be to stomach market swings, at this point we should be expecting them - and in every month, not just October. And remember, volatility doesn't signal bad news; the market can be volatile on its way up as easily as it can be volatile on its way down.

Thursday, October 1, 2009

A Tangled Web

One of the things that made Bernie Madoff's schemes work was that he followed through on a lot of details, issuing sophisticated reports to his clients so they wouldn't suspect the numbers were all made up. We have a junior-league Madoff here in New Jersey, a man from Spring Lake who sold unsuspecting investors shares in a company that barely even existed.

The company was called Digital Gas. The swindler, Brian Smith, concocted phony press releases that he posted on the Internet to deceive the investors into thinking that there was actual demand for its shares. Digital Gas was once a real company, a supposed incubator for energy businesses, but it has had no revenues or even bank accounts since at least 2006.

That didn't stop Smith from portraying it as a viable business - and getting penny-stock investors to believe him. This week, Smith was ordered to pay over $5 million in penalties and restitution. The wonder is that there were enough gullible investors willing to give him so money. Your investments are critically important to your future and that of your family, and it saddens me to see people not treat them with all the care and preparation they deserve.

Wednesday, September 30, 2009

The FDIC, Hat in Hand

The Dow slipped backward a bit on Tuesday after the big gains we saw on Monday, but that was hardly Tuesday's most discouraging news. Of more long-term consequence is the fact that the Federal Deposit Insurance Corporation is asking member banks to kick in $45 billion by the end of the year, to cover losses from bank failures that are now projected to reach $100 billion over the next four years.

Bank of America could have to pay $3.5 billion, JPMorgan Chase as much as $2.4 billion, but the hits the banks are taking are the least of our worries. More problematic is the signal that the banking crisis is far from over, with more than 400 banks remaining on the FDIC's problem-child list. Ninety-five banks have already failed so far in 2009, and the problem figures to extend to at least 2013.

The punchline to all this is that for ten years, from 1996 to 2006, the FDIC collected no premiums at all from its member banks. None! Who would have ever guessed, in those heady days of the late 1990s, that American banks would start failing again? Certainly not the FDIC, which could be flush with funds right now if it had bothered to collect the premiums it was owed all along. And those member banks could have chipped in a few billion when they could have afforded to do so, rather than during the current tough times.

Tuesday, September 29, 2009

The Dow at the Doorstep

The Dow Jones average took another step forward on Monday to close at 9789, tantalizingly close to the magic 10,000 mark that once seemed like a floor rather than a goal. The index was up 124 points on the day.

What was the cause for the rise? It depends on who you ask:

* Two announced mergers helped the market along, supposedly because they're a sign that the credit markets are open again, or because investors have started buying up shares of potential takeover targets.

* Investors are expecting third quarter earnings numbers to be strong.

* The general sense among investment professionals is that the recession is really over.

* Business Week also noted: "Wall Street also weighed a Wall Street Journal report Monday that $35 billion in support of state and local housing agencies will be committed by the White House to provide mortgages to low-income earners."

It could be any of these things, or none of them. The government has pumped plenty of money into the mortgage market in the past, and Xerox, one of the major players in the day's mergers, lost value on the day. Perhaps the best news of the day was how broad-based the optimism was: The S&P 500 and the Nasdaq were up in addition to the Dow, Treasurys were up, the dollar was up. With all that, it was a day full of good news.

Monday, September 28, 2009

Name Recognition

What makes stock prices move? People put an awful lot of effort into reading technical analysis and economic indicators, but one recent study suggested that might be less than half the story. According to professors at the Universities of Michigan and California, the biggest part of a stock's movement is name recognition.

The researchers claim that as much as 70 percent of the variation in stock returns is explained by changes in investor recognition, which they define as the number of investors who know about a stock and hence consider it for their portfolio. “Efficient market theories say sophisticated arbitragers would step in to keep the prices in line with fundamentals, and we show that doesn’t happen," says Richard Sloan, the California professor. "When a lot of investors get excited about a stock, the price moves accordingly."

This is not so surprising, especially to investors who subscribe to the Peter Lynch school of investing, in which people buy into companies that they see doing well. But the magnitude of the effect is eye-opening, particularly if you're trying to choose between buying Apple or buying Air Products & Chemicals Inc.

Friday, September 25, 2009

The Importance of the Business Tax Climate

As we're struggling to emerge from this recession, there was a bit of a slap in the face to New Jersey this week. An organization called the Tax Foundation released its annual list ranking the states according to the State Business Tax Climate Index. Bringing up the rear, ranked 50th out of 50, was the Garden State.

The ranking is based on corporate income, individual income, sales, property and unemployment insurance taxes. New Jersey was downgraded because of the recent enactment of a millionaires' tax, among other things, although it had already ranked in last place last year as well.

At the same time, there's something a bit off about this list. Ranking just above New Jersey, in 49th place, is New York, and California is in 48th place. But at the top of the list is a state that's never been known for its thriving business community, South Dakota, and it's followed by Wyoming and Alaska.

What we really seem to be seeing on this list is that states with solid environments for business growth, like New York and California and, yes, New Jersey, can afford to tax those businesses a little more, while states in desperate need of business growth have to use tax policy to attract that growth.

Thursday, September 24, 2009

The Fed States Its Case

The Fed emerged from its two-day meeting yesterday afternoon with a message that was a little unsatisfying: The economy keeps getting better, they said, but not so much better than we can change our tactics. "Economic activity has picked up following its severe downturn," read the Fed's report. "Conditions in financial markets have improved further, and activity in the housing sector has increased."

But conditions haven't improved so much that the Fed is taking its foot off the gas. The Fed is still planning to end its mortgage-bond purchase program - but it will keep going past the end of the year, longer than had been originally announced. They'll also keep interest rates at their near-zero levels for an indefinite period.

This is one of those situations that suggests you should watch what someone does rather than what someone says. When the Fed feels it doesn't need to do things like buy up mortgage debt, then we'll believe the economy has really turned a corner.

If you'd like to read the Fed's full statement, you can find it here.

Wednesday, September 23, 2009

The Bull Market in Bonds

You may have seen a recent report from Morningstar that investors have put $209 billion into bond mutual funds this year, through the end of August. That's a whopping thirteen times more money than they've put into stock funds. To put that in a little perspective, from 2003 to 2006, when the stock market was roaring, inflows into bond funds totaled just $113 billion.

A big part of that is because people have been reluctant to sink more assets into this stock market, and need some place to put their money. But those bond investments have paid off. Some more numbers:

* The Barclays Capital U.S. Aggregate Bond Index, which mimics the entire bond market, is up nearly 14 percent since October 2007, just before the recession started.

* Over the past five years, bonds have returned an average of 5 percent a year to just 1 percent for the S&P 500.

* Over the past ten years, bonds have had an average annual gain of 6.2 percent, compared to an average annual loss of 0.5 percent for stocks.

* What used to be called junk bonds are on fire; Fidelity’s High Income fund has returned 41 percent so far this year.

Tuesday, September 22, 2009

New Jersey Housing Trends

The nation's HUD secretary, Shaun Donovan, was in New Jersey yesterday talking about the housing crisis. He pointed out that New Jersey has had a tough time of it in the foreclosure department: We've seen foreclosures rise by 17 percent over the past 12 months, while at the national level, they've declined 16 percent over the same period.

At the same time, though, we've seen prices stabilizing, and the Times ran a piece last week about how the northern half of the state was showing the symptoms of a full-blown housing recovery. They listed seven Jersey counties with the healthiest real estate markets: Bergen, Essex, Morris, Union, Mercer, Middlesex and right here in Somerset county.

What we appear to be seeing is a bifurcated housing market, where the upper end is recovering nicely and the lesser end is still struggling. There's no such thing, really, as a statewide housing market, just as there's no such thing as a national housing market; the people shopping for a home in Basking Ridge are very different from the people shopping for a home in Trenton or in Ocean City.

Monday, September 21, 2009

Looking Ahead to the Fed

The Fed opens one of its two-day policy meetings tomorrow, and there is much anticipation for its report on Wednesday afternoon, when it will offer it assessment of the economy and announce any changes to monetary policy. They could very likely reinforce Fed chairman Ben Bernanke's opinion from last week that the recession is "likely over."

The Fed has already indicated that it would at least slow its purchase of Treasury bills. Its program of buying T-bills - it's bought $300 billion so far- is scheduled to end in October, and the consensus is that it won't be renewed. Getting out of that market would signal that the Fed has increasing confidence in the economy and the government.

One thing they're not expected to do is lift the Fed funds rate above its current state at zero to 0.25 percent. A Reuters poll last week showed economists expect the Fed to hold rates steady until as late as the third quarter of next year.

The report is officially issued at 2:15 on Wednesday afternoon. We'll keep you posted on what transpires.

Friday, September 18, 2009

An End to Money Market Insurance

The Treasury Department's guarantee of all funds put into money market accounts expires today, a year after the program was introduced. The program started after the Reserve Primary Fund, a major money market fund, broke the buck, or fell below a dollar a share and saw its assets actually decline in value.

There has been some talk of big institutional investors taking their money out of money market funds now that it's no longer guaranteed; indeed there has been more than $50 billion taken out of money market finds this week, which is a much higher number than normal.

But some perspective is in order: There is still $3.5 trillion invested in American money market funds, which means this week's withdrawals amounted to little more than 1 percent of the total assets. And if those assets are coming out of money market funds, they are probably going into stocks and bonds, which is a healthy place for them to be.

And finally, let's not forget why the Reserve Primary Fund broke the buck: It had a huge stake in Lehman Brothers when that investment bank collapsed. It's safe to say that if we reach another point where major investment banks are failing, money market funds won't be the foremost of our concerns.

Thursday, September 17, 2009

More Unemployment Dipsy-Doodles

New Jersey's jobless rate hit a 33-year high in August, climbing to 9.7 percent, which also happens to be the national average. New Jersey also gained the sum total of 800 jobs in August.

How can these two things both be true? It's our old friend the revised estimate of earlier results. When the state's Labor and Workforce Development Department released the August figures, it also revised its estimate of July's unemployment figures. A month ago, the department thought New Jersey had added 5,900 jobs; now it thinks we actually lost 500 jobs in July. Hence the new unemployment rate is much worse than what had been reported for July, which was 9.3 percent. It's not clear what the July unemployment rate really was, but it was worse than 9.3 percent.

Still, there's more good news here than bad. The 800 jobs we gained in July balance out to 2,900 gained in the private sector and 2,100 lost in the public sector, mostly as cities and towns lay off people in reaction to a lower tax base. It's nice to see the private sector leading the way in job creation - although you should probably check back here a month from now, and see whether we've still gained all those jobs.

Wednesday, September 16, 2009

Recession's End

Fed chairman Ben Bernanke has now said that the recession, which began in December 2007, is "very likely over." But of course he doesn't know for sure yet - none of us do. As we've said many times, these things can only be decided in hindsight.

So when we will know if the recession has ended? The Commerce Department issues quarterly reports on the changes in gross domestic product, and there's one due for the third quarter - July through September - around the end of October. So we have another month and a half to go before we'll know if Bernanke was correct.

And even then, we won't be positive. The last time Commerce released the quarterly GDP figures, at the end of July, in addition to providing a figure for the second quarter of '09, it revised the numbers for all of 2008 as well. So even if, on Halloween, we find out the recession ended over the summer, it might get revised back into existence next January.

The bottom line is, of course, that it's really not important to know exactly when the recession ends. Other economic and financial numbers are critical to follow, but the day that GDP moved from shrinking at a pace of 0.1 percent to growing at a pace of 0.1 percent is not especially significant.

Tuesday, September 15, 2009

Golden Years

Last week, we noted that gold futures had popped up to $1,000 an ounce; prices have now stayed at that level for a couple of days. One reason for that is the fear of inflation that has been floating around. Precious metals have long been a popular hedge against inflation.

Gold, silver, and other metals have long been seen as sort of an alternative currency when the paper currency start to get beaten down, as the dollar has been lately. The greatest price spike in the history of gold, as many of you will remember, took place around 1980, at a time of great inflation. Back then, the price of gold peaked at $850 an ounce. But remember, because of inflation, that price is equivalent to well over $2,000 an ounce in today's dollars.

There are two ways to look at that price spike:

1. The price of gold today is far below its historical inflation-adjusted high, so there may be room for more upward movement.

2. Following that 1980 high, gold went into a bear market for more than two decades, and didn't reach that lofty price again until January 2008. And it's never come close to matching that 1980 peak in inflation-adjusted terms.

Monday, September 14, 2009

The Banking Landscape, One Year Later

Over the weekend the New York Times had a special package on the aftermath of the Lehman Brothers bankruptcy, which happened a year ago tomorrow. There was a graphic showing the market capitalization of the major players in the finance industry at its peak, at the trough, and as of today.

The peak for these financial companies was October 9, 2007, shortly before the recession began. At that point, there were 13 financial corporations with markets caps exceeding $50 billion, ranging from Citigroup at $236.7 billion to Bank of New York Mellon at $51.8 billion. At the lowest point of the market, March 9, 2009, there was only one such banking concern worth $50 billion: JPMorgan Chase, at $59.8 billion.

As of last week, the banking business had rallied to the point where there are now five firms with that $50 billion market cap. A lot of that is because of consolidation: JPMorgan Chase, still the largest although now at $167.1 billion, snapped up Washington Mutual and Bear Stearns. The other four are Bank of America ($146.8 billion), Wells Fargo ($128.1 billion), Citigroup ($105.5 billion) and Goldman Sachs ($91.8 billion).

In all, at the market peak, the financial sector held 20.4 percent of the value of the stock market. At the bottom, it was down to 11.8 percent, and now it's back up to 16.6 percent: an impressive rebound, but not back to full health yet, especially considering the market itself is still only at 65 percent of its peak value.

Friday, September 11, 2009

A Day to Remember

Eight years ago today, we woke up to a beautiful late-summer morning, under brilliant blue skies. A new school year had just started, and the air seemed filled with optimism and possibility. Then, at 8:46 a.m., everything changed, forever.

There have been many tears shed since that awful day, many hardships and difficult times that can be traced back to the morning of September 11. There have also been tremendous acts of heroism, and inspirational moments when we saw our communities and our country banding together. Our experiences from that day and its aftermath have left none of us quite the same.

On this anniversary, all of us here at Echelon Wealth Strategies remember the friends and family we lost on 9/11, and the heroes we discovered - many of whom we lost as well. Let us pray that our nation, and our state, would never encounter such a tragedy again.

Thursday, September 10, 2009

One State Split in Two

The Federal Reserve issued its so-called Beige Book on Wednesday, providing information on the economic conditions for each of its 12 districts. Overall, the report was what you might expect: "economic activity continued to stabilize in July and August," and "the outlook for economic activity ... remained cautiously positive."

The Beige Book slices New Jersey in two, with North Jersey being covered by the Fed's New York office and South Jersey being covered by Philadelphia. The New York office, representing North Jersey, said the economy had shown signs of stabilizing, while Philadelphia, representing South Jersey, said there were signs of improvement, a somewhat more optimistic view. The New York half of the state noted that the first-time home buyer tax incentives were spurring home sales, while the Philadelphia half said it saw more gains in high-end homes. The South Jersey report had commercial real estate vacancies increasing, while the North Jersey side was more mixed.

Did the two offices agree on any aspects of the recovery? Both said demand for loans was decreasing, a negative sign, but both said that manufacturers were expecting positive growth over the next year, a positive sign. In general, the outlook is the same all over New Jersey: Things aren't great, but they're starting to get headed in the right direction.