Friday, July 31, 2009

Wrapping Up a Nice Month

Today is the last day of July, and unless disaster hits today, we should be wrapping up the best month for the stock markets in almost a decade, and the best July in 20 years. The Dow Jones Industrial Average is up a whopping 8.4 percent in July alone, which would be the best monthly performance since 2002. The Nasdaq is up 8.1 percent this month, and the S&P 500 up 7.3 percent. The Dow and the S&P 500 both reached their highest level since last November 4.

We'd talked before about companies that had beat analysts' earning forecasts earlier this month, such as Apple. Dow Chemical, MasterCard and Motorola joined the club this week, and all saw their stocks soar. According to Bloomberg News, three out of every four companies in the S&P 500 that released results since June 17 have exceeded analysts’ second-quarter profit estimates.

This economy still has a long way to go before it can be considered fully healthy, especially in the area of unemployment, as we've been discussing lately. But this has been a good month on a lot of other fronts, and it's quite possible that we're really coming out of this mess.

Thursday, July 30, 2009

The Rise of the Online Trade

If you follow Major League Baseball at all, especially the business side of the game, you probably know that the Ricketts family is on the verge of buying the Chicago Cubs and Wrigley Field at a price tag of nearly $1 billion. Joseph Ricketts bought into little investment firm called First Omaha Securities back in 1975, which has grown into TD Ameritrade. That he would have made enough money to buy this storied franchise from a business - online stock trading - that basically didn't exist 15 years ago is pretty remarkable.

First Omaha was one of the first discount brokerages, a mode of business that started up when the SEC deregulated the brokerage industry back in 1975. Always ahead of the technology curve, the copmany - by then known as AccuTrade - allowed its customers to make trades by touch-tone phone in 1988, the first firm to do so.

So when the Internet started to take off in the early 1990s, Ricketts' company was ready. A little company called K. Aufhazer had been the first to offer Web-based stock trades in 1994, but it was quickly snapped up by Ameritrade the following year. By 1996, Ameritrade was letting its customers do online program trading.

After going public in 1997, Ameritrade bought up many of its smaller rivals, and eventually bought TD Waterhouse and changed its name to TD Ameritrade. The company - which, remember, was making trades over the phone 15 years ago - is now valued at $10 billion. That's how you make enough money to buy a baseball team.

Wednesday, July 29, 2009

More From the Jobs Front

Yesterday, we mentioned that there are still a couple million job openings in the U.S. Some of them require very specific skills, though. Here are a couple of the more specialized positions out there:

* Parkvale Bank in Monroeville, is looking for - no, not a teller or loan officer but a balloon pilot. The bank has used a balloon for marketing purposes for 30 years, but the job of pilot has been vacant for several weeks now. "You just don't open up the Yellow Pages and look for a balloon pilot," said a senior assistant vice president for the bank.

* A company in Emeryville, California is looking for a dog bather who can also give a dog both a manicure and a pedicure - that's what the listing says, although we're not sure what the difference would be for the dog.

* An outfit in Washington State needs Princesses to work at children's parties. Experience in Magic Shows, Face Painting, Balloon Twisting a must.

* And if you're willing to relocate overseas, Wookey Hole, a tourist destination in England, is looking for a witch to live in the site's caves and teach witchcraft and magic. Applicants must be able to cackle. The old witch retired some months ago. "We are witchless at the moment," said the site's hiring rep, "so need to get the role filled as soon as possible."

Tuesday, July 28, 2009

Someone's Still Hiring

To continue our look at the nation's unemployment figures, according to the Bureau of Labor Statistics, there were 2.6 million job openings in the U.S. as of the end of May. That's jobs that companies are actively seeking employees for. Nearly 4 million Americans got hired for new jobs in the month of May alone.

If 2.6 million job openings seems like a lot, note that as recently as a year ago, there were more than 4 million job openings in the U.S.; the number has fallen by 36 percent in 12 months.

And remember too there are something like 140 million people who have jobs right now, along with roughly 14.7 million unemployed. Even if all of the perfect candidates from the ranks of the unemployed came along to fill each of those 2.6 million jobs, the unemployment rate in this country would still be nearly 8 percent.

Monday, July 27, 2009

The State-by-State Picture

While unemployment continues to be a major issue around the nation, we're in relatively good shape here in New Jersey. The state's unemployment rate, as of the end of June, stands at 9.2 percent, just under the national average, although that's up from 8.8 percent in May. The national average, remember is 9.5 percent.

But just a year earlier, in June 2008, New Jersey's unemployment rate was 5.2 percent. In twelve months' time, the state has lost 135,000 jobs. Those are some scary numbers.

What state has the worst jobless figures? Not surprisingly, it's Michigan, home of the nation's beleaguered automotive industry. Michigan has a 15.2 percent unemployment rate, and it's still getting worse; it was 14.1 percent in May. Michigan has lost 337,600 jobs in the past year.

At the other end of the scale: North Dakota, with a jobless rate of just 4.2 percent. North Dakota is the only state that has added jobs in the past year, although the total is a mere 6,000 jobs.

Friday, July 24, 2009

A Jobless Recovery?

The financial news around us has been relatively positive lately - sales of previously occupied homes rose for the third month in a row in June, the first time that's happened since 2004. But there's one piece of the puzzle that doesn't appear to be getting any better: Unemployment. First-time unemployment claims jumped by 30,000 last week, according to a Labor Department report that came out yesterday.

That's no surprise: As we said earlier, economists expect unemployment to reach 10 percent before it starts to improve again. But people are starting to wonder, how can we have an economic recovery with unemployment still in the doldrums?

The term jobless recovery dates back to the early 1990s, when we emerged from a mild recession at the end of the first President Bush's term. Subsequent recessions have also seen employment figures recover much more slowly than after earlier recessions. This may be the result of automation creeping into our lives; certainly many industries require fewer workers than they did a generation ago.

There are also two structural factors that may impede job growth after this recession. According to the Wall Street Journal, very few of today's unemployed are workers who have been laid off temporarily - only 11.9 percent of all the unemployed are in that situation, and that number has dropped in recent months. By contrast, in the 1982 recession, more than 20 percent of the unemployed were on temporary layoffs. The Journal also found that there's a very high number of people working less than full-time involuntarily - more than 5 percent of all workers, an all-time high for that statistic. So when their companies start expanding, they can simply increase the hours given to current employees rather than hiring new ones.

So yes, a jobless recovery is a very real possibility. It's something we'll be keeping our eyes on in the months to come.

Thursday, July 23, 2009

The Bright Side of Paperwork

We all hate to have to fill out paperwork, but sometimes it can actually work to our advantage. Consider the case of a bank robber in Flint, Michigan. He went into hi local credit union and handed the teller a note reading "give me all your money or I'll kill you."

The teller kept her calm, though. She handed the note back to the would-be robber and told him he needed to fill out a withdrawal slip first. The man was dumbfounded and tried to figure out what to do next - while the clever teller went to call 911.

The robber eventually fled from the credit union, but the police caught up to him a short while thereafter, with the note still in his pocket. It's unclear whether he had a withdrawal slip on him as well. But the next time you have to fill out excessive paperwork at a bank, remember, it might just be the weapon the trips up the next potential thief.

Wednesday, July 22, 2009

The Apple Numbers

To follow up on yesterday's post, Apple did indeed release surprisingly good quarterly figures today, and the stock did indeed take a leap upward. But that's because the profit numbers beat analysts' estimates, not the company's own depressed estimates.

Apple's net profits were up 15 percent, to $1.35 a share, up from $1.19 a share in the same quarter a year ago. The consensus of analysts was that Apple would record profits of around $1.16 a share. By beating that number, Apple saw its stock price climb by 4.5 percent yesterday.

Maybe more significantly, Apple benefited by beating its whisper number, which was in the low $1.20s per share. The whisper number is an analyst's estimate that is generally more recent than what appeared in the official research report, more confidential, and often reserved for the use of the analyst's more well-heeled clients. Not surprisingly, they also tend to be a better barometer than the official analyst figures. That Apple beat even its whisper number is well worth noting.

Apple, by the way, has predicted profits of $1.18 to $1.23 a share for the next quarter, which would be down significantly from this quarter. We'll keep you posted.

Tuesday, July 21, 2009

Apple's Game

We mentioned yesterday that Intel beat expectations in its earnings report last week, leading to a big runup in the chipmaking sector. Here's a prediction for today: Apple, which is slated to report its earnings today, will also outperform its projections.

This isn't necessarily because the second quarter will have been exceptionally kind to Apple; it's just what the company always does. In April, for example, Apple reported a $1.33 per share profit - 40 percent more than it had projected in January. The revenue number, $8.16 billion, was 5 percent higher than the projected figure. But no one cared, because Apple beating its projections was widely expected by Wall Street. Some analysts use a rule of thumb that Apple will always beat its projected earnings per share by 35 to 40 percent.

So if Apple makes news by releasing outrageously rosy quarterly figures today, don't get too excited. The people who have been buying and selling their stock have already taken those numbers into account.

Monday, July 20, 2009

Which Way for Intel?

Last week's prime mover, spearheading a nice week in which the Dow Jones industrial average was up more than 7 percent, was the computer chip maker Intel. Intel posted surprisingly good second-quarter earnings and a third-quarter forecast that was also better than expected. The company's stock gained 7 percent in one day, and pulled up the whole chip sector long with it.

Many observers credited the positive move to a recovery from last winter's "inventory correction." The idea is that computer makers, faced with a downturn in the economy, decided to stop buying new chips until they had cleared out some of their old inventory. When those inventories started running low, chipmakers suddenly had markets for their products again.

What does this mean for the future of the industry? It depends on whom you ask. An analyst from JP Morgan told CNN: "Although the Intel quarter was clearly spectacular on all fronts, we continue to believe the upside was driven by inventory replenishment as we have not seen any evidence of increasing PC demand." But the Wall Street Journal saw the "inventory correction" factor as a reason to be bullish, noting that it was "a short-term, one-off deal."

It comes down to which one you think is the anomaly: the inventory correction of last winter, or Intel's recovery from it this spring. Given what happened to Intel - and the rest of the chipmaking sector - last week, it's clear what the investment community's answer is.

Friday, July 17, 2009

Big Money

We've talked several times on this blog about the threat of inflation, but it's apparently already a serious problem in New Hampshire. It was in Manchester there that a man bought a pack of cigarettes at a gas station and swiped his debit card to pay for them. When he checked his account online, he discovered how much a pack of cigarettes is going for these days: $23,148,855,308,184,500. That's twenty-three quadrillion dollars!

We're also seeing signs of inflation in San Francisco, where a teenager ate out at Applebee's, charged the meal to his Visa Buxx card, and later discovered he owed $23,148,855,308,184,500. That number may look familiar.

There were several other $23 quadrillion charges around the country, and Visa quickly discovered the computer error that was causing it. Now, computer errors are a fact of life, and it's hard to get too upset about one. But what was really uncalled for was that the Manchester man's New Hampshire bank tried to get him to pay a $15 overdraft fee - obviously, his account didn't have $23 quadrillion in it. It took him an inexcusable two hours on the phone to get the whole thing straightened out.

Thursday, July 16, 2009

The Fed's Forecast

A few weeks back, we talked about the two-day meeting of the Federal Reserve Board, when they hashed out what further action was needed to right the economy. The minutes of that meeting were released this week, and the big news to come out is that the Fed forecasts unemployment to hit 10 percent before it starts to wind down again.

That's not too much of a surprise - it's already at 9.5 percent, after all. And there was concordant good news in those minutes: the Fed expects that "the decline in [economic] activity could cease before long," and that GDP should decline by between 1 percent and 1.5 percent overall in 2009, compared to an earlier forecast of a drop of between 1.3 percent to 2 percent.

That's small comfort, of course, to people who are still going to lose their jobs to this recession. Looking back to the 1981-82 recession, we see that unemployment didn't start to ease until well after the recession had officially ended. At that time, the economy began growing again in November 1982, which is also when unemployment peaked, at 10.8 percent. It remained at 10.8 percent through December, and stayed over 10 percent as late as June 1983. A similar outcome now could mean that even if the recession is coming to an end in the very near future, unemployment could remain a serious problem into 2010.

Wednesday, July 15, 2009

Help Wanted

With so many people looking for work these days - the unemployment rate is now at 9.5 percent, and I hope you're not among that number - the Christian Science Monitor has begun compiling some of the more unusual job opportunities out there. Here are some of the latest:

* Ballpark photographer: The Washington Nationals are looking for someone to take shots of the fans at their games.

* Nanofabrication facility director: Binghamton University in upstate New York needs someone to manage its newly constructed $2 million “clean room” used for nanofabrication, which is the design and manufacture of devices with dimensions measured in the millionths of a millimeter.

* Arch expert: Nope, it's not a podiatrist. The fashion outfit ULTA wants people who can demonstrate and sell products by performing brow and facial waxing services.

* Pet stylist: Petco is hiring people to perform basic grooming services, including brushing, bathing, and conditioning of animals.

* Flavor/fragrance production assistant: Elite Personnel, Inc. is looking for people to help with the large-scale formulation of some of the world’s leading fragrances. And it's right around the corner from us, in Somerville, New Jersey.

Tuesday, July 14, 2009

We're Number Three

A research firm called Phoenix Marketing International compiles an annual list of the states with the most millionaires, and I'm proud to announce that New Jersey ranks third in the nation. The firm defines a millionaire as a household with a million or more dollars in investable or liquid assets, not counting retirement plans and real estate. According to that definition, 6.2 percent of all households in the Garden State are millionaire households.

That places us third behind Hawaii (6.4 percent of all households) and Maryland (also 6.2 percent), and just ahead of Connecticut and Virginia.

These numbers have just been clobbered by the recession. The total number of millionaire households in the U.S. has declined by 14 percent over the past two years. Hawaii's millionaire percentage was at 7.26 percent just last year.

The city with the highest percentage of millionaire households is a bit of a surprise: Los Alamos, New Mexico, with nearly 10 percent. Who knew?

Monday, July 13, 2009

Don't Buy Our Stock!

Have you ever heard of a company that was warning people not to buy its stock? That's the situation General Motors has found itself in. GM, of course, declared bankruptcy on June 1, and officially changed its name to Motors Liquidation Company. That's the company that will wind down GM's assets in bankruptcy, and the company has declared to investors that shares in the old GM are worthless.

But the shares traded at over a dollar last week, and gained 37 percent in a single day, despite the fact that both GM and the bankruptcy court have declared the company "hopelessly insolvent." But some apparently confused stockpicking Web sites have described the old GM shares as being part of whatever will arise from the ashes of bankruptcy. That's not the case. The new General Motors, the one that will salvage whatever business GM has left after bankruptcy, is a privately held company. If it ever does go public, it won't be until at least 2010.

Meanwhile, the old GM changed its ticker symbol from its longtime GM to the new GMGMQ, just so no one would be confused. But they were: 75 million GMGMQ shares were trade on Friday, before Finra, the agency that oversees the securities industry, halted trading in the stock. Finra has the right to suspend trading for as long as ten days. Whatever happens, the company and the regulators agree: Don't buy General Motors stock.

Friday, July 10, 2009

The Hunt for Savings Bonds

When you were a little boy or girl, was your grandmother in the habit of giving you a bright, shiny U.S. savings bond for your birthday? And did you have to pretend to be excited about a gift that you weren't allowed to touch for several years? And then when the bond finally came due, had you long since forgotten about it?

Apparently, there are many Americans in that very situation. The Treasury Department has determined that there is some $16.5 billion in uncashed, fully mature savings bonds lying around. There may be one in the bottom of your junk drawer.

One nice thing about savings bonds is that they continue to accrue interest even after their due date. According to this story, there's a 33-year-old man in Florida who was given a savings bond with a face value of $25 as a child. He never got around to cashing it in, and now it's worth $136.

So start scouring those old birthday cards you may still have in a trunk somewhere. The government thinks there's roughly $50 in savings bonds for every man, woman and child in America - and some of it might be yours.

Thursday, July 9, 2009

Seeking Stability

One of the options being bandied about for the Obama IRA that we discussed yesterday is the stable-value fund. Aiming for ultra-safety, stable-value funds invest in bonds, but they go a step further than that. The funds also buy "wrap contracts" issued by insurance companies and banks to protect the underlying value of the bonds they hold. This brings down the funds' return, but it does make them pretty safe.

Not entirely safe, though. Last December, a stable-value fund operated by Invesco became the first-ever such fund to lose some of its value. The value of the bonds had dropped, and the insurance was with the investment bank Lehman Brothers, which had gone bankrupt the previous September. The combination caused this supposedly supersafe vehicle to lost 1.7 percent of its value.

So stable-value funds are still, relatively speaking, very safe investments, and appropriate vehicles for what the Obama IRAs are trying to do. But as we've learned, to our misfortune, over the past couple of years, nothing in the financial world is truly 100 percent safe.

Wednesday, July 8, 2009

The Obama Plan

There's a proposal kicking around Congress that's been called the Obama IRA: Companies with 10 or more emplyees but no retirement plan would be required to enroll their employees in an IRA that would automatically deduct money from employees' paychecks. The beginning default deduction would be 3 percent, although employees would be able to change that rate or opt out altogether.

There are good things and bad to be said about this scheme - it's great to get more people planning for their retirements, although it might prove burdensome to administer for a lot of small businesses - but there's one way in which it could prove very helpful. As you know, many businesses have cut back on their 401(k) contributions, or eliminated them altogether. At a point when our markets have been struggling, the last thing we need is to cut back on this crucial source of dollars for them.

It's not really been sorted out how these Obama IRAs would work, although the idea is they'd be mostly directed toward safe investments like money-market accounts. But there's also talk of putting this money into target-date funds, which are mutual funds whose assets automatically rebalance as you near the target date for which you plan to start withdrawing money, generally your retirement.

Having fresh funds flow automatically into mutual funds - and into the American stock markets - would be a real positive for the economy. Whether it's via this Obama plan or some other, we need to get to the point where people are regularly buying stocks again.

Tuesday, July 7, 2009

Instant Analysis

One result of our ability to get literally constant news updates from the Internet is that pundits feel the need to offer a reason for every little thing that happens in the markets. It used to be that the nightly newscast or the morning paper would assess the day's stock market news and offer a reason for why it happened: a favorable economic report, good news on consumer durables, that sort of thing.

Now we don't have time to wait for the end of the day. Now, as soon as the market moves, the financial media will have their rationales posted on the Internet. For instance, yesterday, the online version of the Wall Street Journal posted at 9:44 in the morning: "US Stocks Decline In Early Trading; Weighed By Oil Prices." The Associated Press followed by reporting: "The stock market is in retreat again as investors around the world grow pessimistic about the economic recovery. Following the lead of stock markets around the world, investors are taking their cues from the tumbling price of oil."

The Dow had dropped 52 points as trading opened, leading to those reports. But then what happened? Stocks rallied, and closed the day up 44 points.

Did oil prices suddenly rise, fueling the rally? Did investors decide they didn't care any more about oil prices? Or were there always more complex forces at work than simply the price of oil? My money is on that last one.

Monday, July 6, 2009

Halftime Stats

The July Fourth holiday weekend also marks the end of the first half of 2009. We are now six months into a year that has been very difficult for many of us, but not without its signs of optimism. Here's a scoreboard for the first half of the year:

Dow Jones Industrial Average Ended the first half of 2009 at 8447, down 6.5 percent from 9034 at the beginning of the year.

S&P 500 Ended the first half at 919.32, down 1.3 percent from 931.80

Nasdaq Ended the first half at 1835, up 12 percent from 1632

Unemployment Ended the first half at 9.5 percent, up from 8.5 percent

Inflation The latest figures we have show the consumer price index dropping at an annual rate of 1.2 percent, down from rising 0.03 percent at the beginning of the year.

Friday, July 3, 2009

A Thought for Independence Day

"The will of the people is the only legitimate foundation of any government, and to protect its free expression should be our first object."
- Thomas Jefferson

All of us here at Echelon Wealth Strategies wish you a happy, safe and patriotic Fourth of July.

Thursday, July 2, 2009

Party Money

Americans spent $940 million on fireworks last year, according to the American Pyrotechnics Assocation. That's nearly a billion dollars! That's up roughly 50 percent from 2000, when we spent a mere $610 million on roman candles, sparklers and firecrackers. Fireworks appear to be a recession-proof industry.

We also spent $3.4 billion on hot dogs last year. On the Fourth of July alone, Americans will eat 150 million hot dogs, according to the National Hot Dog and Sausage Council.

The Fourth of July is also the biggest beer-selling holiday of the year. Last year, supermarkets sold 24 million cases of beer for Independence Day. Americans spend more than $90 billion on beer every year.

So have a great time this Fourth of July. You'll be helping the economy in the process.

Wednesday, July 1, 2009

The Strength of America, continued

We mentioned the other day that despite the downturn in the stock market, the New York Stock Exchange remains, by far, the most highly valued exchange in the world. But that doesn't begin to capture the size and strength of the American economy. With just 4.5 percent of the world’s population, the United States accounts for nearly a quarter of global GDP, and is roughly twice as large as the next largest economy, China. According to the International Monetary Fund, we produced more goods and services in 2007 than the next four largest economies combined.

Even if you look just at manufactured goods, the U.S. still leads the world. Despite the tremendous growth in China’s manufacturing output, the IMF reported that the U.S. was still the leader in 2006, the last year for which we have numbers, manufacturing 20.5 percent of the world’s goods. China was second with 13 percent. The U.S. produced more manufactured goods than Japan and Germany combined. Our manufacturing base may be losing some of its muscle, but it's still robust.

Unsurprisingly, America is also the largest exporter of goods and services in the world. We exported $1.84 trillion worth of goods and services in 2008, up 12 percent from 2007.

That's a powerful economy. In good times and bad, America continues to lead the world.