Ending on a High Note?

How about some good economic news to finish the year? Although new U.S. jobless claims came in at 381,000, up from 366,000 the prior week, the four-week moving average fell to 375,000 last week. That means that fewer Americans filed for jobless benefits during the past month than at any time in the past three years.

Even the beleaguered housing industry had some good news: Pending home sales rose 7.3 percent in November, which puts them at their highest level in 19 months. The National Association of Realtors said its pending sales index is now up to 100.1 in November, where 100 signifies the market as it existed in 2001.

All this helped the S&P 500 climb 1.1 percent on Thursday, leaving it up 0.4 percent for the year. The S&P closed 2010 at 1258, and opens today at 1263 – adding a grand total of five points over the course of the year.

A Late Surge in Christmas Shopping

The Christmas shopping season turned out to have been a pretty strong one, in large part because of a surge toward the end - and even after Christmas was over. According to the market-research firm ShopperTrak, Christmas Eve was the second-biggest shopping day of the season, following only Black Friday. And the third-largest was a big surprise: the day after Christmas.

The calendar obviously played a large part in this. With Christmas on a Sunday, everyone had Christmas Eve off to do last-minute shopping. And the day after Christmas became a federal holiday, freeing people up to spend even more. With many stores offering huge post-Christmas discounts, we got results like that of Brooks Brothers, which had a record sales day at its stores and Web site on December 26, when the clothier had discounts of up to 40 percent.

That final push could make a huge difference in retailers meeting their goals for the year. Preliminary estimates show that retail revenue for the week ended on Christmas Eve was up 14.8 percent over 2010. We should see full retail figures for the holiday season sometime next week.

Still Waters Run Deep

As we said yesterday, this has been overall a very quiet year for the S&P 500. At this point, it’s up 0.6 percent on the year, which would be the smallest move for the index in either direction since 1970. But that doesn’t mean it has been a quiet year. By the end of April, the S&P had risen 8.4 percent and almost reached a three-year high. But between then and October 3, the index fell by 19 percent, before rebounding to close the year.

August, normally a sleepy time of the year for the markets, was the most volatile month we saw. During that month, the daily change in the S&P 500 averaged 2.2 percent, the highest it’s been for any August since 1932. During one four-day stretch in August, the Dow Jones average alternated gains and losses of 400 points, for the first time ever.

The year also brought big swings to the individual companies on the S&P 500. Eighty-five of its listed stocks fell by 20 percent or more, compared with just 11 in 2010 and 15 in 2009.

Finishing 2011

This final week of 2011 promises to be a relatively quiet one for the markets. Many of the traders are on vacation this week, and there are only four trading days to being with, so we shouldn't expect to see a lot of movement either way.

On the other hand, though, this could be a make-or-break week for the major indexes. This past year has been characterized by a lot of volatility that has brought us more or less right back to where we started the year. At the end of last week, the S&P 500 inched back into positive territory for 2011, putting it at a minuscule 0.6 percent gain for the year. So even the smallest decline could put the S&P back under the break-even point.

The Nasdaq is in a somewhat different position - at the moment, it's down 1.3 percent on the year. A small rally could push it into positive territory for the year. The Dow Jones average, though, looks like it will safely finish the year up: it's gained 6.1 percent so far for 2011.

Gen Y and Retirement

A survey from ING that came out last week showed that 71 percent of Americans do not have any sort of formal retirement plan. While that number is a little scary, it does not mean that people in the U.S. aren't saving for retirement: the same survey showed that fully 75 percent of Americans between the ages of 25 and 69 who have a job are putting money away into a retirement savings account.

One cohort that is doing a surprisingly good job of saving for retirement is younger people, the so-called Generation Y. Among Americans born between 1977 and 1989, 25 percent say they funded both a 401(k) and an IRA in 2010, according to a survey by TD Ameritrade. That's a higher percentage than Generation Xers (born between 1965 and 1976) or Baby Boomers, who checked in at 23 percent and 16 percent, respectively.

The key, as always, is knowing what you're doing. Only 28 percent of those in the ING survey said they were working with a financial professional; 47 percent expected their employer to give them all the guidance they needed. With something as important as reitrement, though, you can't wait around for help - you've got to be proactive.

Happy Holidays

We've got some good economic news to ring in the holiday season:

* The biggest news is that unemployment claims fell to 364,000 last week, putting new unemployment claims at their lowest level since April 2008. The number of people continuing to receive jobless benefits fell to 3.55 million, the lowest that number has been since September 2008.

* The Thomson Reuters/University of Michigan index of consumer sentiment increased to 69.9 in December, up from 64.1 in November.

* One thing helping both consumer confidence and consumer spending is that the price of regular unleaded gasoline at the pump fell to $3.21 a gallon Dec. 20, the lowest it’s been since February. Here in New Jersey, we’re under the national average, at $3.09 a gallon.

One bit of bad news is that fact that the government has revised the third quarter GDP number down to 1.8 percent from the earlier reading of 2.0. That, though, is a backward-looking figure; the other signs are pointing to better times ahead.

The Strongest Funds of the Year

Despite all the economic problems America has faced recently, investors still believe in the long-term prospects for the United States. The latest evidence: Long-term Treasury bond funds are headed for the top spot among all mutual funds for 2011. These funds, which generally hold Treasury bonds with maturities of 20 years or more, have an average return of 32 percent on the year so far, according to Morningstar.

Among Morningstar's 86 different fund categories, the runners-up on the year are also bond funds. In second place are funds holding primarily inflation-protected U.S. Treasurys, which are up an average of 11.5 percent, followed by funds holding long-term California muni bonds, up 11.1 percent.

U.S. Treasury bonds were in great demand this year, as investors fled the European situation in search of a safe haven, and the Federal Reserve bought up $600 billion worth of them as part of its quantitative easing program. This was also the year, ironically, when Standard & Poor's downgraded the creditworthiness of the United States, supposedly signaling to investors that the U.S. was not so safe a haven after all. Clearly, investors have decided that S&P was wrong.

Consumer Confidence: The Long View

Although we talk quite a bit about the monthly consumer confidence index put out by the Conference Board, the pollster Gallup monitors something similar, with a daily index called the Economic Confidence Index. According to Gallup, the year is ending on an upswing: the readings for the week of December 11, at -39, are the highest they've been since July.

The bad news is that the current reading is still lower than it was at this time last year, when the figure was -32. The big issue that drove down Americans' economic confidence was the battle over the debt ceiling, when the entire country risked a default; that crisis raged most of the summer, and was resolved at the first of August. The Economic Confidence Index, at -34 toward the beginning of July, dropped to -54 by the end of August. It's been climbing ever since.

That's a good trend to have going into the New Year, but we're really just getting back to the post-recession norms. Before the crisis this summer, the Economic Confidence Index had been moving in a fairly narrow band between -20 and -40 since the recession ended in 2009. What we really need is for it to get back to positive territory.

Holiday Travel on the Rise

Heading out of town for the holidays? If so, you're not alone: AAA projects that 2.2 million New Jerseyans will be traveling at least 50 miles between this coming Friday and January 2, up slightly from last year. Nationwide, there will be 91.9 million people traveling that far for Christmas or New Year's, up 1.4 percent over last year's total.

Interestingly enough, we're seeing a shift from flying to driving for the holidays. This year, 6 percent of all holiday travelers are expected to take a plane, down 10 percent from last year. Drivers are expected to make up up 91 percent of all holiday travelers, up 0.9 percent from 2010. As a result, the average distance traveled is down significantly, from 1052 miles per trip last year to 726 miles per trip this year.

All told, more than 2 million people will be on the roads for the holidays, and around 140,000 in the air - which leaves 65,000 people using what AAA calls "another method," primarily railroads. That mode of transport is actually the biggest gainer on the year, up 3 percent from 2010.

Holidays Looking Happy

As the Christmas shopping season chugs into the home stretch, it looks like it will be a merry one for the economy. Four separate days during the past week totaled $1 billion in online sales, according to the research firm ComScore. Overall, online shopping is up 15 percent over the same time frame in 2010, up to a whopping $30.9 billion, with a week still to go.

The re-branding of the Monday as Cyber Monday after Thanksgiving seems to have been a success. It was the single biggest online shopping day of this Christmas season so far, with total sales of $1.25 billion. Online shopping is expected to decline as we near Christmas Day, so Cyber Monday should retain that distinction.

It's too early to assess overall consumer spending for the holiday season, but the signs point to that being positive as well. With many retailers feel that their deep discounting will pay dividends, ShopperTrak is now estimating sales for November and December combined will be up 3.7 percent from the year earlier.

Food Stamps in Hunterdon County

You may have heard a somewhat alarming story this week, about how Hunterdon County in the western part of New Jersey, which is the richest county in our state, showed the biggest increase in food-stamp usage between 2007 and 2010 of any county in America. And it's technically true: Over those four years, the number of people using food stamps in Hunterdon County grew by more than 500 percent. 

But that's mostly because the numbers were growing from such a small starting point. In 2007, there were only 232 food-stamp cases in the county; now that number is over 1400. Since the population of the county is around 128,000, the number of people on food stamps in Hunterdon County is around 1.1 percent. 

This issue isn't confined to New Jersey. According to the Census Bureau, the percentage of households using food stamps has doubled in six of the nation's ten wealthiest counties. But keep in mind that these counties had a handful of people on food stamps a few years ago, meaning it was much easier to show a large percentage increase. While the trend might be a cause for concern, it's worth keeping in mind that the math behind it is a little fuzzy.

Why Are Mutual Fund Costs Dropping?

One of the great concerns of the mutual fund industry has long been the problem that the best-managed funds tend to carry heavy fund expenses along with them. Many expensive funds have roped in investors with promises of strong returns, then continued to collect those expenses even if the performance didn't warrant it. The good news is, though, that investors have proven to be too savvy to allow this to go on for very long.

That's the conclusion of a new study from the Investment Company Institute, which has been tracking mutual fund expenses over time. The ICI found that investors regularly flee high-expense funds that don't prove to be worth the extra money, which has the effect of bringing down expenses for all funds. Back in 2003, the average expense ratio paid by fund shareholders was 0.99 percent. It fell pretty consistently throughout the decade, though, and in 2010 was down to 0.84 percent.

When funds have to compete on those costs, prices fall for everyone. That means that actively managed funds of the kind we use here at Echelon Wealth Strategies are not only competitive on price, but getting more competitive all the time.

An Upsurge in Commercial Credit

The Federal Reserve decided yesterday not to take further action to try to jump-start the economy with further monetary stimulus. One reason for the lack of action - according to the Fed's Dallas governor, Robert McTeer - was the fact that bank credit has been growing recently, signaling that we could see further economic expansion in 2012. 

Commercial and industrial loans had dropped by 1.7 percent over the past four years, but they ballooned by nearly 10 percent in the third quarter of 2011. Overall, bank credit is growing at its fastest pace in three years. McTeer thinks that could mean growth in the fourth-quarter GDP figures that then continues on that path into next year. 

The largest beneficiary of this borrowing is likely to be the small-business community. Not as likely to benefit from the trend: The housing market. While commercial loans were growing. bank real estate loans actually dropped by 2.4 percent in the third quarter. 

The Economy's Surprises

With all the signs in recent weeks that our economy has been gaining strength, it might just be the case that economists are missing the boat and underestimating our recent growth. A metric called the Citigroup Economic Surprise Index, which measures the distance between economists' expectations and the actual economic statistics,  is now at its highest level in nine months. 

The biggest reasons the economy has exceeded expectations recently:

* The unemployment rate dropped rather suddenly, to 8.6 percent, in part because of revisions to the number of jobs that were added in previous months.

* Economists undershot the recent gains in the Institute for Supply Management's factory index, which estimates the growth of the nation's industrial output.

* The holiday retail shopping season has been somewhat stronger than expected.

None of this makes the economy any stronger in reality, but corporations make decisions based on economic forecasts. If the economy was able to post its recent gains based on an unduly pessimistic outlook, it may grow even more strongly once people recognize how solid things are.

Food Prices Heading Down

Are we headed for a drop in food prices? The smart money sure seems to think so. There's a new report out from the Commodity Futures Trading Commission reporting that hedge funds have dropped their bullish speculative positions on agricultural commodities to their lowest level since September 2009. The Standard & Poor's GSCI Agricultural Index, which includes such things as wheat, soybeans and cattle, also reached a 14-month low last week.

What's the cause? It's not so much the worldwide economic turmoil as some record harvests. The planet's stockpile of wheat is expected to reach 202.58 million tons by June, which would be the highest it's been in over ten years. Corn and soybean reserves are also increasing.

Even cocoa, which had been in a years-long production slump, is turning around. Cocoa prices were at a 32-year high in March, thanks in large part to political unrest in Africa, where much of the world's cocoa is produced, but they've fallen off 45 percent since then. That will make your Christmas chocolate goodies taste all the sweeter.

The Good News About Retirement

With all the concern we hear over people who are planning and preparing for their retirement, it's nice to learn that, once you get through all that strife, people who reach retirement are pretty darn happy to be there. More than three-quarters of all retirees say they are happier now that they've retired, according to a survey from The Hartford and the MIT AgeLab. Significantly, that figure is much higher than the 64 percent of working folks who say "I will be happier after I retire." In other words, retirement is even better than most people expect it to be.

In a similar finding, 27 percent of the retirees described themselves as feeling "peaceful." A slightly smaller percentage of pre-retirees described themselves as "hopeful" about their retirement.

The biggest regret among retirees? No one answer stood out, although the most-cited answer, named by 32 percent of the respondents, was that they wish they had been better prepared financially for their retirement. It's never too late - or too early - to get started on those preparations.

Americans Are Borrowing Again

A couple of weeks ago, we talked about how American indebtedness had been growing as a result of increases in mortgages, despite the fact that consumer credit hadn't kept pace. But now we have news that Americans have started borrowing for consumer items as well. Consumer borrowing increased by $7.65 billion in October, reaching a total of $2.46 trillion, the highest it's been since October 2009.

Revolving debt, which is mostly credit cards, increased by $366.2 million in October. Non-revolving debt, which includes car loans increased by $7.28 billion. The driving force behind this was car loans; auto sales just had their best month since August 2009.

The other side of increased borrowing, of course, is that people are saving less. In the third quarter of 2011, the savings rate fell to 3.8 percent, the lowest it's been since the recession started at the end of 2007. While saving is always a good idea, given the state of our economy, the increased indebtedness might be a little more helpful right now.

Great Company, Bad Stock

A new stock issue went on the market yesterday, offering investors a chance to buy equity in a highly successful firm currently on top of all its competitors. The stock moved quickly, with 1600 shares sold in the first 11 minutes they were available, at a cost of $250 per share. The only catch: It's a terrible investment.

The shares are being sold in the Green Bay Packers, who are the best team in the NFL right now with a perfect 12-0 record. The franchise is currently owned by some 112,000 stockholders who claim a total of 4.75 million shares. The new offering put another 250,000 shares on the market, with the proceeds going toward a renovation of Lambeau Field, the Packers' 54-year-old stadium in Green Bay.

Stockholders can expect no dividends or appreciation, and the shares can't be sold. They don't even get you a special place on the Packers' season ticket waiting list, which is now 93,000 names long. The sole perks that come with being a team owner are the right to attend an annual shareholders meeting and some special deals on Green Bay Packer apparel. And some very special bragging rights come Super Bowl time.

$10 Trillion in the Bank

The American banking system reached a milestone late last month: For the first time, there was more than $10 trillion in deposits at our nation's banks and savings institutions. Maybe the most interesting thing about this is that it's not normal consumer accounts, like CDs and savings accounts, that are accounting for the growth. In fact, interest-bearing deposits actually fell by 1 percent over the past year, according to the Wall Street Journal.

So what's the reason for all that growth? It's actually non-interest-bearing accounts of the type used by businesses to put their cash short-term. Those types of accounts increased by 30 percent over the past 12 months, reaching a total of $2 trillion.

We've discussed many times the amount of cash that is sitting in the coffers of many American corporations; these are those coffers. The Journal points out that we can expect these deposits to disappear from retail banks' bottom line just as quickly as they showed up there.

2011's Biggest Winner

Of the 500 stocks listed in the Standard & Poor's 500, only one has doubled in share price this year: Cabot Oil & Gas. Cabot finished 2010 at $37.85, and entered December at $88.59, for a year-to-date increase of a whopping 134.06 percent. The Houston-based natural gas company, which has only been in the S&P 500 since June 2008, has been by far the biggest winner in 2011, outdistancing another Houston natural gas company, El Paso Corp., which is in second place with a year-to-date gain of 81.76 percent.

Before you get too excited about Cabot, though, note that in 2010, its stock lost 13.17 percent on the year. As they say, past performance is no guarantee of future results.

No stock on the S&P has been nearly as bad this year as Cabot has been good. The worst performer has been Monster Worldwide, which runs the job-search Web site and has dropped by 69.06 percent. Hot on its heels is Netflix, which has lost 63.27 percent in the wake of its disastrous, now-aborted split into two separate businesses. Like Cabot Oil & Gas, Netflix has seen some quick turnarounds lately: In 2010, its stock had grown by more than 200 percent.

An Encouraging Jobs Report

The November unemployment report came out from the Bureau of Labor Statistics this morning, and it continued the trend we've been seeing for a couple of months now: Job creation for the month was relatively solid but unspectacular, at 120,000 new jobs added to the economy. But there's a difference this time. Although that's about the number of new jobs economists say we need to tread water in the employment figures, the official unemployment number dropped in November from 9.0 percent to 8.6 percent. That's the lowest unemployment has been since March 2009.

What happened? The rate dropped in large part because the number of jobs added in October got officially revised upward, from 80,000 to 100,000, as well as the number from September, which went from 158,000 to a whopping 210,000. That makes four straight months in which the government has ended up revising the new-jobs figure upward.

Perhaps even more encouraging, the broadest measures of unemployment are dropping as well. Adding part-time workers seeking full-time work to get to the government's U-6 figure, which includes both the unemployed and underemployed, that number dropped in November to 15.6 percent, from 16.2 percent the previous month. All told, today's report continues a string of good economic news from the past week or so that should bring some cheer to everyone as we head into the holiday season.

The Central Banks Take Action

The markets had another big day yesterday - the Dow Jones average posted its biggest single-day gain since March of 2009, and European markets were up strongly as well - and the financial press rushed to give credit for the upswing to coordinated action on the part of the world's central banks. But what exactly did they do?

Two things happened: First, the Federal Reserve and the central banks of Europe, England, Canada, Japan and Switzerland announced that they would coordinate efforts to reduce the cost for banks around the world to borrow money from their nation's central banks. The idea is to keep money flowing freely throughout Europe, and trying to sure that the banks there don't get caught short and they end up with another Lehman Brothers collapse on their hands.

At the same time, China announced it was cutting the reserve requirements for its banks, after raising those requirements six times earlier this year. That should permit China's banks to lend money more freely, which is ultimately good for economies around the world. While it's always risky to read too much into one day's market moves, it does appear that investors around the world do like these developments.

Reasons to Be Confident?

Is the economy finally turning a corner? American consumers seem to think so. The readings for the November consumer confidence index are the strongest we've seen in a long time, with the largest single-month gain since April 2003. As it generally does, Bloomberg News had surveyed economists before the release of the November figure, and not a single one of them predicted the jump would be as large as it turned out to be.

While it's dangerous to read too much into short-term prices swings, the solid early results from the Christmas shopping season combined with the strong consumer readings could be buoying some sectors of the stock market. Among the biggest gainers in the Dow yesterday were consumer bulwarks Home Depot, Wal-Mart and Coca-Cola. The S&P 500 posted its biggest one-day gain in over a month.

It's a good sign that all this is happening even before we get to December. December has historically been the best month for the stock market, which means that we have several indicators in place to end 2011 on a high note.

Debt Drops, but Not Spending

Whether it's through a new sense of discipline or merely because people are still afraid of ending up broke, consumer indebtedness continues to decline in America. The Federal Reserve released a study yesterday indicating that our collective debt fell by $60 billion in the quarter ended September 30. Mortgage debt was responsible for pretty much all of that, dropping by a total of $114 billion. Consumer indebtedness outside of mortgages or home-equity loans rose by 1.3 percent.

The downside of that falling debt is that it could drive consumer spending downward right along with it. But that doesn't seem to have been the case. In that third quarter, the Fed reports, consumer spending rose by 2.3 percent, the biggest gain we've seen so far in 2011.

And what of the brand-new holiday shopping season? So far, so good: retail sales for the Thanksgiving weekend were up 16 percent over last year. Shoppers spent an average of nearly $400 apiece.

Corporate Profits Continue to Surge

Though there are still troubled spots for this economy, one sign that augurs well for our future is that corporate profits continue to grow to record levels. The federal government released its estimate of corporate profits for the third quarter last week, and reported them at an annual rate of $1.56 trillion. For the 12 months that ended in September, corporate profits increased by 11.4 percent.

That $1.56 trillion accounts for 10.3 percent of our entire gross domestic product, up slightly from 10.1 percent in the second quarter. That's an enormous share of our economy. Prior to last year, the biggest share of GDP ever taken up by corporate profits was in 1929, when they topped out at 8.98 percent. As recently as 2008, that figure was down below 7 percent.

Then, in 2010, corporate profits grew to a then-record of 9.56 percent. Their current level marks the first time ever that they have reached 10 percent of GDP. The next question will be to see what our companies intend to do with all those profits.

Happy Black Friday

Going shopping today? The nation's retailers certainly hope you have the dedication - and extra spending money - of those hardy souls who pitched a tent in front of a Best Buy in Union and camped out all Thanksgiving Day in anticipation of the Black Friday sales. Today is the day that many feel will tell the tale for the success or failure of the all-important Christmas shopping season.

What should we expect? The National Retail Federation forecasts sales in November and December to be up 2.8 percent over last year, which would be a solid rise but well below the 5.2 percent annual gain we saw in 2010. The NRF expects 152 million people to hit stores this weekend, up 10.1 percent from last year, which means there will be more people shopping, but each of them will be buying less.

The real action this year may be happening online. The research firm comScore estimates that Americans could spend $37.6 billion on e-commerce this holiday season, which would be up 15 percent from last year. The 2010 increase in online sales was just 12 percent.

Thoughts for Thanksgiving

“We often take for granted the very things that most deserve our gratitude.” ~ Cynthia Ozick

“You know that just before that first Thanksgiving dinner there was one wise, old Native American woman saying, “Don’t feed them. If you feed them, they’ll never leave.” ~ Dylan Brody

“Thanksgiving was never meant to be shut up in a single day.” ~ Robert Caspar Lintner

The Fed Gets Frustrated

The minutes from the Federal Reserve meeting earlier this month were released yesterday, and their disappointment with the direction of the economy was notable. Fed chairman Ben Bernanke called the pace of economic growth "frustratingly slow," and the Fed accordingly ratcheted down its forecasts for the coming year. It now sees GDP growing at 1.7 percent this year and 2.7 percent next year - and remember, it was making these predictions before the new came out that the official GDP rate for the third quarter was revised down from 2.5 percent to 2.0 percent.

The Fed also sees unemployment settling at 8.6 percent by the end of 2012. That means it expects little change over the next year, since the official rate is currently 9.0 percent.

There wasn't any action taken after the meeting, but the overall sense of pessimism makes it more likely that the Fed will take future steps, perhaps a third bout of quantitative easing. The Fed next meets on December 13, and we'll keep an eye on that date.

Families Slowing Down

Everyone understands that the economic downturn has led to a decrease in family expenditures, but has it led to a decrease in families as well? According to the National Center for Health Statistics, American births fell to around 4 million last year, the lowest they've been in 11 years.

The Department of Agriculture estimates that it costs an average of $226,920 to raise a child to the age of 17. So it's no wonder people would put off having children till they feel a bit more financially secure. One ramification of this demographic slowdown, though, is that it's going to make a housing recovery all that much harder to come by. If people's families aren't growing, there's less incentive to buy a bigger house.

Other data bears out that hypothesis. The Census Bureau announced that the number of Americans who moved last year hit a historic low - the lowest the figure has been since they started tracking this number, back in 1948. Only 11.6 percent of all Americans found a new residence between 2010 and 2011. As recently as 1985, the number was nearly double that, at 20.2 percent.

Turkey Day Travel

Are you heading out of town for Thanksgiving this week? If so, you're not alone. According to the American Automobile Association, a total of 42.5 million Americans will be traveling at least 50 miles for their Thanksgiving celebrations this year. In a small sign of an improved economy, that's up from 40.9 million who traveled that far last year.

The vast majority of those travelers - 90 percent - will be driving, despite the fact that gasoline is much more expensive this year than it was in 2010. Nationwide, a gallon of gas will cost you an average of $3.43 right now, up from $2.55 at this time last year.

Add it all up, and the median spending by an American Thanksgiving traveler this year is projected to be a not-insignificant $540. That's a nice little boost to the economy as we head into the all-important holiday spending season.

Phantom Taxes

Bernard Madoff's Ponzi scheme stole money from an awful lot of investors, and even those people who thought they were making money with Madoff turned out to have nothing more than phantom profits. To add insult to injury, some people even paid taxes on those nonexistent profits. But a couple from Middletown who paid New Jersey state taxes on those phantom profits has successfully gotten that money returned to them.

John and Cathy Dalton had invested about $700,000 with Madoff. For several years, Madoff reported sizable capital gains to the Daltons, who dutifully paid taxes on it. After Madoff's scheme collapsed in 2008, the Daltons were only able to get $572,000 of their money back. They then filed amended tax returns to recoup the taxes they had paid on those phony capital gains.

At first, they were told no, they couldn't get a refund, because they technically could have cashed out their positions at any time before the Madoff scheme collapsed and enjoyed their gains. Finally, this week, a court ruled that the Daltons shouldn't have had to pay taxes on investment income that never really existed. The reward: a refund of $5,000 in capital gains taxes from the state of New Jersey.

Inflation Eases

Inflation seems to have ground to a halt in October, as the Labor Department statistics released yesterday showed that consumer prices dropped 0.1 percent for the month, after four months of increases. Core inflation - stripping out the more volatile food and fuel costs - rose by just 0.1 percent. Overall, consumer prices have increased by 3.5 percent in the past 12 months.

The biggest drops in prices for October came in the energy sector. Gasoline was down 3.1 percent on the month, but even so, it's still up 23.5 percent for the past year. On the other hand, utility gas service dropped a similar 3.0 percent in October, but it's now down 2.2 percent over the course of the year.

For the full year, aside from energy prices, the biggest risers were used cars and trucks (up 5.2 percent), food (up 4.7 percent), and apparel (up 4.2 percent). Interestingly enough, the cost of food eaten at home was up more than twice as much as food eaten out, by a margin of 6.2 percent to 2.7 percent.

Hedge Funds Rise, Even in a Down Year

With the stock market showing an awful lot of unpredictability this year, many institutional investors have headed for hedge funds instead. These investors - including many pension plans - have put nearly $40 billion into hedge funds in 2011, as of last week, according to Pensions & Investments magazine. That's up 24 percent from the inflows we saw in 2010.

The record year for institutional inflows into hedge funds looks unbeatable, though. That was in 2007, when there was more than $66 billion of such assets put into hedge funds.

The funny thing about all of that money entering these funds this year is that 2011 has been very weak for hedge funds. According to the HFRI index, total hedge fund returns were flat through the first half of the year - up just 0.76 percent - then cratered in the third quarter, when they dropped by 5.5 percent. All told, the hedge fund index shows a net loss of 3.33 percent on the year.

Buybacks on the Rise

You can add one more entity to the list of people who are buying stock heavily these days: Corporations themselves are buying back their own stock at near-record levels. American businesses have bought back more than $450 billion of their own stock so far in 2011, putting this year on pace to be the third-highest such year on record, behind only 2006 and 2007. And with corporations like Apple sitting on record amounts of cash, we might even see those rates increase.

American companies spent 70 percent more money on buying their own stock in the third quarter than they had a year ago. Among those businesses getting in on the act is Warren Buffett's Berkshire Hathaway, which started a buyback program in September, for the first time in the more than 40 years that Buffett has controlled it.

What does it mean? The immediate reading to take from buybacks is that corporate management is feeling confident about their prospects and the economy at large. They must feel that their companies are either undervalued or on the verge of growth. At the same time, though, their record of prognostication is hardly stellar: Note that the last time we saw this level of buybacks, it was 2007 and we were headed into recession.

Boomers Worry About Their Retirement

As the Baby Boom generation nears retirement, it shouldn't come as any surprise - given the financial landscape of the past few years - that many of them aren't thinking of retiring at all. A new poll of Americans born between 1946 and 1964 shows that 27 percent of them now expect to never retire. Another 16 percent plan to work till at least the age of 70, which means that nearly half of Baby Boomers will be working into their septuagenarian years.

It's clear that what's primarily driving these decisions is fear. Nearly a third of the Baby Boomers surveyed said that they fully expect to struggle financially in their retirement years. Another 41 percent say they expect to scale back their lifestyle in a significant manner during their retirement.

Surprisingly, just 33 percent of these Baby Boomers say they have devoted a "great deal of thought" to their retirement. Maybe if the other two thirds had devoted more of their attention to retirement planning, they wouldn't be so worried about it. If you feel like your retirement planning needs a bit more attention, feel free to give me a call.

The Christmas Tree Tax

As if you're not getting taxed enough already, there was a story going around this week about a special new tax that many of us would be paying over the next month or so: a Christmas tree tax. And the story is true: There really was a plan to assess a tax of 15 cents on each Christmas tree sold.

But the story comes with a couple of caveats. For one thing, the whole scheme was the brainchild of the private Christmas Tree Task Force, which wanted to set up a program in partnership with the USDA to help promote the sales of Christmas trees, along the lines of the milk producers' "Got Milk?" campaign. The 15-cent assessment was supposed to go toward funding those efforts.

More importantly, even though the Christmas tree producers themselves wanted the program implemented, the hue and cry surrounding it was so great that the whole thing has been canceled. "I can tell you unequivocally," said a White House press secretary, "that the Obama administration is not taxing Christmas trees."

Buffett Is Buying

At least one prominent investor took advantage of the disastrous third quarter to buy cheaply priced stocks: Warren Buffett's Berkshire Hathaway invested $23.9 billion - $7 billion of it into equities - in that quarter alone. That's the most Buffett has invested in any quarter in at least 15 years.

That $7 billion investment in stocks for the third quarter was up from $3.62 billion in the second quarter and a paltry $834 million in the first quarter. Although the specific list of stocks Berkshire Hathaway bought in the third quarter hasn't been released, we do know that the firm's position in banks, insurance and finance stocks rose 2.7 percent over the quarter, while its position in consumer stocks dropped by 5 percent.

The last quarter in which Buffett's firm invested more than $20 billion was the fourth quarter of 2008. That bet may have been slightly premature, but it eventually paid off: The S&P 500, you'll remember, bottomed out in the first quarter of 2009 before coming back strong.

Help Wanted

Despite the fact that last week's unemployment report wasn't particularly strong, there are signs on the horizon that we may be seeing an uptick in hiring over the next few months. The Labor Department reported yesterday that job openings increased by 225,000 in September, and now stand at 3.35 million. That's the highest they've been since August 2008 - a month before the Lehman Brothers bankruptcy triggered the meltdown of the nation's financial sector.

While we generally look at jobs added to see how the employment situation is changed, the hiring records are actually much larger than those numbers. Overall, employers hired 4.25 million workers in September, up from 4.06 million in August, although most of those were obviously already employed before they took on their new positions. Clearly, there are jobs out there.

Does that mean we'll see some improvement in the unemployment numbers in coming months? It's very possible. Some experts even think we could see an upward revision to October's relatively weak new-jobs figure of 80,000.

Vanguard Gets Confused

Investing can be a complicated endeavor for even the most studious individual investor. As a matter of fact, even big financial institutions like Vanguard get confused from time to time. The fund company recently reported on its Web site that in eight of the nine bear markets since 1960, the S&P 500 typically made most of those gains back within the following year.There's just one problem: That's not true, as the Wall Street Journal noted yesterday morning.

What Vanguard meant to say was that if the S&P lost 25 percent in a bear market, it would usually rally 25 percent within a year. But that doesn't bring the index back to where it started. The math doesn't work out. Consider if the S&P were at an even 1000, and lost 25 percent; that brings it down to 750. But a gain of 25 percent from a level of 750 only brings the index back up to 937.50. To get back to 1000 would require a gain of 33 percent.

Unfortunately for Vanguard, the S&P hasn't shown that kind of resiliency. Only two of the eight bear markets that Vanguard reported as getting back to whole within a year actually made it that far.

The Fed's Jobs Outlook

Friday's unemployment report, in which the official jobless rate ticked down to 9.0 percent, must have come as a bit of a surprise to the Federal Reserve. Just two days earlier, the Federal Open Market Committee had issued a forecast saying that unemployment would be between 9.0 and 9.1 percent for the remainder of the year, meaning that they don't expect any further improvement in the jobless rate. That would be very disappointing. Even in 2012, the Fed thinks unemployment will remain between 8.6 and 8.9 percent.

The Fed did raise its inflation outlook for the rest of the year. After projecting in June that inflation would run between 1.5 percent and 1.8 percent throughout 2011, last week the Fed inched that forecast up to 1.8 to 1.9 percent. That shouldn't be interpreted as a trend, though; long-term, the Fed doesn't see inflation on the rise. Its inflation projection for 2012 is 1.5 to 2.0 percent, and for 2013 is even lower, at 1.4 to 1.9 percent.

So the inflation forecast is good news for the economy, but the unemployment forecast is not. The Fed doesn't appear to have known when it made that forecast that the Labor Department would revise upward the jobs figures for August and September just two days later. Maybe that knowledge would have resulted in a rosier projection.

October's Jobs Figures

This morning's jobs report from the Bureau of Labor Statistics was more of the "one step up, one step back" phenomenon we've been seeing in the unemployment figures for some time now. Taken at face value, the addition of 80,000 jobs to the economy in October looks pretty feeble; it's the fewest number of jobs we've added in four months, and was below most economists' estimates.

At the same time, though, the official unemployment rate ticked down, from 9.1 percent to 9.0 percent. We've seen such anomalies in the past, with a small number of jobs being accompanied by a reduction in the overall unemployment rate. Sometimes, it's a result of people leaving the labor force and shrinking the overall number of employed persons, which is obviously not good for the economy.

But this month's figures are different: The biggest reason the unemployment number dropped is because the jobs figures for both August and September were revised upward. Instead of the original figure of 57,000 jobs added to nonfarm payroll employment in August, the government now says it was actually 104,000, and September was bumped up from 103,000 to 158,000. In other words, hiring was stronger than initially thought throughout the late summer, and the unemployment rate probably ticked down at some point back then.

On the other hand, those stronger months in the recent past make the October figure a little more disappointing. Maybe it too will get revised upward at some point.

Long-Term, Bonds Inch Ahead of Stocks

After a lost decade in the stock markets (you can read more about it here), we have reached a most unlikely anomaly in long-term investing: As of the end of October, over the past 30 years, returns on long-term Treasury bonds have outpaced returns from equities. How unlikely is that? We hadn't seen such a 30-year period since before the Civil War, with a stretch that ended in 1861.

In the most recent 30-year period, the S&P 500 has gained an average of 10.8 percent on an annual basis. But long-term government bonds have gained an average of 11.5 percent over the same period, according to a study conducted by Bianco Research in Chicago.

Those same trends have remained strongly in force this year, although at a lower level. Bond investments have returned 6.25 percent this year through the end of October, while the S&P 500 is up 2.18 percent.

Investors Are Returning

Despite the disastrous third quarter in the markets, we're seeing signs of renewed optimism among investors. In September, for instance, for the first time in three months, more money flowed into mutual funds than came out of them. The biggest winner: Taxable bond funds, which took in $3.5 billion for the month.

At the same time, though, reversals in the markets kept total mutual fund investments down. By the end of September, the total amount of assets in U.S. mutual funds was at a yearly low of just $7.4 trillion. ETFs showed a similar pattern: Asset flows into them were positive in September, but they still fell to a yearly low total investment of $956 billion. That was the first time all year they had dropped below $1 trillion.

These are all figures for September, remember. That optimism on the part of fund investors was rewarded; the S&P 500 returned 11.8 percent in October, its strongest month since 2009.

Jon Corzine and the Volcker Rule

The bankruptcy of the investment bank MF Global, under the guidance of our former governor Jon Corzine, has highlighted the way the so-called Volcker Rule is supposed to protect our economy from the failure of "too big to fail" financial institutions. The Volcker Rule, which is scheduled to take effect next year, only affects institutions that are much larger than MF, but the principle is the same: Banks or financial firms that have government guarantees, or are so deeply entwined in the financial markets that their collapse threatens the entire system, should not be allowed to make such risky bets that could bring them down.

The collapse of MF resulted from unwisely betting $6.3 billion on European sovereign debt, when the firm itself had only $2.5 billion in capital. If a larger firm like Goldman Sachs had lost proportionally as much money as MF Global, and fell into bankruptcy, our financial system would be in great peril.

And the big investment banks often lose huge sums of money. As part of the research into implementing the Volcker Rule, the government looked at the proprietary-trading desks at six major investment banks. Over the 18 quarters studied, the desks turned a total profit of $15.6 billion in 13 of the 18 quarters. But in the remaining five quarters, the traders lost a total of $15.8 billion. As profitable as these investment banks usually are, when their trades go bad, they can go really bad, really fast.

A Happy, Happy Halloween

Today is Halloween, which often serves as a sort of barometer for how the all-important holiday spending season will play out over the next two months. And if form holds, we could be in for a terrific holiday. According to the National Retail Federation, the average American plans to spend $72.31 on Halloween decorations, candy and costumes this year, which is up more than 9 percent from last year and is the highest figure in the nine-year history of the survey. All told, spending on Halloween is expected to reach $6.86 billion this year.

Interestingly enough, Americans will spend more money on adult costumes this year - $1.21 billion - than on children's costumes - $1 billion. Those numbers were $990 million and $840 million last year. We'll also spend an additional $310 million this year on costumes for our pets.

And the most popular costume? We can expect to see roughly 2.6 million zombies rising from the dead this year, then roaming the streets of America asking for candy.

GDP Comes Back Strong

Thursday's report on third-quarter GDP growth was the strongest we've seen in some time. In historic terms, 2.5 percent growth is fairly normal, but in these beleaguered times, it was the most growth we've seen in a year, and nearly doubled the second quarter's 1.3 percent.

The biggest growth trigger was personal consumption expenditures, which grew 2.4 percent in the quarter after growing just 0.7 percent in the second quarter. Sales of computers accounted for 0.21 percentage points of the growth in GDP after adding 0.07 percentage points in the second quarter. Motor vehicles had accounted for a 0.10 percentage-point drop in the second-quarter GDP, but rebounded to add 0.07 percentage points to this quarter's growth.

With this solid quarter, we've turned a significant corner: The overall economy has now surpassed the size it was prior to the recession. Our inflation-adjusted gross domestic product totals roughly $13.35 trillion at this point. The size of the economy had peaked at around $13.33 trillion towards the end of 2007, before contracting in the recession.

Venture Capital Roars Back

Much ink has been spilled over the exceptionally poor performance of the stock market during the third quarter of 2011, but there's one area that turned in strong numbers over that period: venture capital. U.S. venture capital firms poured a total of $8.4 billion into 765 start-ups during the third quarter. The dollar figure represents an increase of 29 percent over the third quarter of 2010.

The biggest winner was the consumer information services category, which includes such things as online search firms and social media. Those businesses received more than a billion dollars from venture capital firms in the quarter, in a total of 103 different deals. That's more than double the dollar figure raised in the same quarter last year.

According to Dow Jones VentureSource, which compiled the numbers, venture-capital activity is now on a pace to return to pre-recession levels by the end of the year. That could be a big jump-start for this sluggish economy.

Consumer Confidence: A Double-Barreled Drop

It's not just retirement confidence that's dropping; consumer confidence is also falling, now reaching its lowest levels since we were in the midst of the recession. The most widely watched confidence reading, conducted by the Conference Board, has two basic measures, a current index and a future index, and usually the overall measure declines when one or the other drops. But in the October reading, people have gotten more pessimistic about both the present and the future.

The percentage of people who expect business conditions to be better in six months declined, as did the percentage of people who expect their income to decrease over the next six months. On the other side of the coin, the number of people saying that business conditions are bad right now increased in October, as did the number of people saying that jobs are "not so plentiful."

While these consumer confidence numbers provide a lot of insight into where consumer spending might be headed, it's important to realize that the people surveyed are random Americans, who don't have any special insight into the economy. For instance, the same survey found that inflation expectations over the next 12 months are at 5.8 percent. While anything is possible in this economy, the annual inflation rate hasn't actually been that high since 1982.

The Drop in Retirement Confidence

Americans' confidence in their ability to retire comfortably has been declining lately, according to the annual retirement survey conducted by SunLife Financial. That's no surprise, given the economic environment we've been living in the past few years. What is surprising, though, is the timing. While the confidence level stayed relatively stable from 2008 to 2010, it dropped suddenly by 18 percent in 2011.

The thing that's changed is people's confidence in their ability to pay for their basic living expenses in retirement. In December 2008, after the recession had already been in effect for a year, 46 percent of Americans said they were very confident they'd be able to pay for their retirement expenses. Only 14 percent said they were "not at all" confident.

Now those numbers have reversed. In the 2011 survey, more respondents - 28 percent - said they were not at all confident about their retirement than those who said they were very confident (23 percent). The biggest issue here may be a lack of confidence in government: Confidence about Social Security has dropped from 22 percent in 2008 to 9 percent now, and confidence about Medicare has dropped from 20 percent to 8 percent.

Europe's Next Steps

The Greek debt crisis has been festering for more than a year now - when and how is it ever going to end? According to a poll of mutual fund managers conducted by Bank of America Merrill Lynch, the overwhelmingly expected result is a default. Three quarters of the respondents expect it to happen by the first quarter of 2012.

Yet, by and large, they don't expect this event to be too traumatic for the American economy. The majority of respondents did forecast that Europe is likely to be thrown into recession by a Greek default, yet only 25 percent expect that to turn into a global recession. That's down from 40 percent that expected a global recession as recently as September.

So a Greek default may not be as dangerous as it sounds. In one sense, it would be an opportunity to put the immediate problem behind us, and the European governments can get back to focusing on growing their economies rather than pursuing endless bailouts of Greece. In the long term, that might be the best remedy for all.

IRS Guidelines for 2012

The IRS has issued some announcements on updated regulations for 2012, and there is some good news in there for retirement savings. The limit on 401(k)s has been raised from $16,500 this year to $17,000 next year, so you will be able to put away another $500 tax-free. That applies to 403(b) plans, for people who work for nonprofits, as well.

There are also some cost-of-living adjustments that should provide a small amount of tax relief for high-income taxpayers. The personal exemption will rise from $3,700 to $3,800, and the standard deduction for married couples will go up from $11,600 to $11,900. And the 35 percent top bracket will now apply to incomes of $388,350 and higher, up from $379,150 this year.

There is also some small movement on the estate tax, which his been a moving target for the past few years. The exemption will be raised to $5.12 million next year, up from $5 million. But be warned: At this point, that exemption is scheduled to drop back to $1 million at the end of 2012, unless more legislation is passed.

Behind Apple's "Big Miss"

All the reports about Apple's disappointing quarterly results - the Wall Street Journal headline read "Apple Loses Some of Its Shine" - serve as a reminder about what really moves markets in the near term. Apple's problems weren't that it had poor sales or revenue in the third quarter. The problem was that it didn't live up to Wall Street's lofty expectations.

Consider that the quarter saw record sales of both Macintosh computers and iPads. The overall revenue for the quarter was $28.3 billion, the second-best quarter on record for Apple. Revenues were up year-over-year by 39 percent. Profits were up by 54 percent. There's nothing wrong with any of that; the issue is that the analysts' consensus expected earnings to be 3 percent higher than they actually were.

As a result, Apple lost 6.5 percent off its share price in after-hours trading on Tuesday following the earnings report. But for long-term investors, missing (or meeting) Wall Street's quarterly expectations should be merely a blip.

A Jumpstart for Housing?

The housing market may be receiving a significant boost from an unusual source: a rise in short sales. Short sales, as you may know, arise when a home is in default but hasn't been officially foreclosed upon, and the bank decides to let the owner sell it for less than the mortgage balance rather than repossess it.

According to RealtyTrac, short sales were up 19 percent in the second quarter of this year, while foreclosures were flat. HomeServices of America, a residential brokerage, says it now sees about 60 percent short sales and 40 percent foreclosures, whereas those figures used to be reversed. It's not much of a surprise that short sales would be preferred by banks: They generally end up selling at a discount of about 20 percent, compared to similar homes not in default. Foreclosures typically carry a discount of around 40 percent.

And then there's the time saved. As we mentioned recently, foreclosures in New Jersey take an average of around two and a half years. Speeding up that process will help clear the excess inventory off the market, and get everything moving again.

Industrial Strength

The likelihood of a double-dip recession got a little more remote yesterday, with the news that industrial production in the United States grew in the month of September. The growth in output at factories, mines and utilities was nothing great - just 0.2 percent - but it was up from being flat in August. The biggest movers were increasing demand for automobiles and computers.

In the first half of 2011, the industrial numbers had slowed to practically nothing. The indicators had shown that, for those six months, our industrial output was the weakest it had been since the onset of the recession in 2007.

So the fact that the numbers have reversed direction is very good news indeed. The growth in industrial output led the chief market strategist for JP Morgan to estimate that we'll see an increase in GDP for the third quarter somewhere between 2 and 3 percent. For the second quarter, remember, it was just 1.3 percent.

What Has You Worried?

It's no secret that American investors harbor great doubts about the stock market at the moment. A Gallup poll conducted during September asked people what exactly it was that had them so pessimistic. Not surprisingly, given all that's wrong with the economy right now, they were able to mention more than one item.

Here are the factors that more than half the investors cited as reasons for their concern:

Unemployment; weak economy: 85 percent
Volatility on Wall Street: 80 percent
Confrontational political stalemate: 74 percent
Lack of national leadership: 71 percent
Federal Reserve policies: 51 percent
Financial crisis in Europe: 50 percent

Sloppy Bank Robber of the Week

Here's a lesson for all you would-be bank robbers: Work on your handwriting. Last week, a man walked into a bank branch down in New Castle, Delaware, and handed the teller a note. She couldn't read the writing on the note, so she handed it back to him and asked him if he could rewrite it.

Apparently, he wasn't just asking for his account balance. The teller's request completely spooked the man, who fled from the bank on foot. A local police officer spotted him, though, and arrested him. The man is now being held on charges of attempted robbery.

Let that be a lesson to you. If you ever walk into a bank and give the teller a note asking what their 90-day CD rates are, make sure you write very clearly.

Settling In to Earnings Season

Third-quarter earnings season is underway, and if the analysts are to be believed, this one could be a doozy. The analysts' consensus calls for profits to grow 13 percent for this quarter over the third quarter of 2011. The forecast also calls for fourth-quarter profits for S&P 500 companies to edge up even further, to 15 percent.

As of the beginning of this week, 29 companies in the S&P 500 had announced their earnings, and 21 had beaten the analysts' estimates. That's a mark of 72 percent, but remember, the average percentage of companies that beat analysts' earnings estimates is 61 percent. So we're above average, but not by as much as that 72 percent might suggest.

On the other hand, the Web site Thestreet.com looked at all the companies that had pre-announced earnings guidance in recent weeks, and found that the ratio of negative-to-positive news was 2.6 to 1. That might sound terrible, but again, those numbers are ordinarily skewed. The average figure is 2.3 to 1, so the number of companies reporting bad news is only a little bit higher than normal.

Managing Social Security

American recognize that we are l iving longer, and thus will be spending more of our lives in retirement. That's the good news from the new MetLife Retirement Income IQ survey. The bad news is that many people still don't seem fully prepared for how they're going to pay for those extra years.

Take Social Security. A full 45 percent of the respondents said that Social Security would be an important part of their retirement scenario. But only 17 percent knew that by delaying when you begin accepting that retirement benefit by three years, you can add 24 percent to your annual total.

The reason that's so important is because Social Security is guaranteed to last till the end of your life, and it's indexed to inflation. If you can maximize those benefits to where you're receiving, say, $30,000 a year, and you live in retirement for 25 years, with a little inflation adjustment, Social Security can be a nearly million-dollar proposition. That means you should manage it with the care and attention you would put toward any other million-dollar aspect of your portfolio.

Short Sales on the Rise

Last week we talked about the volatility index, an indicator that the stock market might be due for an upswing. Here's the other side of the equation: in the month of October, short selling increased at its quickest pace since 2006. Borrowed shares, the sign of a short sale, now constitute 11.6 percent of outstanding shares on the American market.

Overall, the percent of short sales is at its highest level since 2009. About 4.1 percent of the shares on the NYSE have already been borrowed and sold, up from 3.5 percent in July. Since short selling is a bet that a stock will decrease in price, this can be taken as an indicator of a further market decline.

Of course, that's only one indicator. Bloomberg News yesterday released the results of a poll of economists, who predicted that the S&P 500 would grow by 13 percent between now and the end of the year. If that happens, there are going to be a lot of disappointed short-sellers out there.

A Dismal Third Quarter

The third quarter of 2011, which ended a week ago, was a disaster for the stock markets. What's becoming clear as more detailed figures become available is how thorough the downturn was. Every equity category and every sector, lost ground.

Here are how some mutual-fund sectors made it through the third quarter:

Precious-Metals Stocks: Down 6.2 percent
Utilities: Down 6.6 percent
Health: Down 13.5 percent
Real Estate: Down 14.7 percent
Technology: Down 15.9 percent
Financial: Down 20.2 percent
Industrials: Down 21.3 percent
Energy stocks: Down 21.3 percent
Natural Resources: Down 25.9 percent

Did anything survive the quarter unscathed? According to the New York Times, there was one general U.S. stock fund that finished in positive territory: The Hussman Strategic Total Return fund. It gained 2.4 percent.

The New Jobless Figures

September brought us another month of increasing payrolls, but not enough of an increase to make a dent in the unemployment rate, according to figures released this morning by the Labor Department. U.S. payrolls added 103,000 jobs for the month, although the official jobless rate remained stuck at 9.1 percent. The government also revised upward the jobs figure for August; it now turns out that we added 57,000 jobs that month, instead of the zero figure that was originally reported.

The breakdown for September was that the private sector added 137,000 jobs, while government payrolls fell by 34,000. The biggest-gaining sectors were service providers, who added 85,000 jobs on the month, and construction, which added 26,000. There was a decline of 13,000 factory jobs, the biggest loss in that category since August 2010.

While the trend is in the right direction, 103,000 new jobs a month is really only enough to tread water in a growing population. Economists estimate that we need to create closer to 200,000 jobs a month to really make a difference in the unemployment rate. The trend is in the right direction, but we aren't quite there yet.

Steve Jobs, 1955-2011

With the news yesterday that Apple founder and longtime CEO Steve Jobs had passed away, there was also a sense that we might never see the likes of this sort of business titan again. Unlike his contemporary, Bill Gates of Microsoft, Jobs not only founded Apple (and was fired by his hand-picked successor) but remained critical to the day-to-day operations of the company, nearly to the end of his life. It's hard to think of another American business that was so innovative and influential - and successful - due to the efforts of one man.

Here's a quick timeline of Jobs' life work:

April 1, 1976: Steve Jobs co-founds Apple Computer.

December 1980: Apple goes public in the biggest IPO since Ford Motor in 1956, with a market valuation of $1.8 billion.

January 24, 1984: The Macintosh goes on sale to the public.

May 1985: Jobs is fired from Apple. The company's split-adjusted stock price is about 2.5.

1996: Apple announces it has bought Jobs' company NeXT, bringing him back to the fold.

September 16, 1997: Jobs becomes CEO of Apple once again. The company's split-adjusted stock price is 5.4.

November 10, 2001: The iPod goes on sale to the public. Apple's share price is at 9.

June 29, 2007: The iPhone goes on sale to the public. Apple's share price is at 122.

October 5, 2011: Steve Jobs dies. Apple's share price is at 377. Its market cap of $350 billion makes it the second-largest corporation in America after ExxonMobil.

If you had bought 100 shares of Apple on the day Steve Jobs was re-introduced as the company's CEO, your $540 investment would now be worth $37,700.

The Promise of Volatility

Are you looking for a sign that the stock market is due for a turnaround? There might be a good omen out there now, in the form of the Chicago Board Options Exchange's Volatility Index. The VIX has pushed itself above 40 for the third quarter, a jump of 160 percent, and is now in a territory that has historically predicted market upswings.

Since 1990, in those periods when the VIX has closed above 40 - which it only does around 3 percent of the time - the S&P 500 has returned 3.2 percent on average over the next three months. And over the ensuing 12 months, the S&P has historically returned 19 percent.

The volatility index looks at the prices paid for options that are designed to protect investors from losses in equity investments. It's a contrarian indicator, in that it shows that individual investors are fearing the worst - which means the market has turned into a good buy. That's the theory anyway; we'll see how well it holds up this time.

What's Ahead for Greece?

The crisis in Europe continues to weigh down the markets here in the U.S., as investors have move from speculation over whether Greece will default toward strategies for minimizing the damage of that default. Moody’s rating agency has already declared that the likelihood of a Greek default was “virtually 100 percent.”

At this point, the other European nations may very well let Greece default, writing off the billions of dollars it owes to other member nations. While that would mean a big financial hit for Greece’s lenders - primarily the continent’s central banks - it would also end the crisis in its current form. Perhaps a larger concern would be that a default would drive up interest rates for all the Eurozone countries. Many of them are in a precarious enough position that it might tip them over into default as well.

It would also likely mean Greece would exit from the euro and return to its own currency – which might, ironically, benefit its economy, with a cheaper currency driving up tourism and exports. Certainly, the longer the sense of impending doom hangs over the continent, and the more the can gets kicked down the road, the longer it will take for Europe to return to economic growth.

The Bounceback in Retirement Funds

Despite the fact that the economy remains very sluggish, there is some good news to report as far as retirement planning goes. After retirement plans took a huge hit in the market downturn of 2008-2009, people are starting to build up those nest eggs again. Over the past year, 41 percent of American workers say they have increased their contributions to their 401(k)s. That's up from 31 percent who did so in 2010.

That's been a part of a huge bounceback in overall retirement savings. After the nation lost a huge amount of money in 2008, the value of U.S. retirement assets has been growing steadily ever since. Here's the recent history of the total value of all the 401(k)s, IRA, pension plans and government plans in the U.S.:

2007: $17.9 trillion
2008: $14.0 trillion
2009: $16.1 trillion
2010: $16.7 trillion
2011: $18.2 trillion

The Final Revisions

After some rough economic times, we can at least end September on a high note: The Bureau of Economic Analysis has revised upward some of the GDP figures from earlier this year. It turns out that the pullback we thought we had experienced in the spring wasn't as severe as it had been reported. Second quarter GDP - which had been revised downward from 1.3 percent to 1.0 percent in August - has been revised back up to 1.3 percent in the government's third and final estimate.

What changed? The biggest culprit was consumer spending - which went in two different directions. Consumer spending on goods, especially durable goods such as motor vehicles, was one of the primary decliners for the quarter. (Business investment in equipment and software was also revised down.) But consumer spending on services was revised upward in the final set of figures.

Current-dollar GDP - which reflects the market value of the nation's output of goods and services - made an even bigger upward swing. That figure had dropped from 3.7 to 3.5 percent in the first set of revisions, but it has now been nudged up even further, to 4.0 percent.

The first estimate for third-quarter GDP is due out on October 28.

The Silver Rules

The price of gold has seen some tumultuous days recently, losing ten percent of its value in less than a week and currently sitting about 15 percent off its peak. While that has been covered extensively, it hasn't been quite as widely reported that silver has taken even a bigger tumble: It's lost more than 25 percent of its value within the past week.

What happened to drive the price down? The answer may lie not so much in supply and demand as in margin rules. Buying an investment on margin, as you probably recall, means putting down only part of the purchase price, and borrowing the rest. The Shanghai Gold Exchange just last week raised the silver margin requirements by 20 percent, which apparently triggered the fall in price.

You might not attribute the drop solely to the rules of the Chinese market - except that there was another silver price plunge earlier in the year, right after the Chicago Mercantile Exchange raised its own margin requirements for silver. Yet another lesson in one of the most important principles of investing: The global supermarket is a complicated place.

Consumer Spending Still Precarious

A report released yesterday from the Bureau of Labor Statistics helped to point up why our economic slowdown has been so difficult to recover from. According to the BLS, household income in 2010 dropped slightly, by 0.6 percent, from $62,857 to $62,481.

A decrease of around $400 per household shouldn't have a dramatic effect on the economy - except the drop in spending was worse than that. The average American household spent 2 percent less than it had in 2009, and that was coming off a spending drop of 2.8 percent from 2008.

That's why the consumer confidence numbers are so important. We've seen declines in consumer spending not just because Americans have less money, but because they're more reluctant to spend the money they do have. The Conference Board reported yesterday that consumer confidence was ever-so-slightly higher in September, posting a "marginal gain"; that's a good first step.

Women's Work

We've talked before about how many Americans are unprepared for their retirement years, but a new survey from IRI looks at a group with special risks: women. Only 34 percent of the women surveyed expressed confidence that they would have enough money to make it through their retirement years, as opposed to 41 percent of men who feel that way. Nearly half of all women said they did not consider themselves knowledgeable about investing in securities.

Interestingly enough, though, there are indications that women tend to be more proactive about their finances than men. Of the women surveyed, 47 percent have consulted with a financial advisor on their retirement, while only 42 percent of the men had. And slightly more women than men have tried to figure out how much money they need to save for retirement, by a margin of 55 percent to 52 percent.

That's crucial, of course, to any retirement plan: identifying the gaps in your knowledge and trying to fill them in with expert advice. To see the full IRI survey, click here. And if you're unsure of any aspect of your own retirement, please feel free to give me a call.

Breaking Down the Sectors

As we pointed out last week, the S&P 500 has not joined most of the rest of the world in bear market territory - it's off 16 percent from its April peak, while a bear technically requires a 20 percent drop. Yesterday's New York Times pointed out just how precarious the current position is, since four of the S&P's ten sectors have already slid below that 20 percent mark.

The four sectors that are already in bear territory:

* Financials
* Industrials
* Technology
* Telecom Services

That leaves six stronger sectors: Consumer discretionary, consumer staples, energy, health care, materials and utilities.

Global Bears

A key global stock index sank 4.5 percent yesterday, officially bringing it into bear-market territory amidst further worries about the Greek debt crisis. The MSCI Index of developed and emerging-market stocks has now joined other benchmark indexes of European and emerging-market stocks that were already considered to be in bear territory.

Like a lot of financial terms, "bear market" gets thrown around a lot casually but does have a technical definition attached to it. A stock market is officially considered a bear when it drops 20 percent off its peak. Though the S&P 500 has been falling pretty hard since July, it's down only about 12 percent from its peak, which means that American stocks are not officially in a bear market.

We're actually one of the few international stock markets that's not a bear right now. There are 24 developed stock markets around the world, and every one of them is officially in bear territory except for markets in Canada, New Zealand, Singapore - and the good ol' U.S. of A.

The Fed Does the Twist

As widely expected, the Federal Reserve yesterday announced a new iteration of Operation Twist, the plan to buy long-term securities and sell off shorter-term ones. Between now and the end of next June, the Fed will buy $400 billion worth of Treasurys with maturities between 6 and 30 years, and sell off a similar amount with maturities under 3 years. If everything works out as planned, long-term interest rates will go down, spurring business investment.

While some economists see the move as a tool that will increase overall growth, it's worth pointing out that interest rates are already pretty low, including long-term ones. The yield on the ten-year Treasury fell to an all-time low after the Fed's announcement, and 30-year mortgage rates are down to around 4 percent.

Since this program won't add anything to the Fed's bottom line, it's a relatively cheap tool to use, but remember, American businesses are already flush with cash right now. Having access to capital is not holding back most corporations. So while there isn't much opposition to this move, it remains to be seen what kind of impact it will ultimately have.

Apple in the Dow

Apple is one of the leading lights of the American business community, with the largest market capitalization of any corporation in the nation. At the moment, the electronics giant is closing in on a market cap of nearly $400 billion, putting it narrowly ahead of second-place ExxonMobil and more than $100 billion ahead of third-place Microsoft. Yet it's not, contrary to what many investors believe, one of the 30 stocks in the Dow Jones industrial average.

Why is that? In a letter to its clients yesterday, Bespoke Investments pointed out that Apple is just too big for the Dow - not its overall market cap, but its share price. Apple shares are now trading at around $420, which would be by far the largest in the Dow. Since the index weights its stocks by share price, Apple's ups and downs would dominate the Dow's price movements.

The highest share price in the Dow right now belongs to IBM, which is trading at about 175, or around 40 percent of Apple's price. The lowest? Bank of America closed yesterday at less than 7, which means its overall affect on the Dow Jones average is virtually nil.

Investors Fleeing Equity Funds

One factor that has fueled the recent slump in the stock markets has been investors taking huge amounts of money out of U.S. equity funds. Over the four months that ended in August, investors have withdrawn about $75 billion from American stock funds. In August alone, there was $33.6 billion taken out of these mutual funds. By contrast, during the first four months of this year, those same funds had taken in around $18.7 billion.

How bad is that? In the four months after the Lehman Brothers bankruptcy, at the end of 2008 and beginning of 2009, investors pulled out $72.8 billion from equity funds. We've managed to top that mark. It's no wonder that in those four months, the S&P 500 managed to lose more than 10 percent of its value.

The big winner in all of this has been bond funds. From April through July, American bond funds added $42.3 billion from investors, although they did start to see some outflows in August.

Let's Twist Again?

The Federal Reserve meets this week, giving them a chance to act for the first time since chairman Ben Bernanke made his much-anticipated speech at Jackson Hole last month. Prior to that address, many economy-watchers predicted a return to a strategy called Operation Twist. It didn't happen then, but we may see the strategy announced this week. Rumor has it that Bernanke needed the extra time to arm-twist some of his Fed governors into going along with the strategy.

Would Operation Twist make much difference? According to the economic forecasters at Macroeconomic Advisors, it could be significant. They estimate that Operation Twist alone could add 0.4 percentage points to our GDP, and create 350,000 jobs. That's on top of whatever natural growth we see.

Of course, economic forecasts are a dime a dozen. But with the Fed adding an extra day to its normal meeting time this week, don't be surprised if something truly dramatic happens this week.

Don't Be Afraid of the Dark

Don't Be Afraid of the Dark

A while back, a study found that the stock market tended to have rough days on those Mondays in the autumn just after we switched off of daylight savings time, and suggested that the loss of those daylight hours (or a lack of sleep) might be depressing stock traders, and causing those gains. In fact, the worst Mondays of the year tend to come in the fall, when the S&P 500 has suffered average losses of as much as 8 percent.

But if you're thinking of making some trades to take advantage of this year's switch back to standard time - which is coming up on November 6 - that might not be a wise idea. Another researcher has gone back to the original study, and found that the real explanation for the market woes was not a lack of afternoon sunshine but dim economic news.

The second researcher, Jeffrey Gerlach, did find those drops on autumn Mondays, but determined that they were the result of "seasonal patterns in market-related information." In other words, it's the result of the same old things that always drive the markets.

Another Zero

The month of August resulted in exactly zero jobs added to our nation's economy, as we've discussed before. Now we've got another zero on the ledger: In that same month, retail sales remained exactly flat.

Actually, the situation is worse than that might initially seem. At the same time the August figures came out, the Commerce Department revised the July sales figures downward. The initial figures had July retail sales climbing by 0.5 percent, but now it seems that they rose by just 0.3 percent. The August numbers, then, couldn't even improve on that lower threshold.

The big culprits were auto sales (down 0.3 percent for the month) and clothing sales (down 0.7 percent). Some people blamed Hurricane Irene for the loss in auto sales, which is plausible: while she didn't reach New Jersey until the 28th, the storm did completely wipe out the final weekend of the month as far as car-shopping goes.

Taxing Muni Bonds

Buried within the Obama administration's jobs bill was a proposed change to the tax treatment for municipal bondholders. If the bill were to pass as originally presented - which doesn't seem very likely - people in the top tax brackets would not be able to deduct quite as much interest from tax-exempt muni bonds.

It's important to understand what this proposal would and wouldn't do. It applies only to people in the top tax bracket, which means families with more than $250,000 in income, or singles with more than $200,000. It would cut back the tax advantage for tax-exempt munis from 35 percent to 28 percent. It would also have no effect on state taxation levels.

The idea is that the reduction of this tax break would help pay for other job-creating activities in the president's bill. Last year's deficit reduction panel had already made a similar proposal. But in addition to raising taxes, it could also make it even more difficult for state and local governments to borrow money and finance their projects; those state and local governments have cut more than 600,000 jobs since 2008.

Tamping Down Expectations

A new survey of business economists adds another strong voice to what many have suspected: The American economy is headed for another slowdown over the next year. The economists polled by the National Association for Business Economics forecast our GDP to grow by 1.7 percent over the remainder of 2011, and 2.3 percent in 2012. That's down from a forecast in May of 2.8 percent and 3.2 percent, respectively.

The survey also knocked down previous estimates of consumer spending growth, from 2.8 percent in the May forecast to 2.1 percent in the current one. The prediction for monthly jobs added for the remainder of the year fell from 190,300 in May to 124,000 for the September survey.

If there's a bright spot to all of this, it's that inflation expectations have been tamped way down as well. The ten-year TIPS spread has dropped to right around 2 percent, reflecting a global trend. Around the world, bond yields indicate an expectation of just 1.3 percent for consumer inflation.

Moneyball in the NFL

The NFL wraps up the inaugural week of its 2011 season tonight, a season that for a while looked like it might not come off at all. The preseason was marred by a lockout on the part of the NFL owners, who argued they were giving up too much money to the players.

The crisis was resolved, however, probably because this is one situation in which there is plenty of money to go around. Forbes magazine annually estimates the value of each of the NFL franchises, and the champion this year was the Dallas Cowboys, checking in at a whopping $1.85 billion. Our local teams, the Giants and the Jets, rank fourth and fifth respectively, with franchise values of $1.3 billion and $1.22 billion. The average NFL franchise is worth about $1.04 billion.

Where's all that money coming from? The NFL's network TV deals alone - there are four of them, with CBS, Fox, NBC and ESPN - total $3.1 billion a year, plus an additional $1 billion from DirecTV's Sunday Ticket. That's more than $125 million for each of the league's 32 teams. And here in New Jersey, the Giants and Jets shared $400 million from MetLife in naming rights for their new stadium. That's a pretty big haul, before either team sells a single ticket.

Debt in Retirement

We've talked a lot about the fact that many Americans have had to postpone their retirements, or at least keep working part-time at an age when they hoped to have put their careers behind them. An article in the Wall Street Journal this week pinpointed perhaps the biggest reason for this: debt. Households headed by folks aged 62 to 69 held an average of $71,000 in mortgage debt in 2007, a whopping five times higher than the inflation-adjusted amount from 20 years earlier.

Mortgage debt of all kinds is on the rise for older people. In 1994, 22 percent of homes headed by people aged 60 through 64 still had primary mortgage debt; now that number is up to 39 percent. The figures for secondary mortgages have risen from 12 percent in 1994 to 20 percent today.

Home mortgages aren't the only type of debt affecting older Americans. According to TIAA-CREF, which runs many types of retirement funds, loans taken out against retirement accounts rose by 18.8 percent in the past year alone. That's going to make a comfortable retirement awfully tough.

The Local Conditions

The Fed's Beige Book, with its periodic look at economic conditions in eight separate regions around the country, arrived yesterday, and its examination of our area here in New Jersey was somewhat dispiriting. Economic growth is still "sluggish," and even before Irene hit, "manufacturing reported steady to weakening activity."

There was a dollop of good news, though. Retail sales and tourism activity were both pretty solid, at least until the hurricane hit. The residential real estate market has been stable for existing homes, and the commercial real estate market is even starting to rebound, with both office and industrial spaces showing some signs of improvement. In northern New Jersey, the industrial vacancy rate was at its lowest level in two years.

One thing to watch for the housing market: The Beige Book reports that foreclosures have been weighing down the residential market, which comes as no surprise to those of us who live here. But the processing of those foreclosures is proceeding ahead now, which might temporarily depress home prices but should also mean more sales and a reduction of housing inventory on the market.