Broken Trust

The banking sector meltdown followed by the TARP bailouts and the quick return to profitability and big bonuses on Wall Street - all that seems to have done irreparable damage to the way Americans view the financial industry. Nearly half of those surveyed said they trusted financial institutions less now, according to a report from Edelman released last week.

Less than half of the respondents - 45 percent - said they still trusted national banks. Even fewer, just 43 percent, said they trusted brokerage firms. In a survey comparing trust in various business and governmental organizations, banks dropped from third on the list of most-trusted entities in 2008 to next to last this year.

Still, a majority of those surveyed acknowledged that they need help managing their money. The big question is: Who will they trust to do so?

Shady Dealing

There's kind of a sad story out of Florida this week, where a retired divorcee has decided she was taken to the cleaners by her broker at her local Wells Fargo branch - twice! The woman, Peggy Boyles, has filed for an arbitration hearing with FINRA, the Financial Industry Regulatory Authority, which is how these things have to be settled.

After getting a divorce settlement worth over $800,000 in 2007, Boyles decided to invest with what was then Wachovia, but her investments promptly lost about $300,000. The broker convinced Boyles to give him another shot, only to lose another $128,000 from her portfolio.

Now, any investment carries some risk with it, but the more you look at this story, the shadier it becomes. Boyles, as a 60-year-old retiree, should have been funneled into relatively safe investments, but the broker put her into such high-risk vehicles as Latin American mutual funds. Even more damningly, the broker filed paperwork listing Boyles' income as $60,000 per year - she was actually unemployed - and her assets as $1.2 million, even though all she had was her divorce settlement worth around $800,000.

The last part is very troubling. If your financial advisor isn't thoroughly familiar with your entire financial situation, it's time to find a new advisor.

The Forgotten Generation

If you're one of the 37 million Americans over the age of 65, it may seem to you that every product in America is marketed toward young people in our society. But the older demographic might be the strongest economic force in the country, according to a study from the International Longevity Center in New York, and it's getting stronger all the time. In 20 years, there will be 70 million Americans over the age of 65.

The latest figures also show that this group is America's wealthiest: The median net worth of households headed by those 65 and over was over $100,000, while the average American household headed by someone under 35 - the kind most chased after by advertisers - was worth just $7,420.

So why are the younger generations more heavily courted? That's a good question. According to one estimate, three times as many businesses cater to teenagers as cater to seniors - but seniors have ten times as much money. This is a situation that's not likely to stand.

Turmoil in the Middle East

The unrest in the Middle East has spread from Egypt and Bahrain to Libya this week, and it is becoming clearer that all this governmental turmoil is going to have an effect on our economy here at home. Libya is a massive exporter of oil; a fourth of its entire GDP comes from oil revenues. The world economy seems to be expecting some disruption in Libya's oil exporting. Oil futures are closing in on $100 a barrel, and in London, oil prices are nearing their highest point since September 2008.

To a certain extent, the markets had already factored this in. The International Monetary Fund had forecast that oil prices would average about $95 a barrel this year. Unless the price shoots up even further, that's still a fairly realistic estimate.

But these potential price increases could have a serious effect on our economy. An extended increase in the price of oil worth $10 a barrel, according to one estimate, would chop off roughly 0.5 percent of our GDP growth. That would be another blow to this still-recovering economy.

The New Landscape for Identity Theft

As Americans have become more savvy about identity theft - and as our computer processes and passwords have become more attuned to foiling thieves - instances of people getting ripped off in this manner have been falling. There were 3 million fewer instances of ID theft in 2010, down from a record 11.1 million in 2009, according to Javelin Strategy & Research's 2011 Identity Fraud Survey. Consumers lost $37 billion to ID theft in 2010, which may sound like a lot, but it's down from $56 billion in 2009.

The bad news: Each instance of ID theft is now costing victims more money. In terms of recouping lost funds and clearing up the problem, the average ID theft incidence cost $631 in 2010. That's up from $387 per incidence in 2009.

And not surprisingly, the biggest growth in ID theft comes from users of debit cards. In 2010, 43 percent of all identity theft cases arose from the use of debit cards.

Thoughts for Presidents Day

Associate with men of good quality if you esteem your own reputation; for it is better to be alone than in bad company. - George Washington

Character is like a tree and reputation like a shadow. The shadow is what we think of it; the tree is the real thing. - Abraham Lincoln

All great change in America begins at the dinner table. - Ronald Reagan

There is not a liberal America and a conservative America - there is the United States of America. There is not a black America and a white America and Latino America and Asian America - there's the United States of America. - Barack Obama

Football Fraudster

You've probably heard about how one of Bernie Madoff's biggest victims was the Wilpon family, owners of the New York Mets. There's a story out of Texas that's sort of the reverse of this: rather than preying on millionaire sports figures, a Ponzi schemer named Kurt Barton enlisted famous athletes to help him sell worthless investments. Barton was indicted Tuesday on more than 3o charges of wire fraud, securities fraud and money laundering.

Barton got two different Heisman Trophy-winning quarterbacks, Ty Detmer and Chris Weinke, to help bring in new investors to his schemes. He also convinced Jeff Blake, a onetime NFL quarterback with the Bengals and several other teams, to send an email to over 100 of his fellow NFL vets, claiming that Barton had gotten him annual returns of 32 percent. That's even better than Madoff!

It's not clear just how successful all this was. At one point, Barton showed a client a statement from E-Trade that supposedly showed he had a $3 million account with the online trader - but on closer inspection, the amount of money in the account was just $3,161.17.

The Fed's Forecast

The biggest economic news yesterday was the release of the Fed's minutes from its January meeting, where it upgraded its basic outlook for the recovery over the rest of this year. These are the basic differences between the latest assessments and the Fed's earlier forecasts:

* The Fed now sees overall growth of GDP in 2011 at somewhere between 3.4 and 3.9 percent, up from the earlier estimate of 3 to 3.6 percent. That would be up from a 2.9 percent increase in GDP in 2010.

* The forecast for inflation moved slightly upward, to a range between 1.3 percent and 1.7 percent. The previous forecast had been 1.1 percent to 1.7 percent, so there is very little difference between the two.

* The jobless rate is now projected to be between 8.8 percent and 9 percent by the end of the year. Again, this is only a minor change from the previous estimate of 8.9 percent to 9.1 percent. And note that since unemployment is now at 9.0 percent, the Fed apparently thinks there will be little movement on the jobs front for the rest of the year.

Sales Figures

It was a rough day for the stock market yesterday, with the Dow Jones average losing 42 points, its biggest drop this month. Many financial pundits blamed a weak retail-sales report; the Commerce Department announced yesterday that retail sales had increased in January by just 0.3 percent, the smallest monthly rise since last June.

In actuality, the retail report may have been totally unrelated to the drop in the Dow. These reports are always forecast by economists, and the consensus was that the January increase in retail sales would be about 0.5 percent, so it didn't miss that number by much. The market, more than likely, had already incorporated the idea that retail sales had been a bit sluggish in January. And the company listed on the Dow that had the day's biggest drop was Exxon Mobil, which shouldn't have a very strong relationship to retail prices.

And the 0.3 percent increase over December's retail-sales figure was also a 7.8 percent increase over retail sales from January 2010. So the news wasn't all bad.

The Incredible Shrinking Stock Market

Do you sometimes feel as if you don't have a sufficient menu of choices as to where to invest your money? That may be because the number of public companies in America has been declining for a long time now. The number of companies listed on the various American stock exchanges peaked at over 7,000 in 1997. But it's been falling ever since, and is now down to around 4,000.

Why is that? There's always a certain amount of natural turnover in the markets, as corporations go out of business or merge with each other. The 1990s had a lot of publicly held firms that aren't around any more - that 1997 figure would include such Internet supernovas as Netscape and Broadcast.com, and plenty of other once-hot stocks that have now disappeared.

And in the new high-tech landscape, the IPO is not the status symbol it once was. Many of today's biggest Internet successes, such as Facebook and Twitter, have preferred to remain privately held even as their valuations climb into the billions. And as long as that's the case, Americans investing options will remain somewhat limited.

Now, the Contrarian View

Just about every financial pundit in America, it seems, thinks that the stock market is poised to have a big year in 2011 - Bloomberg News' survey of economists reached a consensus increase of 11 percent for the S&P 500, while Goldman Sachs' leading market prognosticator threw out an estimated rise of 17 percent. It's kind of refreshing, then, that a firm called United-ICAP is willing to throw a little bit of cold water on all that exuberance.

United-ICAP, which calls itself a technical-advisory service, points out that 65 percent of all retail investors have declared themselves bullish on stocks. Individual investors are generally the last group to jump on market trends, so their optimism could be a sign that we're reaching a market top. The firm also thinks that having so many market watchers predicting a big year is a bad signal in and of itself.

For its own part, United-ICAP is predicting that the S&P 500 will end the year somewhere between 1,291 and 1,380 - which would be an increase on the year of roughly 2.5 to 10 percent on the year. So even the self-described contrarians aren't seeing a down market this year.

Timely Exits

There was a fun but informative article appearing in Forbes magazine last week, about the mistakes and clever moves that wealthy celebrities had made in their estate planning. One thing that can't really be planned is when you'll leave this vale of tears, but the article points out that several wealthy people made very timely exits last year, when the estate tax had disappeared for 365 days:

* George Steinbrenner, the principal owner of the New York Yankees, died on July 13th, 2011. Because there was no estate tax in effect, he was able to pass his share of the Yankees along to his sons Hal and Hank, free and clear.

* Roger Milliken, the billionaire heir to a South Carolina textile fortune, cut it very close: He passed away on December 30th of last year at the age of 95. Had he hung on for two more days, his heirs would have owed hundreds of millions of dollars in estate taxes.

* Chicken tycoon Don Tyson, on the other hand, died on January 6th of this year, six days after the estate tax was reinstated. Forbes estimates that those six days could cost his heirs $350 million.

Coke Around the World

Many American investors have been alarmed recently by stories that China's rapidly growing economy could surpass our own in the coming decades as the largest in the world. But it's important to keep in mind that economic growth is not a zero-sum game, and that an expanding global economy can have tremendous benefits for American companies.

Coca-Cola's fourth-quarter earnings report bears that out. Coke reported that its worldwide sales volume increased by 5 percent, but that growth was mainly fueled by a 12 percent increase in sales in India, and a whopping 31 percent increase in sales in Russia. All told, Coca-Cola's CEO estimates that sales growth in Brazil, India, China and Russia accounted for 40 percent of the company's new sales for the year.

Those four countries represent some of the fastest-growing economies on the planet. And as their economies grow, their citizens will be more and more able to buy American products, as they showed last quarter. And here in North America? Coke's North American sales growth for the fourth quarter amounted to just 3 percent.

No Money in the Bank

If you're reading this blog, you certainly have some money put away for your retirement. You may be concerned about how much you have set aside, but if you have anything at all, you're already ahead of a lot of people. According to a new Harris poll, more than a third of all Americans don't have any retirement savings at all. This number is actually up in recent years; in May 2009, 30 percent of all Americans reported no retirement savings.

This might seem to be an issue for younger people, and to an extent it is: More than half of all the respondents under the age of 33 had no retirement savings. But still, 25 percent of all Baby Boomers - people aged 46 to 64 - are in the same boat.

One more finding: Nearly three quarters of those surveyed said they had not made any changes to their retirement portfolios in the last six months. With all the movement we've seen in the various asset classes over the past year or so, if you haven't checked the weighting in your retirement portfolio lately, it might be time for a little rebalancing.

Valuations in M&A

For a long time, merger activity has had a reasonably predictable effect on the companies involved. The rule of thumb was that the seller's stock market value could be expected to increase by around 10 percent, while the acquiring company's value would decrease by about 5 percent. The last ten years of M&A activity have borne those numbers out.

But things seem to have changed a little bit on 2010. Last year, the markets saw mergers and acquisitions as having a positive effect on the valuations of both the buyer and the seller, according to research from McKinsey & Co. Over the past decade, 2005 was the only other year in which that was the case.

While the valuations applied to acquired companies have remained fairly steady over the years, the value of the acquirer has had some real ups and downs. In 2000, the average publicly traded company acquiring another one lost a whopping 17 percent of its value as a result of the deal.

More Mixed Jobs News

As has often happened with the recent jobs numbers, Friday's report on unemployment had some mixed figures in it. A disappointing 36,000 jobs were added during the month of January, when some prognosticators had hopes that the number would exceed six figures. But at the same time, the unemployment rate dropped significantly, from 9.4 percent to 9.0 percent.

In the past, the primary cause for this type of discrepancy has been a number of people leaving the work force, which drops the official unemployment rate even though fewer people are really at work. But that's not the entire issue this month. Even though the new number of jobs added was small, there were other changes that made this report a little more positive. For one thing, the number of new jobs that had been added in December was revised upward. For another, the growth continues to be almost entirely in the private sector; over the past 12 months, nearly a million private-sector jobs have been added.

To be sure, we will need to add more than 36,000 jobs per month to get the economy to full strength. Still, January's job news wasn't all bad.

Super Commercials

The Super Bowl kicks off on Sunday night, and as usual, the telecast will be as much about the commercials as about the Packers or Steelers. The cost for a 30-second ad is estimated at a little more than $3 million, up from $2.97 million last year. If you're thinking about maybe getting your own ad in there, it's too late - Fox TV sold out all the ads for the game last October.

What do people get for that $3 million? More than 100 million viewers. The total was 106.5 million for last year's game between the Saints and the Colts, and with two of the NFL's glamour teams going at it this year, that number is expected to go up. In other words, companies like General Motors will be paying around 3 cents for each person watching their 30-second ad. Put that way, it sounds almost cheap.

And what will Fox TV get out of all this? One estimate has the network making nearly $300 million in ad sales from the Super Bowl. Fox won't confirm that, but it has said it will be the biggest money-making day in the network's history.

Gender and Retirement

Just about everyone understands that women live longer than men - which is what makes the new retirement study from Wells Fargo, focusing on the needs of middle-class women, so problematic. The survey found that men estimated they would require $400,000 to fully fund their retirement, but that women estimated they would need only $200,000.

In reality, women are likely to need more money in retirement than men. Roughly three-quarters of all nursing-home residents are women. Maybe that's why just 52 percent of women describe themselves as confident that they'll live the life they want in retirement, while 62 percent of men feel that way.

The good news is, more than 80 percent of the women surveyed say they would welcome help in planning for their retirement. If you'd like to talk about how to prepare yourself financiallly for your retirement, feel free to give me a call.

A Boost for Manufacturing

Good news on the economy yesterday came from the manufacturing sector, which accounts for about 11 percent of our overall economy. The Institute for Supply Management announced that its factory index rose to its highest level since May 2004. In Bloomberg's survey of economists about where the factory index would land for January, the highest number offered was 59.5, but the figure beat even that rosiest of predictions, coming in at 60.8.

The specific area leading that unexpected increase was the measure of new orders, which jumped to its highest level since January 2004. A good question that comes out of all this: Will all this manufacturing activity make a dent in the unemployment rate? Bloomberg's economists estimate that we gained roughly 10,000 manufacturing jobs in January.

In the bigger picture, one estimate has the number of jobs added in January as 140,000 - another good but not great figure. The official jobs number is due out at the end of this week. We'll keep you posted.

History Lesson

Since the 1920s, there have been only four ten-year periods when the S&P 500 has been in negative territory for the entire time. Those are the ten-year periods that ended in 1938 and 1939, and the ten-year periods that ended in 2008 and 2009. The very worst period was the one from 1998 to 2008, when the S&P 500 lost 1.38 percent of its value.

None of that should be any surprise. But the precedent for the times following those losses is very good. After the eight worst ten-year periods for the S&P 500, in the ensuing ten tears, the value of the index increased by more than 100 percent. On average, the annual return over those next ten years was 12 percent.

Of course, past performance is no guarantee of future results. But the long-term odds, as always, look good. If you're invested for the long term, consider that fully 95 percent of the S&P 500's ten-year returns have been positive.