Friday, December 30, 2011

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.

Thursday, December 29, 2011

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.

Wednesday, December 28, 2011

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.

Tuesday, December 27, 2011

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.

Monday, December 26, 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.

Friday, December 23, 2011

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.

Thursday, December 22, 2011

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.

Wednesday, December 21, 2011

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.

Tuesday, December 20, 2011

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.

Monday, December 19, 2011

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.

Friday, December 16, 2011

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.

Thursday, December 15, 2011

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.

Wednesday, December 14, 2011

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. 

Tuesday, December 13, 2011

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.

Monday, December 12, 2011

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.

Friday, December 9, 2011

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.

Thursday, December 8, 2011

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.

Wednesday, December 7, 2011

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.

Tuesday, December 6, 2011

$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.

Monday, December 5, 2011

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.

Friday, December 2, 2011

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.

Thursday, December 1, 2011

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.