Wednesday, October 31, 2012

And Now, the Recovery

Now that the storm has passed, and we've started counting up our losses and wondering when we'll have  power again, it's time to start assessing the damage of Hurricane Sandy. According to a company called Eqecat, which provides damage estimates to insurance companies, the toll could be anywhere from $10 billion to $20 billion, or even more.

There's also the question of what the impact could be on the larger economy. Obviously, there's been an immediate slowdown in economic activity, with the markets closed for two days. And the devastation will put the brakes on a lot of consumer spending for a while; for instance, no one in the tri-state area is going to be shopping for a new car in the next few days.

But there also might be something positive to come out of this, as far as the economy is concerned. You only need to look around to see all the repair and reconstruction that needs to be done. Some estimates show that the short-term hit to the economy is generally slightly outweighed by the long-term activity that goes into rebuilding everything. It would be nice if in the end we got at least a little something good out of all this mess.

Tuesday, October 30, 2012

Closed for Business

We're all hoping this message finds you safe, and that you and yours have been spared the worst from Sandy. Much of the Eastern seaboard has fled for cover, including the New York Stock Exchange, which was closed yesterday and will be again today.

That in itself is a testament to what a dangerous storm this is, because the stock market basically never closes for two days. Back in 2001, the markets remained closed from September 11 through the following Monday, September 17, a total of four trading days.  But in terms of weather-related issues, the market hasn't had consecutive days disrupted since 1978, when the exchange closed at 2:00 p.m. on February 6th because of a snowstorm, and didn't reopen until 11:00 am the following day.

The NYSE hasn't lost two whole days to weather since way back in 1888, when a blizzard closed the exchange on March 12 and 13. That's how big Sandy is: the worst weather calamity to befall the stock market in 124 years. Be safe.

Monday, October 29, 2012

Bracing for Sandy

If you can read this, you’ve probably already headed for higher ground and safety. If you haven’t yet, let’s hope you have an escape route planned. We still don’t know what kind of damage Sandy is going to bring to the area, of course, but it’s expected to be worse than Irene last year, and that was plenty bad.  

The final tab for Tropical Storm Irene ended up at more than $15 billion in damage. A lot of that damage here in New Jersey was from flooding; the National Flood Insurance Program paid out more than $1.28 billion in flood-related losses.

If there’s any good news in all of this, it’s that insurance companies are much better positioned this year to respond to their customers. In 2011, with a spate of tornadoes and the horrific earthquake in Japan, many insurance companies were stretched to the limit by the end of October. Whatever the result of Sandy, it shouldn’t be too hard to get compensated for your losses. Good luck, and be safe.

Friday, October 26, 2012

Third Quarter GDP

The Commerce Department issued its first estimate of GDP growth for the third quarter this morning, and the news was a bit better than expected. Our economy grew at 2 percent for the quarter, slightly ahead of the consensus expectation of 1.8 percent, and up from 1.3 percent in the second quarter.

Consumer spending was a key driver of the increase: Real personal consumption expenditures were up by 2 percent, after having risen just 1.2 percent in the prior quarter. And government spending was up by a surprising 3.7 percent, mostly as a result of increased defense spending, after it had dropped by 0.2 percent in the second quarter.

There were a couple of weak signs as well. Overall business investment softened somewhat, as did nonresidential business investment. Exports were also a problem, dropping by 1.6 percent from the previous quarter.

Thursday, October 25, 2012

A New Kind of Earnings Miss

Earning season is a critical time for companies, since so much is riding on the reports they issue. You would think they would be ultra-careful about everything surrounding the release of those earnings reports. But no. On at least three instances so far in this earnings season, the reports have leaked before the scheduled announcement.

First it was Google, which had its report filed early by its printer, R.R. Donnelley, and was forced to release its earnings early in the morning last Thursday, rather than after the closing bell, as initially expected. Google missed its earnings expectations by quite a bit, and may have been able to cushion the blow with a little more time to prepare. As it was, the stock lost $19 billion off its market cap that day.

And the errors continued. Dow Chemical was supposed to release earnings on Wednesday, but someone at Dow emailed a draft of the report to Bloomberg News late on Tuesday night. Dow ended up releasing its earnings close to midnight that same night. Then Daimler had a similar incident, when a PR person hit "send" instead of "save." You would think these major corporations would have the drill down by now.

Wednesday, October 24, 2012

New Jersey Gets Paid

The Tax Foundation came out with its annual ranking of the state and local tax burdens affecting people in each of the states this week, and the news was not good for New Jersey. As was the case last year, our state came in second in the highest percentage of taxes exacted from its citizens, at 12.8 percent of our income. That put us just behind New York and just ahead of Connecticut.

That number, unfortunately, is moving in the wrong direction. It was at 12.4 percent in 2010, and all the way down at 10.7 percent in 2000, which is the lowest mark for any year since 1977. The average citizen of New Jersey pays a total of $4,853 in taxes within the state, and an additional $1,836 to other states, for a total of $6,689.

Was there any good news for New Jersey? We do rank as the second-highest state in income as well, with a per capita income of $53,869. So that's a little something to be proud of.

Tuesday, October 23, 2012

Stocks Rule!

What's the hottest investment of 2012? It's stocks, of course. With the S&P 500 up an even 14 percent on the year, according to Bloomberg News, that outpaces every other asset class. That might not sound so remarkable, but it hasn't happened since 1995, when the S&P returned 35 percent, for its biggest year of the last 50 years.

It's not as if other asset classes are having a disappointing year; they're all in positive territory, some of them quite significantly. Here's the scoreboard for the year:

U.S. High-Yield Corporate Bonds: up 13.6 percent
Emerging Market Stocks: up 11.8 percent
Gold: up 10.9 percent
Hedge Funds: up 4.8 percent
U.S. Treasuries: up 2.6 percent

Monday, October 22, 2012

High-Speed Trading Slows Down

High-speed trading, the computerized automatic stock sales and purchases that are the hallmark of many high-tech firms, seemed like the hottest thing in the world a few years ago, before the market crash of 2008-2009. But even though the stock market has recovered, the sky-high profits enjoyed by these firms seems to be a thing of the past. According to the New York Times, profits from high-speed trading are down 35 percent from last year, and down a staggering 74 percent from their peak in 2009.

These high-speed traders accounted for more than 61 percent of all stocks bought and sold in 2009. But now that number is down to 51 percent and falling fast, which is probably just as well for long-term investors.

One area in which high-speed trading is still growing strong is currency trading. As recently as 2010, high-speed trading accounted for just 12 percent of all currency trades, but that figure has more than doubled, going up to 28 percent now.

Friday, October 19, 2012

Working Hard, or Hardly Working?

We all know people who like to brag about how many hours they put in at work: Fifty hours a week, or sixty, or even seventy or more, which means they're putting in ten hours a day, seven days a week. It's almost more than normal humans can bear.

It should come as no surprise that a recent study conducted by researchers at the University of Maryland confirms what we've always suspected: These people are lying. People who claim they work 55 to 64 hours a week, the study found, tend to exaggerate that number by about 10 hours. Those saying they work 65 to 74 hours a week are generally off by more like 20 hours.

In general, people overstate their work hours by about 5 to 10 percent. So if you're not working his weekend, don't feel guilty: Your colleagues probably aren't working as much as they claim to be, either.

Thursday, October 18, 2012

A Big Day for Earnings

Today may be the biggest day of the current earnings season, with three Dow components slated to report, as well as two other hugely important stocks: Google and Morgan Stanley. Here's what to watch for:

Morgan Stanley While other banks have surprised on the upside this quarter, Morgan Stanley looks like it will be a disappointment. The analysts' consensus for earnings of $1.14 a share would be a 79 percent decline from the same quarter a year earlier.

Verizon This Dow stock is forecast to post earnings of 65 cents a share, up 15 percent from a year earlier. It will also provide a hint as to how Apple will do, since so more than 3 million iPhones rely on the Verizon network.

Travelers Its third quarter earnings forecast of $1.54 a share would be double the figure from a year earlier. Travelers has been one of the Dow's top performers, up 21 percent so far this year.

Microsoft Its earnings are expected to be just 56 cents a share, down 17 percent from the year before. Microsoft's fortunes may turn on October 26, when it introduces its Surface tablet.

Google Quarterly earnings are expected at a whopping $8.74 a share, although that's an increase of just 9 percent from a year earlier.


Wednesday, October 17, 2012

The Good News in Housing

In a welcome bit of good news for the economy, housing starts surged forward in September, according to figures released today by the Commerce Department. The 15 percent gain in new home construction for that month put housing starts overall at their highest level since 2008.

And there are signs that this housing recovery could have some legs. Commerce also reported that new building permits increased by 12 percent, signaling that the boom in construction could continue for some time. And the third quarter of 2012 marked the sixth consecutive quarter in which housing starts improved.

Remember, the Fed's latest round of quantitative easing involved buying up mortgage-backed bonds. All this activity seems to be putting the still-shaky housing market back onto much more stable footing.

Tuesday, October 16, 2012

Closing In on a Record

This week's issue of Barron's magazine celebrates the fact that the Dow Jones industrial average is closing in on its all-time high, which it reached just over five years ago on October 9, 2007. The Dow closed that day at 14,164.53; it closed yesterday at 13,424.23, or 5.5 percent short of the record. That puts it around one really strong week away from setting a new record.

The S&P 500 also peaked on October 9, 2007, reaching its all-time high of 1565.15. The closest it has come to reaching those heights again was on September 14 of this year, when it peaked at 1465.77, or 6.8 percent short of the record. Yesterday's close of 1440.13 left it needing a gain of about 11 percent to get back to that all-time high.

The Nasdaq, on the other hand, is still a long ways away from its record highs, achieved during the dot-com days. It peaked way back on March 10, 2000, when the index closed at 5048.62, but it hasn't even been above 4000 since September of 2000. Yesterday's close of 3064.18 left it a whopping 65 percent shy of its all-time high.

Monday, October 15, 2012

Scary Doings in October

Coming up this Friday is the 25th anniversary of the single-biggest drop in the history of the stock market: the infamous Black Friday, October 19, 1987. On that day, the S&P 500 lost more than 20 percent of its value, which is more than twice as much as it's fallen on any other day in history, except one.

That one exception also happened in October - the crash on October 28, 1929, that kicked off the Great Depression. The S&P 500 lost 12.3 percent of its value that day. While we saw some bounceback in the market back in 1987, on the next trading day in 1929, on October 29, the S&P dropped another 10.2 percent, marking the third-worst day in market history.

Also among the top ten biggest market drops is yet another October day; back in 1937, on October 18, the S&P dropped by 9.3 percent. So four of the worst ten single-day losses happened in October. Let's hope we avoid that fate in the next three weeks.

Friday, October 12, 2012

A Big Day for IPOs

The IPO market got a bit of a black eye earlier this year after the over-hyped, underperforming Facebook offering. But it appears to be coming back to life now. Yesterday there were four brand-new stocks that came to the market, and all four of them increased by more than 20 percent right out of the box.

If you lived through the dot-com-mania of the late 1990s, that might not seem so impressive. But according to research done by Dealogic, there haven't been four IPOs with that kind of pop on the same day in 12 years.

The big four are:

Shutterstock, up 29 percent
Intercept Pharmaceuticals, up 26 percent
Realogy, up 23 percent
Kythera Biopharmaceuticals, up 20 percent

And lest you think these are all microcaps, the Realogy offering raised $1 billion, making it the third-largest IPO of 2012.

Thursday, October 11, 2012

The Rise - and Fall - of Stocks

It's startling to take a step back and realize that it wasn't so long ago that owning stocks was considered a rare and privileged thing.In 1980, according to figures compiled by the Investment Company Institute, just 19 percent of all U.S. households owned equities. By 1999, fueled by the rise of 401(k)s, nearly half of American households 48.2 percent held equities in one form or another, whether that was stocks, mutual fund or annuities.

But it wasnt just retirement plans; 35.5 percent of households owned stocks outside of an employer-sponsored retirement plan. The bull markets of the 1980s and 1990s brought a huge number of small investors into the equity markets.

Those numbers have been pared back over the past decade, though. Equity ownership climbed to 53 percent of American households in 2001, but has since fallen back to 46.4 percent. The crash of 2008-2009 seems to have scared a lot of people away for good.

Wednesday, October 10, 2012

Bonds Bottoming Out

With interest rates running at historic lows, it is incredibly cheap for companies to borrow money right now. But with investors still spooked by the stock market, it's also very easy to sell high-quality bonds. Put those two trends together, and you get $92 billion in investment-grade 30-year corporate bonds sold so far in 2012. That's 26 percent more than was sold in all of 2011. You have to go back to 1995 to find a full year with as much corporate paper being sold - and we're not even halfway through September.

As a result, the yields investors are getting on these bonds are quite low. The average yield on a 30-year corporate investment-grade bonds is just 2.77 percent now. That's a record; the previous low (for data going back to 1973) before this year was 3.36 percent.

It's not just long-term bonds that have been dropping. Last month, D.R. Horton, a home-building company, issued $350 million in 10-year bonds, at a yield of just 4.375 percent. That's the lowest ever for a 10-year corporate bond.

Tuesday, October 9, 2012

What Investors Don't Know

Sometimes you hear it said that the stock markets run on perfect information, but that just isn't so. Many investors remain very much unaware of what is actually happening in the markets. For instance, the mutual fund firm Franklin Templeton recently surveyed 1000 American investors about the recent history of stocks, and the results were shocking.

Fully two thirds of the investors surveyed thought that the S&P 500 had lost ground in 2009, when in fact it actually gained 26.5 percent that year. Perhaps they were confused by the fact that 2009 was when the S&P hit its lowest point in the recent downturn, but roughly half, or 48 percent, also thought the index had declined in 2010. In reality, the S&P rose 15.1 percent that year.

That may help explain why there is nearly $6 trillion now parked in money market accounts or other cash equivalents, missing out on this bull market we've ben experiencing the past three years. When it comes to something as important as your financial future, it pays to stay well-educated.

Monday, October 8, 2012

The Problem With Small Businesses

Despite the fact that the headline unemployment rate dropped on Friday, it's clear that jobs growth in this country has been sluggish for a long time, and one thing that has held the recovery back over the past couple of years.  One problem has been that new businesses have been opening at a slower rate in recent years. After remaining fairly steady at around 600,000 new businesses per year for about 15 years, the number dipped to around 500,000 in 2010, and has yet to fully recover.

But that's not the only issue. The average number of employees at each of those new businesses has declined even more sharply. Back in 1999, the typical new business employed eight people; by 2011, it employed fewer than five.

Put the two trends together, and the total number of people employed by new businesses has taken a real hit. New businesses employed nearly 5 million people per year in 2000, but that number dropped to 2.5 million by 2011. Note that this is not solely an artifact of the recession: The figure had dropped to 3.5 million by 2005.

Friday, October 5, 2012

A Notch Down for Unemployment

According to figures released this morning by the Bureau of Labor Statistics, the economy added 114,000 jobs in September. That number is somewhat below the average we've seen for the year, which is 146,000 new jobs per month. Still. the headline unemployment figure dropped relatively sharply, from 8.1 percent to 7.8 percent.

Maybe the biggest reason for that was that the jobs figures for recent months got revised upward. August's disappointing number of 96,000 was revised up to 142,000. And July's figure, initially reported at 141,000, was revised to a very solid 181,000. Sometimes the unemployment rate drops because the number of people in the labor force falls, but that wasn't the case this time; the civilian labor force rose by 418,000 in September.

So now we have an unemployment rate below 8 percent for the first time since January of 2009, when it was also at 7.8 percent. The rate had been stuck between 8.1 and 8.3 percent for all of 2012 prior to this latest release.  

Thursday, October 4, 2012

A Downbeat Earnings Forecast

Earnings season starts again next week, and many companies have been issuing guidance numbers as to what analysts and investors should expect. And those numbers have been disappointing, to say the least. Roughly 80 percent of companies that have made pre-earnings announcements have made negative ones, according to Strategas Partners.

Strategas says there haven't been so many negative announcements since 2001, when we were in the midst of the dot-com collapse. The consensus from the Wall Street analysts is that earnings for the S&P 500 will decline by about 1.7 percent, according to data from S&P Capital IQ.

As is traditional, Alcoa will kick off earnings season when it makes its announcement next Tuesday. Wednesday brings reports from Marriott, Family Dollar and Monsanto - a broad enough group such that we might have very quickly a good idea of where this season is headed.

Wednesday, October 3, 2012

Rainy Day People

Some interesting findings out this week from Gallup, which has been polling American investors on how much money they have set aside for a rainy day. The vast majority of people with $10,000 or more in investable assets - 81 percent - report that they do indeed have such an emergency fund.

But just because some money has been put away, that doesn't mean there's an awful lot of it. Only 30 percent of investors say they could live off their emergency funds for a year or more. Around half, or 51 percent, said they could live off their rainy-day money for six months or less. The numbers are much higher for retirees; fully half of them say they could live for a year on their emergency money.

Where do people keep this money? More than half - 55 percent - have it stashed away in a savings or checking account. Only 15 percent of all investors keep their rainy day money in stocks or bonds.

Tuesday, October 2, 2012

Little Big Stocks

The third quarter was a good one for large-capitalization stocks, with three of the members of the Dow Jones industrial average gaining more than 13 percent: Home Depot, J.P. Morgan Chase and Procter & Gamble.  But it's in the tiny stocks that you really see the big gainers.

Here are the ten stocks listed on any exchange that posted the strongest third-quarter gains:

Sarepta Therapuetics, up 313.5 percent on the quarter
IMPAC Mortgage Holdings, up 7.35 percent
Zale Corporation, up 156.5 percent
Wizzard Software, up 149.5 percent
GenMark Diagnostics, up 112.2 percent
WSB Holdings, up 108.5 percent
Savannah Bancorp, up 106.2 percent
Fidelity Bancorp, up 104.6 percent
Primero Mining, up 102.3 percent
Transcontinental Realty, up 97.1 percent

Monday, October 1, 2012

An Unlikely September

September came to an end yesterday, and it turned out to be a pretty good month for the stock market. This is notable because September has historically been the worst month for stocks. Since 1950, the S&P 500 has dropped an average of 0.5 percentage points during the month, and September is the only calendar month over that period in which the S&P has fallen more often than it has risen.

But 2012 has turned into a different story. Despite a little slip over the past week, the S&P 500 index still finished the month up by a solid 2.4 percent.

And in fact, the tradition for Septembers may be turning around. Last year, the month was a complete disaster, with the S&P slipping by about 7 percent, and in 2008 September was the epicenter of the financial collapse; the index lost about 9 percent that month. But even with those two, 2012 gives us seven out of the past nine Septembers in which the index has gained ground.