Friday, November 30, 2012

ETFs vs. Mutual Funds

Exchange-traded funds have been the hottest vehicle in the investing world for some time now - they've grown at a rate of 48 percent since the start of 2010, as opposed to mutual funds growing at just 9 percent, according to Morningstar. There's still a huge gap between the two categories, though. Mutual funds have total assets of $9 trillion, while ETFs have just $1.3 trillion.

Will there come a time when ETFs overtake mutual funds as America's preferred investing vehicle? That's what the fund-reporting service Ignites asked in a recent survey. Most of the respondents said it won't happen for a long time: 36% said ETFs won't surpass mutual funds in terms of assets for at least 20 years, while another 21 percent said it would never happen.

But 28 percent said it could happen within 10 years, and 15 percent said within five. It would take a real change of mind-set among investors - and huge inroads for ETFs in Americans' 401(k)s - for that to happen.

Thursday, November 29, 2012

Why GDP Got Stronger

The estimate for third-quarter GDP released this morning shows an economy growing faster than first thought: The revised 2.7 percent growth is the strongest we've seen since the fourth quarter of 2011, when the economy grew at a pace of 4.0 percent. The third quarter of 2012 was stronger than nine out of the last ten quarters.

The biggest positive change to the revisions came from business inventories. In the first estimate, inventories were thought to have subtracted 0.12 percentage points from GDP; now they're figured to have added 0.77 points. The other positive contributor was exports, which swung from costing us 0.18 percentage points to adding 0.14 percentage points.

The biggest detractors were consumer spending and business investment. Growth in consumer spending dropped from 2.0 percent in the first estimate to 1.4 percent now - a decline from the 1.5 percent reported for the second quarter of 2012. Business investment, which had been reported as dropping by 1.3 percent, is now estimated to have fallen by 2.2 percent - the first quarter in which it's dropped since Q1 of 2011.

Wednesday, November 28, 2012

Hurrying Up the Dividends

The Fiscal Cliff scenario, in which automatic budget cuts and tax hikes go into effect starting January 1, isn't a certainty yet, but many companies are already acting in response to it. For instance, the tax on dividends is now at 15 percent, but as of January 1, unless Congress takes action, they will start to be treated as ordinary income.

That's why the retail store chain Dillard's, which has paid out its dividend in January for each of the past ten years, this year decided to move it up to December. Wal-Mart similarly changed the schedule for its dividend payout, moving it up from January 2, 2013, to December 27, 2012.

Don't think this is merely an outburst of altruism on behalf of these companies' shareholders, though. In each of those cases, the prime beneficiary of the preferential tax treatment - if that indeed comes to pass - will be the family that controls a significant portion of the stock.

Tuesday, November 27, 2012

Moving Out of Foreclosures

One of the necessary steps for getting the housing market back to full strength has long been clearing out the number of foreclosures that are on the market. We seem to be approaching a turning point there, according to new figures from LPS: The percentage of home loans in the delinquency process is now at its lowest level since 2009. The number of mortgages in foreclosure has dropped 19 percent since this time last year, and the number of delinquent properties is down 10 percent.

Those numbers have been dropping sharply as of late. The delinquency rate (loans more than 30 days overdue) dropped by 5 percent between September and October, and the number of loans in the foreclosure process dropped by 6.7 percent.

Meanwhile, mortgage rates have now fallen to another record low: The rate for a 30-year fixed is now all the way down to 3.31 percent, down from nearly 4 percent a year ago. Everything would seem to be in place for solid growth in the housing market.

Monday, November 26, 2012

The Cost of Cyber Monday

All of these post-Thanksgiving days now have their own label to better market themselves: Black Friday was followed by Small Business Saturday. And today is Cyber Monday, the day in which everyone is supposed to shop online for the things they couldn't or wouldn't buy last Friday.

And there may be something to that. According to MarketWatch, workers taking time out to do their shopping on Cyber Monday cost their businesses roughly $1 billion per year in lost productivity. That's in addition to the $2 billion that shoppers are expected to spend online today.

If you are shopping today, the retail trackers will tell you that kitchen appliances tend to have some of the best prices on Cyber Monday, down about 16 percent from Black Friday. Another popular bargain: travel, especially hotel rooms.

Friday, November 23, 2012

Beware of Black Friday

Going shopping today? Some of those bargains can be awfully hard to pass up. But a new study out from the Wall Street Journal and a pricing-data firm called Decide Inc. indicates that a lot of those sales are bargains in name only. After studying 500 "doorbuster" ads, Decide found that nearly a third of the advertised items had been sold at lower prices earlier this year.

For instance, Home Depot is advertising a GE Adora dishwasher on sale this Black Friday for $598 - a claimed savings of $151. But Decide found that the same dishwasher was available during a Columbus Day sale last month for just $538.

According to the Journal, the best time to buy gift items like watches and jewelry is in October, which is when their prices tend to be the lowest. The best time to buy flat-screen TVs is around the New Year. There are true bargains to be found on Black Friday as well - as long as you do your homework.

Thursday, November 22, 2012

Thoughts for Thanksgiving Day

"Those early Pilgrims were thankful for what had happened to them, and we should be thankful, too. We should just be thankful for being together. I think that's what they mean by 'Thanksgiving,' Charlie Brown."  ~ Marcie, from "A Charlie Brown Thanksgiving"

"Thanksgiving dinners take eighteen hours to prepare. They are consumed in twelve minutes. Halftimes take twelve minutes. This is not coincidence." ~ Erma Bombeck

"Grace isn't a little prayer you chant before receiving a meal. It's a way to live." ~ Jackie Windspear

Wednesday, November 21, 2012

Paying for Turkey

If you noticed that your Thanksgiving preparations cost you a little more than last year, you're not alone. According to the American Farm Bureau Federation, American households will lay out $49.48 on Thanksgiving dinners this year, which adds up to an increase of 28 cents more than we spent last year.

The biggest factor driving the price increase is the turkey itself. The average cost of a 16-pound turkey rose from $21.57 in 2011 to $22.23 this year. On the other hand, the price of three pounds of sweet potatoes is down 11 cents, and a half pint of whipping cream is down 13 cents.

The Farm Bureau Federation added up the cost for an entire meal, and found that a Thanksgiving dinner still costs less than $5 per person. That's still a relative bargain, and something to be thankful for.

Tuesday, November 20, 2012

Strength in 401(k)s

How's your 401(k) doing these days? In a piece of very good news for Americans, Fidelity is reporting that the level of money in the nation's 401(k) plans is the highest it's ever been, or at least since the mutual fund firm began tracking that figure back in 2000. At the end of September, the average 401(k) had $75,900 in it.

There have been two fundamental factors driving this trend. First of all is the rise of the stock market: For the 12 months ended on September 30, the Standard & Poor's 500 was up by 27 percent.

At the same time, employees have ramped up their contributions to their 401(k)s. Five percent of all plan participants increased their contribution rate during the third quarter, while only three percent reduced them. Add it all up, and American 401(k)s start to look very healthy.

Monday, November 19, 2012

The App Economy

One of the biggest job-growth areas in the economy is something that didn't even exist until five years ago, something that required a whole new word to describe it: the app economy. The entire notion of making applications for mobile devices was invented with the introduction of the iPhone in 2007, but now it's a huge engine for our nation's economy. It created $20 billion in revenues last year, a figure that's expected to rise to $100 billion by 2015, according to new data compiled by a firm called TechNet.

It's been a big driver of the economy here in New Jersey as well. In 2011, 4.2 percent of all jobs created here were attributed to the app economy, placing our state fifth in the nation. California was way out in front - 23.8 percent of all its new jobs were app-related - followed by New York, Washington and Texas.

All told, the app industry has added an estimated 460,000 jobs to our national economy over the past five years. When you hear of older industries shedding jobs, it's important to remember that there are also innovative ones creating new jobs for hundreds of thousands of Americans.

Friday, November 16, 2012

The Next Generation

Would you recommend that your children follow you into your career? You might if you’re in agriculture and ranching – although if you live here in New Jersey, you’re probably not in one of those professions. But 67 percent of the people in those professions say they’d recommend those jobs to their kids.

That’s the highest percentage of any profession, according to a new survey from Way down at the bottom of the list is retail, at just 18 percent, followed by finance and banking at 24 percent. Nothing comes close to ranching at the top of the list: It’s followed by professional services at 44 percent, IT at 43 percent, and health care at 42 percent.

Overall, only 36 percent of people say they would recommend that the next generation follow in their profession’s shoes. So there will be a lot of kids out there branching out on their own.

Thursday, November 15, 2012

Expecting Volatility

The Fiscal Cliff - the series of budget cuts and tax hikes scheduled to go into effect at the first of the year - is expected to bring increased volatility to the markets through the remainder of the year. That's the finding of a recent poll by the financial news service Ignites, which found that 80 percent of all financial advisors expect the political climate to bring more risk to the market. 

Some 62 percent think it is already causing volatility, such as the sell-off we saw on the day after Election Day. Another survey, by the investment management firm Lord Abbett,  found that three in five of all financial advisors named fiscal uncertainty as their primary financial concern now that the election is over. 

Oddly enough, though, this increased volatility has yet to evince itself in the market. The VIX index, the primary measure of the market's volatility, closed yesterday at 19 and change, just under its long-term average of 20.  

Wednesday, November 14, 2012

Shedding More Light on 401(k)s

As of August 30th, 401(k) and other defined contribution retirement plans have been required by law to disclose their fees to their participants. But so far, the reaction has been underwhelming. According to a new study from the Plan Sponsor Council of America, just 2.3 percent of participants have chosen to change their asset allocations since receiving the new fee disclosures.

Only 1.4 percent of participants even asked questions about the fee information they received. A minuscule 0.6 percent chose to defer some of their salary at a higher rate, while none decreased their deferrals in light of the fee disclosures.

Nearly all the plan sponsors surveyed, a total of 95.9 percent, reported no changes in participant behavior as a result of fee disclosures. Still, that doesn't make the new rules a failure. Especially in something as important as saving for your retirement, it's always better to have more information rather than less.

Tuesday, November 13, 2012

Bond Funds Come Back Strong

One part of the economy that has rebounded strong after the effects of Hurricane Sandy is the municipal bond market. Muni bond funds had been strong all year, with net inflows for 28 straight weeks before the storm hit, and 58 out of 62 weeks overall. But the week that ended on October 31, with the markets closed much of that time, saw net outflows from muni bond funds totaling $123 million.

But the following week, ending November 7, saw a complete turnaround: A whopping $866 million  flowed into muni bond funds that week. As a category, muni bond funds now hold a total of $318.6 billion in assets.

Corporate bond funds also bounced back strong for the week. Reflecting pent-up investor demand, investment-grade corporate bond funds took in $2.74 billion in new assets for the week - the biggest week for those funds on more than 20 years.

Monday, November 12, 2012

Losing the Earnings Game

It appears as if investors have become very aware of the way companies play the expectations game, managing their earnings forecasts so as to ensure they outperform come earnings season. In the current earnings season, stocks that beat their Wall Street consensus are getting very little reward for it. Companies that beat earnings are outpacing the S&P 500 by an average of just 0.9 percentage points on the day of their reports, according to a report from Goldman Sachs. That's a marked difference from last quarter, when outperforming companies got a boost of 2.9 percentage points over the S&P 500 on the day they announced their earnings.

At the same time, they're being punished a bit more for missing expectations. Companies that have fallen short of the consensus have slid by 3.6 percentage points compared to the S&P; last quarter, that same figure was 3.2 percentage points.

McDonald's illustrates what's been happening. The Golden Arches came in last month with a weaker than expected earnings report, on a day when the S&P as a whole fell by 1.7 percent. But McDonald's stock slipped that day by more than twice as much, at a loss of 4.5 percent.

Friday, November 9, 2012

A Warm November?

Now that November is here, are stocks due to heat up for the next couple of months? There's a longstanding adage that investors should "Sell in May, then go away"; the time they're supposed to return to the market is in November. And there's a growing body of research suggesting this may be exactly the right move.

Two researchers in New Zealand recently took a staggeringly comprehensive look at the phenomenon, examining every bit of historical data they could from 108 different markets. They had a whopping 300 years’ worth of information regarding the market in the United Kingdom alone. The bottom line: Returns from November through April over all that time were 4.52 percent higher than returns from May through October. 

And if anything, the effect is getting stronger. In 
the past 50 years, the average advantage for May through October has increased to 6.25 percent. Over the last five 10-year sub-periods that the researchers looked at, the November Effect ranged from 5.08 percent to 8.91 percent. In other words, it’s lately been at least 5 percent, and is regularly much more than that. This is definitely something to keep in mind.

Thursday, November 8, 2012

A Solid Foundation for Housing

As we assess the damage done to our homes here in New Jersey by Hurricane Sandy, it appears that the housing market around the country is in increasingly good shape. The median selling price rose in the third quarter of 2012 for 120 out of the 149 metropolitan areas surveyed by the National Association of Realtors. That's 81 percent of all U.S. cities showing an increase in prices.

Overall, home prices jumped 5 percent in September over the same month a year earlier. That's the biggest 12-month increase we've seen since June of 2006. Nationwide, the median price for an existing single-family home was $186,100 in the third quarter of this year.

One of the major factors was the dwindling number of homes for sale. At the end of the third quarter, 2.32 million existing homes were available for sale, 20 percent less than had been available in the year-earlier period. A big factor in that is the fact that all those foreclosures have been clearing off the market; we'll have to wait and see what effect Sandy has on home sales.

Wednesday, November 7, 2012

The Economic Toll

There's no denying the horrible destruction that the hurricane wreaked on our area. You simply need to look around to see evidence of that. Now some of the economic toll is starting to become clear as well. Consumer spending has more or less ground to a halt since the storm arrived, according to data compiled by MasterCard.

Here in New Jersey, retails sales for the week of October 28 through November 3 were just 60 percent of what that week normally sees. It was a little bit better in New York and Connecticut, which  had about 80 percent of the normal retail sales for the week. And those figures do not include automobile sales; it's hard to imagine many New Jerseyans were out buying a car over the weekend.

On the other hand, there has been an awful lot of economic activity accounted for by contractors, plumbers, electricians, etc. Those costs haven't been quantified, but the city of New York has already spent $5 million on pumping equipment alone. It's going to take an awful lot of spending to rebuild this kind of destruction.

Tuesday, November 6, 2012

Thoughts for Election Day

"A politician thinks of the next election; a statesman thinks of the next generation."  ~ James Freeman Clarke

“I'm tired of hearing it said that democracy doesn't work.  Of course it doesn't work.  We are supposed to work it.”  ~ Alexander Woollcott

“Always vote for principle, though you may vote alone, and you may cherish the sweetest reflection that your vote is never lost.” ~ John Quincy Adams

Monday, November 5, 2012

Retirement Plans and The Middle Class

Both presidential candidates have been very forthright about their devotion to taking care of the middle class, but there's some evidence recently that the middle class hasn't been doing a good job of taking care of itself. The research firm LIMRA has conducted a survey of middle-class Americans - defined as those earning between $40,000 and $100,000 annually - and found that two thirds of them save less than 5 percent of their income for retirement. Nearly fourth of them save nothing at all.

What's even worse is that the closer people are to retirement, the less likely they are to save. Members of the middle class over the age of 55 were actually the most likely to be saving nothing at all, with 26 percent of them in that group. On the other hand, that cohort was also the most likely to say they knew they needed to save 15 percent or more of their income for retirement.

In a separate survey, the Insured Retirement Institute found that 30 percent of all Baby Boomers stopped contributing to a retirement plan during the past 12 months, and 16 percent of them prematurely withdrew funds from a retirement plan. Of course, the Boomers have started retiring, so you'd expect some of them to stop funding a plan - but not 30 percent of them.

Friday, November 2, 2012

October's Jobs Report

In the jobs report out this morning, October brought us a bit of a reversal from the September news. Back then, you'll remember, the overall number of jobs added was fairly weak, but the unemployment rate moved downward anyway. In October, we have a much stronger number of new jobs, with the economy adding 171,000. But the rate ticked back upward, from 7.8 percent to 7.9 percent.

This latest figure is right on target for what we've been seeing lately. Since July, the economy has added an average of 173,000 jobs per month. The Bureau of Labor Statistics also revised the figures for August and September, and announced that we added 84,000 more jobs than previously thought.

So why did the unemployment rate move upward? Primarily, it was because the work force expanded, with an additional 578,000 Americans starting to look for work. It appears as if the strengthening economy is encouraging more people to get back into the labor force.

Thursday, November 1, 2012

The Bad - and Good - News About Gas

Among the other problems we're facing here in New Jersey, gasoline has been very difficult to find. Even some stations that are open and have gas also have waits of an hour or more for consumers to fill their tanks. Governor Christie has announced that stations will be allowed to buy gas from out of state, which is normally not allowed. That should ease things a bit.

But in the longer term, the storm might end up having a positive impact on fuel prices. Crude oil prices dipped yesterday, in large part over concerns that the damage from Sandy will limit driving and other transportation here in the Northeast. With less demand for fuel, gasoline prices could drop as well.

Of course, Hurricane Sandy isn't the only thing going on in the world. Chinese demand for oil has fallen as well, and world oil supplies are ample right now. Add it all up, and we might see some much-needed relief at the pump.