When Black Friday Comes

Are you shopping today? You might notice the crowds being a little smaller than normal, despite the fact that a relatively late Thanksgiving has shortened the holiday shopping season this year. According to a Gallup poll, Americans say they will spend about $706 on gifts this year. That's down about 8 percent from last year's figure.

Despite the fact that the economy has been officially in recovery for a couple of years now, people still feel spooked. Nielsen's holiday shopping survey found that 68 percent of American consumers still feel like they're living in a recession.

If you are thinking about braving the crowds, here's a trip from the market-research firm ShopperTrak: Wait till next week. The crowds will be much lighter than this weekend, and the Black Friday deals will mostly still be in force.

Thoughts for Thanksgiving

“Thanksgiving is the holiday that encompasses all others. All of them, from Martin Luther King Day to Arbor Day to Christmas to Valentine's Day, are in one way or another about being thankful.” ~ Jonathan Safran Foer

“Thanksgiving is an emotional holiday. People travel thousands of miles to be with people they only see once a year. And then discover once a year is way too often.” ~ Johnny Carson

“Not what we say about our blessings, but how we use them, is the true measure of our thanksgiving.” ~ W.T. Purkiser

The Challenges of Being Self-Employed

For most American workers, saving for retirement has become easy, something you don't even have to think about. We have automatic deposits made to our 401(k)s, taken out of every paycheck. For the self-employed, though, the process is not so easy.

A new survey from TD Ameritrade brings this problem home. Only 12 percent of American workers who are employed by someone else are not saving regularly for retirement, but that situation applies to 40 percent of the self-employed. And 28 percent of the self-employed aren't saving anything for retirement.

The biggest challenge for the self-employed is that they fear their income isn't steady enough to be putting aside regular amounts for retirement. Some 61 percent of those surveyed said that was keeping them from fully funding their retirements. But aside from the ubiquitous 401(k), there are several options for self-employed people to fully fund their retirements. If you'd like to know more about them, feel free to give me a call.

The Meaning of Thanksgiving

Thanksgiving is traditionally the kickoff of the holiday shopping season, and a significant indicator for the health of our economy. But it also presents a bit of a turning point for the stock market as well. In recent years, the market has consistently risen during the three weeks starting with the Friday before Thanksgiving.

Each of the past ten years, the S&P 500 index has increased over that time period. The average increase for that three weeks has been 3.2 percent - which may not sound like a lot, but is pretty significant for about 5 percent of the trading year.

Oddly enough, the strongest of those three-week periods came when the market was, overall, in free-fall. In November and December of 2008, as the S&P was on its way to bottoming out in March of 2009, the index rose by nearly 10 percent.

The S&P's Perfect 10

We've talked a lot about how strong the S&P 500 has been so far this year, but maybe the most remarkable thing about this rally is how broad-based it has been. There remains the possibility that each of the ten sectors within the S&P 500 could increase by 10 percent or more this year.

The only sector falling short of that 10 percent mark so far is Telecommunications, which is up 8 percent. Meanwhile, Health Care and Consumer Discretionary are both up by a whopping 36 percent.

We haven't seen all ten sectors rise by 10 percent in a year since 1995, when the index rose by 31 percent overall. In 2003, the S&P 500 was up by 26 percent on the year, but both Telecoms and Consumer Staples fell short of the 10 percent mark.

Confidence Inches Up

The government shutdown back in early October had an unsurprising dampening effect on most Americans' view of our economy. Gallup's Economic Confidence Index dropped to -39 in mid-October, its low point for the year. So it's probably to be expected that confidence is now rising again, back up to -24 in the latest reading.

But the slowdown may still be having lingering effects. The confidence gauge is still lower than it was all year prior to October; it had bottomed out at -22 at the beginning of March. The high point for the year came in early June, when the confidence reading hit -3.

You may have noticed that all those numbers are negative, but that doesn't mean that 2013 has been unusually dour. In fact, this year is shaping up to have, in aggregate, the highest economic confidence of any year since 2007, before the recession.

Problems of the Superwealthy

The impression most people get of the superwealthy is that they're fantastically good at managing their money - or at least they can hire the best people to manage it for them. But a new study from several major universities looked at the portfolios of the 115 wealthiest families in the U.S., with an average net worth of $90 million, and found that they make many of the same mistakes that ordinary investors do.

Their asset allocation isn't much different from the rest of us. The superwealthy families put 50 percent of their assets in stocks and 30 percent into bonds, although they also put 10 percent into private equity and 10 percent into hedge funds. Hedge funds turned into an investment fad around 2005, which is when so many of these wealthy investors put money into them - and just before they turned south during the financial meltdown.

Poor timing seems to be their biggest mistake. When the stock market started collapsing in 2008, the wealthy investors were very slow to sell their shares, then didn't take advantage of the low stock prices to scoop up bargains. Oddly enough, the median member of the superwealthy group had just as much in cash in 2007 as they did in 2009 - in two very different market environments. Fortunately, they had plenty to lose.

New Jersey's Burden

One of the distinctions of our state that most people in New Jersey would rather forget is our legendarily high property taxes. A new study from the Tax Policy Center confirms what we all fear: The highest average property tax burden as a share of home prices belongs to New Jersey, at 2.0 percent. We're followed in that distinction by Texas and New Hampshire, each at 1.9 percent.

New Jersey also ranks among the highest property taxes at the county level. The study found only nine counties in the entire nation with average property tax burdens above $8,000 per year, and six of them are in New Jersey: Bergen, Essex, Hunterdon, Morris, Passaic and Somerset. The other three are in New York.

Where can you go to escape these property taxes? The U.S. county with the lowest property tax burden as a percentage of home values is Maui County in Hawaii, at just 0.2 percent. That sounds like a pretty nice place to live.

The Meaning of Narrowing Valuations

This year's soaring stock market has created some unusual problems for investors. It's not just that rising prices have made stocks more expensive. The valuations of stocks have been narrowing, creating an environment where it's getting more difficult to find stocks that might be undervalued.

According to statistics compiled by Goldman Sachs, the dispersion of price-to-earnings ratios is down to 41 percent, which is the lowest on record. That may sound hopelessly technical, but it actually reveals something significant about the state of the market. At any time, some stocks will be overvalued compared to their earnings, like LinkedIn, with a price-to-earnings ratio of about 1,000. Others will be undervalued compared to their earnings, like the homebuilder Pulte, with a price-to-earnings ratio of just 2.9. Investors use those ratios to choose the types of stocks they want to be.

What the low dispersion number means is that many stocks are trading at roughly the same price-to-earnings ratio. Investors look to those figures to determine which stocks are growth stocks and which are value stocks. But when those figures converge for the market as a whole, it makes stock-picking even harder than it ordinarily is.

Christmas Comes Early

Friday of next week is Black Friday, traditionally the kickoff point for the holiday shopping season. Except that in recent years, the opening time for many retailers has been moved back to Thursday night, the evening of Thanksgiving. The question is, how may shoppers are willing to fight off turkey overload and start shopping Thursday night?

According to a survey from the National Retail Federation, there's a sizable amount of shoppers willing to do just that. In 2012, some 28 percent of Black Friday shoppers got to the stores before midnight on Thanksgiving night. That's up from just 10 percent shopping before midnight in 2010.

And of course, the starting time gets earlier every year. In 2012, 10 percent of holiday shoppers reported being in the store by 8:00 p.m. on Thanksgiving night, which was the first time that number was higher than zero.

How to Be a Millionaire

There’s an interesting new study out from Fidelity, analyzing the performance of people in its 401(k) program. It found that 50,000 people have amassed a million dollars or more in their Fidelity 401(k). And a lot of them weren’t even high earners; 18 percent reported an average income of less than $150,000 a year.

 

Here are the traits Fidelity found were common for its 401(k) millionaires:

·         Start saving early.

·         Contribute large amounts, typically 14% of annual pay.

·         Take full advantage of company matches.

·         Allocate a significant portion of their assets to stocks — typically 88% by age 45 and 54% at 70.

 

The formula is actually pretty simple. Fidelity estimates that if you earn $40,000 and save 16 percent a year starting at age 25, get a 1.5 percent annual raise and earn a 7 percent annual return – that adds up to $1 million by age 67.

Macy's Rings In the Holiday Season

 Yesterday was a really good day for Macy’s stock – a result that may end up having ramifications for the larger economy over the remainder of this year. In its third-quarter earnings report, Macy’s reported overall profits were up 22 percent from a year ago. More importantly, the store predicted a strong fourth quarter, saying it would be hiring an additional 83,000 workers for the holiday shopping season.

Investors had worried that the government shutdown and a still-sluggish economy might lead to a miserable shopping season this year. It didn’t help that Macy’s actually missed Wall Street’s earnings expectations in the second quarter. While many analysts expected Macy’s to guide its overall earnings for the year downward yesterday, instead they reinforced the higher number.

That means Macy’s is expecting its strength to continue through the end of the year. With holiday sales accounting for somewhere between 20 and 40 percent of a retailer’s annual sales, the rest of the year will be critical for that area of the economy. 

The Small-Cap Dilemma

The S&P 500 Index, as we’ve noted many times, has been having a terrific 2013, increasing in value by 24% so far this year. But that’s not been the most impressive asset class in the stock market. The S&P 500 consists solely of large-cap companies, but small-cap companies – as measured by the Russell 2000 index – are up a blazing 30 percent this year.

Investors have responded to those kinds of numbers. They’ve poured $22 billion into small-cap mutual funds and ETFs this year. That’s on pace to set a record for inflows into small-cap funds for a single year.

But they’ve started to slow down. The Russell 2000 is down about 2 percent in the month of November so far. That’s while the larger-cap stocks have continued to make gains; since October 1^st, the S&P 500 is up 4.5 percent, but the Russell 2000 is up just 1.3%.

Jobs From Another Angle

Last week’s relatively strong employment report from the Bureau of Labor Statistics prompted an economist named Bill McBride to wonder: Has America's job situation returned to pre-recession levels? And if not, when would it likely get there?

The short answer is: Sometime in the middle of 2014, payrolls should reach the same level they were prior to the recession. We’re still down 1.5 million jobs from where we were when the recession started in November 2007 – including a total of 976,000 private sector jobs. At current growth rates, we are about eight months away from making up that much ground.

On the other hand, the population and workforce has been growing all that time, too. Even the previous level of jobs would leave us with an unemployment rate higher than we had before the recession. According to one estimate, returning us to pre-recession employment rates, at the current level of job growth, would take another five years.

Americans Love Their Cash

This has been a great year for investors, with the S&P 500 Index up by 24 percent already. It might make sense that this would draw people back into the stock market, but according to a new survey from BlackRock, more than half of Americans' liquid assets are in cash or cash equivalents.

The survey found that 48 percent of the respondents' investable assets were in cash or in savings accounts. Another 12 percent is in money-market accounts or CDs. That leaves just 40 percent in return assets.

Furthermore, the survey respondents aren't rethinking their strategy in the wake of the market's strength. Half of those surveyed said that they had no plans to alter their asset allocations in the coming year - and a third said they planned to increase their cash holdings.

Jobs and GDP

October's employment figure, which came out this morning from the Bureau of Labor Statistics, was surprisingly strong, at 204,000 new jobs added. That slightly better than the average of 190,000 for the previous 12 months, despite the effects of the government shutdown at the beginning of the month. The private-sector increase of 212,000 jobs was the highest that number has been since February. The federal government shed 12,000 jobs in October.

The headline unemployment figure actually ticked up a notch, to 7.3 percent, but that appears to be temporary. That figure includes furloughed federal workers, who were classified as unemployed for purposes of the BLS's household survey.

In other good news, the government also released its first estimate of third quarter GDP yesterday. That figure came in at 2.8 percent, which was a notch up from the second quarter's growth rate of 2.5 percent, and the best figure we've seen in a year.

Investors Still Feel the Fear

Even five years out from the stock market meltdown, Americans still haven’t regained their appetite for risk. According to a study published by the ICI, the percentage of mutual fund owners who say they have above-average risk tolerance dropped from 36 percent in 2008 to 30 percent now. Those saying their risk tolerance is below average rose from 14 percent to 22 percent.

The age group showing the biggest drop in risk tolerance was those investors aged 35 to 49. But the change in attitude may be best seen in younger investors, 25 percent of which say they have below-average risk tolerance.

Consider this: In 2007, before the crash, investors in their twenties had 48 percent of their 401(k) assets invested in pure stock funds. But by 2011, that figure had dropped to 33 percent.

Split Decisions

One of the most common decisions for a high-flying stock used to be a stock split, which was regarded as a real feather in a company's cap. But since the number of stock splits peaked way back in 1986, the strategy has fallen out of vogue. Just 11 of the 500 stocks in the S&P index have split their shares this year.

But those stocks have done very well. Since their splits, eight of the eleven have outpaced even the red-hot S&P 500, which is up 24 percent this year. Three of the stock splitters - Noble Energy, Flowserve and Gilead Sciences - have doubled in price.

The index appears to be ripe for more splits. The average share price in the S&P 500 is now a lofty $74, and there are roughly 75 companies with share prices of more than $100.

The Incredible Shrinking Bond Fund

What's the biggest mutual fund in the world? Until very recently, the answer would have been the Pimco Total Return Fund, managed by bond guru Bill Gross. It notched the distinction of having the most assets of any mutual fund back in 2008, and more than doubled in size between then and 2012. As of the beginning of this year, the fund boasted $285.4 billion under management.

But this has been a rough year for bond funds, as investors have been rotating back into stocks. The Pimco Total Return Fund has seen redemptions of $33.2 billion so far in 2013. The fund's performance has been deserving of losing that kind of money; it's lagged 56 percent of its peers in the bond-fund universe this year.

So what's overtaken it? The Vanguard Total Stock Market Index has $251 billion in assets as of the end of October. That edges it past Pimco Total Return, which now stands at $247 billion.

Foreigners Fleeing for the Exits

The U.S. stock market has been roaring this year, with the S&P 500 up 24 percent for the first ten months of 2013. But there's one group of investors who have been pulling out of this market: Foreign investors. For four straight months up through August, foreign investors have withdrawn money from American stocks, including $16.9 billion in August alone.

It's both private investors and official government accounts that have been pulling out of the U.S. Private foreign investors withdrew $13.8 billion in August, while governments and other official investors pulled out $3.1 billion.

It's a wonder where all that money is going to end up. The MSCI EAFE index, the benchmark index for the leading foreign stock markets for the developed world, has had a good year with overall returns of 20% - but it still lags the S&P 500.

Buffett's Wisdom

The Wall Street Journal reminded us yesterday that it was five years ago when Warren Buffett wrote an op-ed for the New York Times, urging investors that it was time to buy stocks. This is a controversial and much-derided opinion at the time; the market was in the midst of a frightening collapse that had started earlier in 2008 and showed no signs of letting up.

Most investors didn't follow Buffett's wisdom. Americans have taken nearly $450 billion out of equity mutual funds over the past five years, and removed $150 billion from mutual funds in 2009 alone.

And as it turns out, the market was not done dropping when Buffett wrote his op-ed. It wouldn't bottom out until five months later, in March 2009. But even after withstanding those losses, an investor who followed Buffett's advice would have gained nearly 90 percent on his investments in the S&P 500 over the last five years.