Friday, January 31, 2014

Totaling the Cost of the Recession

It's been more than five years since the onset of the Great Recession, and some economists are still trying to assess the damage that was done to our economy. Three researchers in the Dallas office of the Federal Reserve have estimated that the total cost of the recession to our economy was somewhere between $6 trillion and $14 trillion, or between 40 and 90 percent of a year's GDP.

Boil that down, and it becomes a minimum of $20,000 lost by each man, woman and child in America. And that's just in pure financial costs; when the researchers figure in the toll on our well-being, the cost rises to $120,000 per person.

While those are estimates, there is a fairly concrete figure that points up just how devastating the losses were. Between the third quarter of 2007 and the first quarter of 2009, aggregate household net worth fell by $16 trillion in the U.S. That means that, by the time the crisis was over, we had all lost 24 percent of our assets.

Thursday, January 30, 2014

What the Fed Just Did

Federal Reserve chair Ben Bernanke's term officially ends tomorrow, but yesterday he made one final move that will resonate in the markets. The Fed announced yesterday that it would slice another $10 billion from its monthly asset purchases, continuing the policy known as the taper. The Fed's bond buying dropped from $85 billion to $75 billion in January, and it will drop further to $65 billion next month.

The Fed cited the increasing stability of the American economy in justifying its decision, although it reiterated that interest rates would stay near zero until unemployment dropped "well past" 6.5 percent. That number is now at 6.7 percent, and has been falling in recent months.

These decisions can always change under the leadership of Janet Yellen, who is scheduled to officially take over as Fed chair on Saturday. But all indications are that Yellen, who has been a protege of Bernanke's, is likely to continue his policies.

Wednesday, January 29, 2014

Are Stocks Turning a Corner?

The stock markets have gotten off to a very rough start in 2014, but it looks like things might be starting to turn around. In the middle of earnings season, companies ranging from the drugmaker Pfizer to the home builder D.R. Horton came out yesterday with strong, Street-beating reports.

That wasn't the only piece of good news. The benchmark consumer confidence report issued monthly by the Conference Board didn't just rise in January but greatly exceeded expectations. December's figure was revised upward as well. Add it all up, and the S&P index rose after suffering its biggest three-day drop since last June.

And this is the right time for the market to turn. According to research by Bespoke Investment, over the past 20 years, the Dow Jones Industrial Average has, on median, bottomed out on January 24 - then rebounded for the rest of the month.

Tuesday, January 28, 2014

Super Bowl Tickets Cool Off

If you're thinking about heading up to the Meadowlands next Sunday for the Super Bowl, and you don't have a ticket, there's hope for you yet. According to a couple of ticket brokers handling the resale market, ticket prices for Super Bowl XLVIII have been falling recently, apparently over concerns about frigid weather conditions.

Over the weekend, one ticket aggregator found that the average ticket was selling on the secondary market for $2,056 a pop. That rate would make tickets for New Jersey's Super Bowl the cheapest since the Rams and Patriots faced off in New Orleans in 2002. Face value for the tickets ranges from $500 to $2,600.

One type of ticket is holding up pretty well in price: Club seats that have access to indoor areas and allow fans to go in and warm up during the game. Those tickets are running anywhere between $6000 and $7000 apiece.

Monday, January 27, 2014

Credit Outlook Better Than It Seems

The big ratings agency Standard & Poor's makes news when it downgrades a nation's debt - like last Friday, when it lowered Croatia's creditworthiness down to the BB level, below investment grade. France, which is already below the top-level AAA rating given to countries like the U.S., is now fearing a further downgrade from S&P.

All told, S&P downgraded 568 entities last year, while upgrading just 488. That may sound like S&P is negative on the world economy, but the trend is actually improving. Although downgrades made up the majority of S&P's credit decisions last year, the 54 percent was the lowest that figure has been in four years. Since 1987, downgrades have historically made up 62 percent of S&P's decisions.

And the agency is not expecting any great upheavals in the credit market. Over the next six months to two years, its outlook for 79 percent of the issuers it rates remains stable.

Friday, January 24, 2014

The Housing Market Firms Up

Previously owned home sales finished 2013 at their highest level in six years, with more than 5 million such houses changing hands. That's a 9 percent increase over 2012, and the highest the raw figure has been since 2006, when the housing bubble was in the midst of bursting.

That's the good news. The bad news is that the pace of existing home sales has actually cooled in recent months. Even with seasonal adjustments, housing sales were strongest last year in July and August. By December, they were down to an annual pace of 4.87 million a year.

Prices of existing homes continued to rise in 2013 as well. By December, the median existing-home price in America was $198,000, which is up 9.9 percent from a year earlier.

Thursday, January 23, 2014

The Ups and Downs of the Work Week

We're all working a lot these days, with many Americans spending far more time in the office than their counterparts did 20 or 30 years ago. According to a 2008 Harvard Business School study, 94 percent of the business executives in America were working more than 50 hours a week, and more than half were working 65 hours a week.

That's a big difference from a generation ago. According to an article in this week's New Yorker, 30 years ago, the worst-paid workers were much more likely to work longer hours than the best-paid workers. Now that's flipped around: A 2006 study found that the best-paid people were twice as likely to work long hours as the worst paid.

But is the trend reversing? Many big banks are trying to get their employees to cut back on their hours. Bank of America Merrill Lynch has told its analysts they should have at least four weekend days off a month; Credit Suisse told its analysts not to come to the office at all on Saturdays. Goldman Sachs told its analysts they should be working no more than 70 or 75 hours a week; if that still sounds like a lot, consider that one study found such employees often put in 120-hour weeks.

Wednesday, January 22, 2014

The Value of Good Citizenship

If a company is a good corporate citizen, does that make you more willing to invest in its stock? A lot of investors might say no, especially if they look solely at a company's fundamentals when deciding whether to buy a stock. But a new study from the American Accounting Association suggests that corporate social responsibility has at least a subconscious effect on many investors.

The study found that investors who profess to be concerned solely about financials still raise a company's financial value by about 25 percent when that company has a strong record of corporate social responsibility. When a company is presented with a poor record of corporate social responsibility, investors tended to downgrade its value by about 9 percent.

When asked specifically about their decision, the investors in the study tended to assert that corporate citizenship played no role in their hypothetical investment choices. But clearly, it does affect the subconscious thinking.

Tuesday, January 21, 2014

What Ails the Market?

The stock market has stumbled a bit out of the gate this year, with the S&P 500 having slipped a little, down by 0.5 percent. There's a specific problem weighing down stock prices: Earnings reports have been mediocre thus far. Of the S&P companies that have reported earnings for the fourth quarter of 2013, just 52 percent have beaten Wall Street estimates.

That might sound OK, but veteran stock watchers know that 52 percent is a poor figure. Companies do everything they can to make sure they beat the analysts' estimates on earnings day. Over the prior four quarters, 67 percent of reporting companies beat their estimates.

The one silver lining is that it's early yet. Only 52 of the companies listed in the S&P have reported yet, or just over 10 percent. We'll be watching to see if the number of earnings beats rises to a more normal level.

Monday, January 20, 2014

Americans Still Leery of Stocks

Despite the recent strength of the stock market, many Americans remain leery of investing their money in equities. A recent Gallup poll asked, "If you had a thousand dollars to spend, do you think investing it in the stock market would be a good idea?" Exactly half, 50 percent, of the respondents said it would be a bad idea. Only 46 percent said it sounded like a good idea.

At least that figure has been dropping in recent years. At the beginning of 2010, 54 percent of Americans considered stock investing a bad idea. In 2008, when the market was crashing, 62 percent though it was a bad idea, and just 33 percent considered it a good idea.

These figures might be considered a contrarian indicator. In Gallup's recent history, the high point for Americans wanting to invest that $1,000 in the market came in early 2000, when 67 percent thought it was a good idea. Shortly thereafter, the dot-com boom came to an end.

Friday, January 17, 2014

Millions for New Jersey

If you are a millionaire, congratulations! You belong to one of 242,647 millionaire households in the great state of New Jersey, according to the latest figures released by Phoenix, a market research firm that tracks the wealthy.

We might pale in comparison to the 777,624 millionaire households in California, or the 429,153 millionaire households in New York, but both those states are much bigger than us. The percentage of millionaire households in New Jersey, 7.49 percent, ranks second only to Maryland.

The hot newcomer in the millionaire rankings, though, is North Dakota. Thanks to its natural gas boom, North Dakota has risen from 43rd in the number of millionaires in 2011 all the way to 29th in 2012, adding 1,800 new millionaire households in one year. That puts it one spot ahead of Florida.

Thursday, January 16, 2014

Always Do Your Homework

Earlier this week, Google announced it was paying $3.2 billion for a company called Nest Labs, which makes smart thermostats and smoke alarms for home use. Shortly thereafter, the stock with the ticker symbol NEST shot through the roof. It increased in value by nearly 20 times on Tuesday.

One problem: NEST isn't Nest Labs. It's the symbol for Nestor Inc., a Rhode Island-based company that sells traffic systems to local governments. Nest Labs was a privately held company that had talked about an IPO but never sold its stock to the public. Nestor was a company that had gone into receivership in 2009.

Nestor's stock price has settled back down to around four cents per share, but that's at least a little higher than it had been trading. It's quite possible that some of those investors still don't know that they didn't buy Google's latest acquisition.

Wednesday, January 15, 2014

Why Banks Look So Good

This brand-new earnings season has been a very good one for the banking sector so far. Wells Fargo reported $5.6 billion in earnings yesterday for the fourth quarter, a new high mark for that bank. That enabled Wells Fargo to overtake JP Morgan, formerly the nation's most profitable bank, which earned "just" $5.3 billion in the quarter.

JP Morgan, though, reported those earnings despite spending $23 billion in legal settlements in 2013. Despite those expenses, JP Morgan recorded $17.9 billion in earnings for the year.

At the same time, those earnings are a little misleading. For 2013 as a whole, more than $2 billion of Wells Fargo's earnings and more than $5 billion in JP Morgan's earnings derived from loan-loss reserves, money that had been put aside during the financial crisis to cover future losses if the downturn continued. Now that the economy is recovering, that money can be returned to the banks' general coffers - and counted as earnings.

Tuesday, January 14, 2014

The Mutual Fund Scorecard for 2013

Here's one more look back at some results for the 2013 investing year, this time with a look at how mutual funds fared. There was money to be made in almost all investing styles and sectors. Here were the leading categories:

  • Health Care Stock Funds Median fund up 48.3 percent
  • Consumer Discretionary Stock Funds up 41.7 percent
  • Small-Cap Growth Funds up 41.4 percent
  • Industrial Stock Funds up 39.4 percent
  • Small-Cap Blended Funds up 37.8 percent

There were only a handful of fund categories that lost money in 2013. The one real laggard in the group was Precious Metals Stock Funds, which were beaten down by, among other things, the drop in the price of gold. The median fund in that sector was down 48.6 percent last year.

Monday, January 13, 2014

Investors Flooding Back Into Stocks

The past year was a very good one for the stock market, and as more numbers come in, we are learning that investors responded very positively to it. Investors put a net total of $352 billion into stock mutual funds and ETFs last year.

That's a new record for stock inflows. Even at the height of dot-com-mania, the figures didn't reach that high. The old record was $324 billion, set back in 2000, just before the bubble burst.

The gains for stock funds came at the expense of bond funds, which had a terrible 2013. Bond mutual funds and ETFs suffered net ouflows of $86 billion last year, which is also a record. The previous low was a loss of $62 billion, way back in 1994.

Friday, January 10, 2014

Two Directions for Unemployment

The unemployment rate took another big drop this morning, according to the latest release from the Department of Labor. The headline figure fell from 7.0 percent in November to 6.7 percent in December. For 2013 as a whole, unemployment dropped 1.2 percentage points from the 7.9 percent we had back in January.

What's really strange about that is that the number of new jobs added in December was just 74,000, which is the lowest monthly increase in three years. There are a couple of reasons why these two numbers might not be in sync. First of all, the workforce shrank in December, meaning the denominator for the unemployment rate got smaller. It's easier to have a smaller unemployment rate when the number of potential employed people is smaller.

Secondly, the numbers come from two different surveys, a household survey and a business survey. These numbers sometimes get out of whack, but they also converge over time. Don't be surprised if, in the coming months, the December jobs number gets revised upwards, or the unemployment figure ticks back up, or both.

Thursday, January 9, 2014

Shoppers Stayed Home for the Holidays

We’re starting to get some impression of how the holiday shopping season went at the end of last year. And the numbers look pretty good: According to ShopperTrak, a market research firm, sales for November and December combined were up 2.7 percent over the previous year. That’s good, although not quite as strong as the 3.0 percent increase in 2012.
One trend seems very clear: People aren’t going to the malls any more. Foot traffic  in retail stores was down 14.6 percent from the year earlier. The average number of stores people visit per shopping outing has dropped from 4.5 to 5 stores in 2007 down to 3 to 3.5 stores this year.
But even though more and more of us are buying online every year, brick-and-mortar shopping remains the cornerstone of the holiday season. According to ShopperTrak, more than 90 percent of all retail purchases are still made in physical stores.

Wednesday, January 8, 2014

The Cost of the Deep Chill

The deep freeze that we faced over the past few days – along with much of the rest of the nation – has had a major effect on our lives this week, but it also may have longer term ramifications for our economy. Demand for natural gas has peaked to an all-time high, with one firm estimating that Monday would set a record of 125.7 billion cubic feet to be consumed.

Of course, prices are following close behind. Generally, in the wintertime, a contract for a million BTUs of natural gas costs about $20. Last Friday, it was at $13.61. But on Tuesday of this week, a price for one contract in New York reached $99 for a million BTUs – a record.

Fortunately, most natural gas is bought well in advance, so the day-to-day price doesn’t fluctuate as much as that of gasoline. But since the start of November, futures prices for natural gas are up by more than 20 percent overall.

Tuesday, January 7, 2014

The January Barometer

At the end of last year, we saw the customary December rally in the stock markets. Now in the beginning of 2014, there is a January effect to look for: The January barometer, which suggests that however the market performs in the first month of the year is how it will perform for the entire year.

And there's something to this. Dating back to 1928, when the S&P 500 has been up in January, it has been up for the entire year 80 percent of the time, with an average annual return of 13.0 percent. When January has been a down month, the entire year has been positive just 42 percent of the time, and the S&P shows a modest annual decline on average.

The average performance for the S&P over that time has been an increase of 7.5 percent per year, and the index has risen in 66 percent of those years. So the January barometer appears to be significant.

Monday, January 6, 2014


Where are the markets headed in 2014? At this time of year, there is no shortage of expert predictions to be found. But those experts don't necessarily know any more than the random investor does.

The market research firm Birinyi Associates recently looked back at the 2013 forecasts of eleven top Wall Street firms like Morgan Stanley and Goldman Sachs. The consensus estimate of those firms was that the S&P 500 would increase by 8.2 percent in 2013. In the end, the index rose by nearly 30 percent.

No one saw that coming. The most accurate of the eleven forecasters was Citigroup, which thought the S&P would finish 2013 at 1615, for a rise of of about 10 percent. In reality, the S&P blew past 1615 halfway through the year, on July 1st.

Friday, January 3, 2014

Everybody Wins

The  stock market rally of 2013 was not only strong,  it was remarkably broad-based as well. Consider that among the 30 stocks that finished the year in the Dow Jones industrial average,  only one of them ended the year down: IBM,  which lost 2.1 percent in 2013.

Standard & Poor's divides all the stocks it covers into ten industry sectors.  All ten of those sectors were up on the year,  from a 9.8 percent increase for telecommunications to a 40.9 percent increase for consumer services.

Within those ten sectors,  there are 104 stock industry groups.  Incredibly,  101 of them gained during the year.  The only losers were three of the basic materials groups: coal,  down 12.1 percent,  platinum and precious metals,  down 31.1 percent, and gold mining, down 52.4 percent.

Thursday, January 2, 2014

The Santa Rally Finishes Off a Great 2013

The so-called Santa Rally we discussed at the beginning of December ended up coming through in grand fashion at the end of the year. In the last two weeks of 2013, from December 17 through the New Year, the S&P 500 rose by nearly 4 percent, compensating for a desultory beginning to the month. All told, the index was up 2.64 percent in the month, for a customary winning December.

That meant that for the year, the S&P rose by 29.6 percent. You have to go back to 1997, in the early days of the high-tech bubble, to find a year that did better.  Other than two years in the go-go Nineties, the S&P hadn't had that strong a year since 1975.

The scorecard for the other indexes: the Dow Jones was up 26.5 percent in 2013, and the Nasdaq was up 38.3 percent. The small-cap Russell 2000, which is making a name for itself as another key equity index, finished up 37 percent.

Wednesday, January 1, 2014

Thoughts for the New Year

"For eleven months and maybe about twenty days each year, we concentrate upon the shortcomings of others, but for a few days at the turn of the New Year we look at our own. It is a good habit." ~ Arthur Hays Sulzberger

"New Year's Resolution: To tolerate fools more gladly, provided this does not encourage them to take up more of my time." ~ James Agate

"New Year's Day is every man's birthday." ~Charles Lamb