Tuesday, September 30, 2014

A Strong Third Quarter

The third quarter comes to a conclusion today, and it appears to have been a remarkably broad-based success. According to S&P Capital IQ, all ten sectors in the S&P 500 are expected to record earnings growth for the third quarter. That would be the first time we've seen all ten sectors show earnings growth in three years.

We came close to that mark in the second quarter, when every sector recorded positive earnings growth except for the financials. Nineteen out of twenty possible sectors showing growth over the past six months would still be a signal of a pretty healthy economy.

Which sectors have been the strongest during the third quarter? S&P Capital IQ forecasts that the telecommunications sector will have the highest earnings growth, at 14.8 percent. It's followed be the raw materials sector at 11.6 percent, and health care at 11.1 percent.

Monday, September 29, 2014

Even Better for GDP

The Commerce Department's second estimate of GDP growth for the second quarter was very good, at 4.2 percent. On Friday, it got even better, as the third and final estimate ratcheted that number up to 4.6 percent.

That matches the third quarter of 2011 as the best quarter we've seen for growth since the end of the recession. In fact, we haven't had a better quarter for growth since the first quarter of 2006, when the economy grew at 4.9 percent.

What caused the upward revision? The biggest factor was commercial real estate, which increased by 9.7 percent in the second quarter after rising by just 1.6 percent in the first quarter. In addition, profits recorded by financial corporations rose by $33.3 billion in the second quarter; they had dropped by $86.2 billion in the first quarter.

Friday, September 26, 2014

The Dollar and Inflation

The U.S. dollar has been on a tear lately. Yesterday it reached a four-year high against a basket of global currencies. For the third quarter as a whole, the value of the dollar has risen by more than 6 percent, its best quarterly performance in more than four years.

One benefit of a strong dollar is that it makes imported goods less expensive. Sure enough, in August, the Consumer Price Index dropped by 0.2 percent, after rising at an annual rate of around 1.6 percent each month from April through July. Is the strong dollar the reason?

New research from the Cleveland Fed reports that the relation between the two is not as strong as it might seem. Since 1990, a stronger dollar has indeed made imports less expensive but has had minimal import overall on prices of core goods. So it seems that there are stronger forces on inflation than the strength of the dollar.

Thursday, September 25, 2014

Car Sales Beyond the Recession

We suffered through a subprime crisis in mortgage lending a decade ago, leading to an eventual collapse in housing prices. Now some people are worried that we're undergoing a similar crisis in subprime lending to auto buyers. According to the New York Fed, 23 percent of all car loans are now being made to people with credit scores under 620. Car loans to people whose credit is that poor has roughly doubled since 2010.

But that's mostly an artifact of the tightened lending standards implemented during the recession. If you extend the window back even further, subprime auto lending is still below where it was back in 2006 and 2007, before the recession hit.

Car buying has reached an all-time high, moving at an annual pace of 17.2 million sold in August. That's another artifact of the recession, when people put off buying new cars. The average age of a car on an American road is 11.4 years, up from 9.8 years in 2005.

Wednesday, September 24, 2014

Housing's Long-Term Health

We've been seeing a lot of numbers lately indicating that the economy has returned to pre-recession levels. But for the housing industry, the more relevant time frame is the start of the subprime mortgage crisis, which began around the time housing prices peaked in 2006.

And the sentiment reading from the home building industry that came out last week clearly beat that mark. The NAHB/Wells Fargo Housing Market index reached 59 in September for its fourth consecutive monthly increase - and its highest level since November 2005.

Just about all the indicators were good, according to the National Association of Home Builders. The single home family sales indicator and the single-family sales expectations for the next six months both rose to their highest level in more than a year. Prospective buyer traffic, meanwhile, is at its highest since October 2005.

Tuesday, September 23, 2014

Large vs. Small

It's been in many ways a good year for the stock market. The Dow Jones industrial average is up about 4.5 percent on the year, and the S&P 500 index is up nearly 9 percent. Since those are the two most widely watched indexes, the general outlook for the market has been good in 2014.

But both those indexes focus on large-company stocks. The Russell 2000 index, the prime benchmark for small-cap stocks, is down by 1.4 percent on the year. That means smaller stocks lag their bigger brethren by roughly 10 percentage points.

The last six months have been especially rough for small-cap stocks. The S&P 500 posted its 34th record high of the year last Thursday. But after posting its last record high on March 4, the Russell 2000 has lost 5.1 percent of its value.

Monday, September 22, 2014

Don't Get Left Behind in Retirement

Americans do a pretty good job of saving for retirement overall, but some people are certainly being left behind. According to a new report from the Census Bureau, about 15 percent of all people over the age of 65 are living below the poverty line. The next generation is facing similar troubles. Among so-called pre-retirees - those workers who are over 55 - 24 percent of them have saved less than $1,000 for retirement.

Not surprisingly, many people get into retirement only to find that they're not able to have the lifestyle they had hoped for. According to a survey conducted by the Harvard School of Public Health, 59 percent of older workers plan to travel more after they're retired - but only 31 percent end up actually doing so.

Don't fall into one of these disappointing categories. If you're concerned that you're not prepared to have your retirement be all you expected, feel free to give me a call.

Friday, September 19, 2014

Need Any Advice?

Do you look for professional advice when you are making a big financial decision? According to a new Gallup poll, 63 percent of all investors sought out advice when creating a personal financial plan, with three quarters of them saying they had sought out professional advice.

For most other things, though, people don't get help from professionals. Aside from creating a financial plan, the only other item in the survey that most people sought out professional advice for was buying a house, although 48 percent used professional help for creating a college savings plan. Just 23 percent asked for professional advice in planning a vacation, and 19 percent in buying a car.

But most people do turn to other for help in such things. According to Gallup, fully 81 percent of us got informal personal advice when shopping for a car.

Thursday, September 18, 2014

The Magic of Alibaba

The biggest talk on Wall Street this week has been tomorrow's IPO from the Chinese Internet giant Alibaba. The offering could raise as much as $25 billion, which would make it the biggest IPO in history. Facebook's IPO two years ago, which was probably the most talked-about public offering before this one, raised a mere $16 billion.

The Facebook IPO was not the largest American offering, though. Visa's IPO, shortly before the financial meltdown of 2008, raised $17.9 billion, which is also the worldwide record - at least until tomorrow. 

Will Alibaba really be worth more than that? It's often compared to Google, but as primarily an e-commerce site, it's actually closer to Amazon.com or eBay. It actually handles more transactions than Amazon.com and eBay combined, and is now China's largest retailer of any kind. That's a monster.

Wednesday, September 17, 2014

Tough to Gain Ground

The Census Bureau released some disappointing figures yesterday about the state of incomes in America. Income for the median American household in 2013 was $51,900, which was essentially unchanged from the year before. Median income is still down 8 percent from 2007, prior to the start of the recession.

What's even more distressing is that we really haven't made any real progress in this area in decades. Median household income isn't any higher now, adjusted for inflation, than it was in 1989. And we are still 8.7 percent below the inflation-adjusted peak income of $56,895, reached back in 1999.

One demographic did gain some ground last year: America's senior citizens. Households headed by people aged 65 and older saw their incomes increase by 3.7 percent last year, from a median income of $34,340 to $35,611.

Tuesday, September 16, 2014

Debt and the Young

Two long-term trends are evident in a new study out from a researcher at Dartmouth: More and more kids are attending college, and college is getting more expensive. Ergo, more and more young people are in debt starting from their twenties.

The study found that 35 percent of Americans aged 24 to 28 have debts that exceed their assets, which is double the number that we saw in the late 1980s. A total of 75 percent of all younger Americans have some sort of debt, and 22.4 percent of them have education debt, as opposed to just 5.1 percent of late baby boomers.

Not surprisingly, today's younger adults are having trouble spending on other things. Just 19.8 percent of them have home-related debt. That number was at 29.9 percent in the late 1980s, and as high as 43.1 percent in the mid-1970s.

Monday, September 15, 2014

Paying Less at the Pump

There were some interesting figures on consumer spending released by the Commerce Department on Friday. Americans' spending was up by a moderate 0.6 percent in August - but that number would have been stronger if not for the fact that we're spending less on gasoline. Without accounting for gas, consumer spending rose by 0.7 percent last month.

Spending at gas stations dropped by 0.8 percent in August. There are several reasons for this, but maybe the most prominent is that the price of a gallon of gas reached an average of $3.42 nationwide, down 3.8 percent from a year earlier.

Gas prices could be dropping even further, too. The price of fuel imports fell by 4.6 percent in August, their biggest monthly drop in two years, suggesting that the retail price may come down more as well.

Friday, September 12, 2014

Priced to Sell

One sign of the health of the real estate market is that it's taking less and less time to sell a house. According to a study from Realtor.com, the national median age of real estate listings has dropped to 82 days, down from 85 in July 2013.

Not surprisingly, the quickest sales come from the least expensive homes. The median age of listings for homes listed at less than $1 million is just 80 days. Those homes were taking more like 100 days to sell as of July 2012.

More surprisingly, homes at the top end of the market are moving more quickly than less expensive ones. Homes that list for just under $30 million tend to be listed for 180 days. But for those listed above $30 million, the median time on the market drops to 139 days.

Thursday, September 11, 2014

Another Look at the IPO Market

Most people pay attention to the IPO market only when companies are actually making their initial public offering - after that, it just becomes another stock. But Bloomberg maintains an IPO index that tracks companies that have gone public over the past 12 months. After being flat most of the summer, that index is now up 5.5 percent on the year.

What's propelled that growth? Camera maker GoPro is the biggest success story, up 185 percent since its IPO in June. TrueCar Inc., an automotive pricing and information website, is up 145 percent since its IPO. ZS Pharma, a Texas-based pharmaceutical firm, is up 120 percent.

On the other hand, the biggest loser is a stock called Violin Memory, a data storage company that went public at 9 a share back in September 2013. It has since dropped to $4.80 - a loss of 47 percent.

Wednesday, September 10, 2014

Americans Spending Less

After Americans' spending climbed by a robust 3.5 percent in 2012, it declined last year, according to a new study out from the Department of Labor. Spending dropped by 0.7 percent in 2013, led by a 7.6 percent drop in spending on apparel and a 4.7 percent drop in spending on entertainment.

A couple of categories did see increases in spending last year. We spent 2.1 percent more on health care in 2013 than we had in 2012 - but that followed a 7.3 percent increase in health care spending the prior year. Spending on housing increased by 1.5 percent in 2013, the only category that saw more of a rise last year than in 2012.

The average American spent $1,429 on housing per month in 2013, easily the largest of any category. We also spent $750 on transportation per month, $303 on health care, and $207 on entertainment.

Tuesday, September 9, 2014

Banking Gets Its Name Back

The banking industry took a beating during the financial crisis of 2008-09, both in terms of dollars lost and in terms of its reputation. According to Gallup surveys, the public's view of the banking industry was at a net positive of 32 as late as the middle of 2007. But it dropped to -1 in 2008 and to -23 in 2009.

That reputation remained in negative territory through last year, but it has finally rebounded to positive 8 in Gallup's latest survey. That figure is still well below where the industry's reputation had been before the financial crisis, since Gallup started asking this question back in 2001.

The real estate industry has had a similar rebound. During the subprime crisis, the reputation of that business dropped to -40, even lower than the banking business ever got. But it too has bounced back to positive territory in Gallup's latest survey, for the first time since 2006.

Monday, September 8, 2014

Too Many Directors?

Savvy investors try to get their hands on every available statistic they can before making their decisions. But one number that hardly anyone ever looks at is the size of a company's board of directors. A new study from the governance-research organization GMI Ratings suggests that maybe they should.

The study found that corporations with small boards - about nine or ten directors - tended to outperform their peers on shareholder return by 8.5 percentage points. Meanwhile, those firms with large boards - 13 or 14 directors - tended to underperform by 10.85 percentage points. The study looked solely at large-cap firms - those with a market cap of at least $10 billion.

What's the reason for the disparity? Maybe smaller boards are more nimble and decisive. Or maybe larger boards are indicative of a corporate culture that has grown out of control.

Friday, September 5, 2014

The August Jobs Report

August broke the string of months in which the economy added at least 200,000 jobs at six, according to the report out this morning from the Bureau of Labor Statistics. We gained 142,000 jobs in August, which makes it the weakest month of the year so far, just behind January's 144,000.

Even with the relatively soft number of jobs, headline unemployment ticked down, from 6.2 percent to 6.1 percent. The 12-month average for job growth is still at 207,000, which is a very solid figure. This year has seen the fastest pace for hiring in over a decade.

The slowing growth number was attributed to softer employment conditions in auto making and retail. Vehicle manufacturers, which have been a steady source of jobs in the recovery, lost about 5,000 jobs in August, while food and beverage stores shed 17,000 jobs.

Thursday, September 4, 2014

Gold Takes a Tumble

It was three years ago this Saturday that the price of gold reached its all-time high price of $1,923.70 per ounce. Since then, it's lost more than a third of its value, with the price dropping by nearly $700 an ounce.

But the current price of just over $1,260 an ounce isn't a new low since it set that high mark. Last December, the price of gold dropped to $1,187.10. So gold has done OK in 2014, even though it's been dropping recently, falling this week to its lowest level since mid-June.

What has caused gold's price to drop? At her confirmation hearings last year, Fed chair Janet Yellen famously said, "I don’t think anybody has a very good model of what makes gold prices go up or down.” But some pundits think the Fed itself has caused the drop in gold prices, as investors are bracing for a rise in interest rates.

Wednesday, September 3, 2014

Turning the Corner into September

The market had a pretty good August, with the S&P 500 posting a gain of 3.8 percent. That was not only the strongest month for the market since February - it was the best August the S&P has had since the year 2000.

And we may need it, since historically September is the S&P 500's worst month, according to S&P Dow Jones Indices. The index has averaged just over a 1 percent decline in September and has been positive less than half the time.

Last year, the S&P dropped by 3.1 percent in August, then had an atypically strong September, gaining 3.0 percent. It may well be that the two months are likely to move in opposite directions, and that the rise in August this year may make it more likely that we'll suffer a decline in September.

Tuesday, September 2, 2014

Hedge Fund Woes

It continues to be a tough year for hedge funds. Goldman Sachs tracks the performance of the nation's largest hedge funds, and found that through the middle of August, they had returned just 1 percent. Over that same time frame, the S&P 500 had returned about 7 percent on the year.

What's gone wrong with the hedge funds? Goldman Sachs' analysis found that they had heavily invested in consumer discretionary stocks, including retailers. The consumer discretionary sector has been the worst-performing of the S&P's ten sectors this year; through the end of August, it was up a little less than 3 percent in 2014.

Among the stocks the hedge funds are most invested in, one of the most popular is General Motors. Hedge funds own roughly 7 percent of all GM shares. General Motors stock has lost 15 percent of its value this year.

Monday, September 1, 2014

Thoughts for Labor Day

“Be steady and well-ordered in your life so that you can be fierce and original in your work.” ~ Gustave Flaubert

“Labor Day is a glorious holiday because your child will be going back to school the next day. It would have been called Independence Day, but that name was already taken.” ~ Bill Dodds

“If people knew how hard I had to work to gain my mastery, it would not seem so wonderful at all.”
~ Michelangelo