Friday, February 27, 2015

Deflation? Not Really

After January's figures came in, the Commerce Department reported yesterday that consumer prices had fallen on an annual basis over the previous 12 months. It was just by 0.1 percent, but still, that's the first time we've had deflation over a 12-month span since 2009.

There's one simple reason for this: energy prices. Gasoline prices fell by more than a third in the past year, and overall energy costs dropped by almost 20 percent. Aside from energy prices, consumer prices outside of energy were up 1.9 percent in January from a year earlier.

Indeed, it might seem that inflation is actually growing, because prices in many other areas are growing fairly strongly. Food prices are up by 3.2 percent from a year earlier; shelter costs rose by 2.9 percent, and costs for medical care were up by 2.3 percent for the 12 months.

Thursday, February 26, 2015

A Reasonable High for the Nasdaq

The Dow Jones Industrial Average and the S&P 500 have both notched new all-time highs this week. Meanwhile, the Nasdaq has actually outperformed the two other indexes so far this year - it's up 4.9 percent, as opposed to 2.8 percent for the S&P and 2.2 percent for the Dow.

And the Nasdaq might, finally, set a new record, 15 years after reaching its all-time high during dot-com-mania. Although the index dropped on Wednesday, ten straight days of increases prior to that put the Nasdaq within about 80 points of its all-time record close of 5,048, set on March 10, 2000.

And the good news is that the Nasdaq might set that record in a much saner era, with reasonable valuations of its stocks. When the Nasdaq hit its record in March 2000, its stocks were trading at an average of a whopping 105.9 the last 12 months’ earnings. Now, that same number is down to 20.5.

Wednesday, February 25, 2015

Why Aren't 401(k) Fees Falling?

Investment fees for most 401(k) plans dropped over the past year, according to the new edition of the 401k Averages Book. But overall plan fees, for the most part, stayed where they are. In other words, those lower investment fees weren't passed along to you.

How did that happen? For large retirement plans, those with 1,000 or more participants and at least $50 million in assets, fees to invest in large U.S. equities fell from 1.05 percent to 1.03 percent. Smaller 401(k) plans tend to incur larger fees, but those dropped as well, from 1.40 percent to 1.38 percent.

But large U.S. equities are generally the easiest, cheapest asset class to invest in. The book reports that along with increases in plan balances, there has been increasing exposure to more expensive investments. As a result, total large-plan costs remained steady for the past year, at an average of 1.03 percent. For smaller 401(k) plans, the average cost was flat at 1.44 percent.

Tuesday, February 24, 2015

Savings Are Headed in the Right Direction

Americans are starting to save a little more of their income, although most people are still behind where they ought to be. That's the upshot of the new America Saves-ASEC survey, which said that the number of Americans spending less than their income and saving the difference increased from 68 percent to 71 percent in the past year, and those saving at least 5 percent of their income grew from 47 percent to 52 percent. The number of people saying they were making good or excellent savings progress rose from 35 percent in 2014 to 40 percent in 2015.

Similarly, consumer indebtedness is inching downward. In the past year, the portion who said they had no consumer debt, or were reducing their consumer debt, rose from 76 percent to 78 percent.  And respondents who said they had “sufficient emergency savings to pay for unexpected expenses like car repairs or a doctor visit” rose from 64 percent to 66 percent.

But we still have a long way to go. Those who say they are saving automatically outside of work was just 43 percent, and the number of people who know their net worth  was just 43 percent.

Monday, February 23, 2015

Where Are P/E's Headed?

It now looks like the Federal Reserve may raise interest rates around June of this year, after having spent years at their near-zero levels, ever since the collapse of the financial industry. This may seem to be primarily of interest to borrowers and lenders, and will certainly have an impact on the bond market, but it will also affect stock investors as well.

S&P Capital IQ looked at what happens to the price-to-earnings ratios of the S&P 500 around the time the Fed has hiked interest rates, dating back to 1946. They found that P/E ratios rose from an average of 17.7 six months before the rate hike to 18.5 on the date of the hike, then dropping back to 16.7 six months afterward.

So we might expect P/E ratios to drift upward through June, before drifting back down again after the rate hike takes hold. P/E ratios are already somewhat elevated, sitting at about 18 for the S&P 500 right now, up from 15 two years ago.

Friday, February 20, 2015

A Welcome Cooling of the Markets

After a very quiet 2014, the stock market's volatility levels shot upward in January, because of a dangerous mix of falling oil prices, a rising U.S. dollar, and disappointing corporate earnings. But February has brought a welcome cooling.

The CBOE Volatility Index, or VIX, hit a high of 23 in January, after spending most of 2014 under 20. But in the first couple weeks of February, it has fallen to 15, not coincidentally as the S&P 500 has recovered its footing. The VIX is now at its lowest level in about two months, although it's still slightly elevated, about 5 percent above its 200-day norm.

One odd thing about this: The U.S. markets have been cooling off while the rest of the world has been getting more volatile. The CBOE's Oil ETF Volatility Index remains 88 percent higher than its 200-day average, and the CBOE/CME FX Euro Volatility is 44 percent higher than its 200-day average.

Thursday, February 19, 2015

What Worries You About Retirement?

It's no surprise that younger people aren't nearly as worried about paying their medical costs in retirement as folks over 65 are. A new survey from Bankrate confirms that: People 18 to 29 cited medical costs as their main retirement worry only half as much as those over the age of 65. People over 65, in fact, cited health care costs as their prime retirement concern.

But this may come as a surprise: The same survey found that the younger age group was twice as likely as those over the age of 65 to cite running out of money during retirement as their prime retirement worry. It's understandable that younger people would think that just assembling enough money to retire on would be a daunting task, while older folks are more concerned about what exactly they'll need to spend that money on.

Here's another surprise: The study also broke the answers down by income. And it found that the highest-income households, those with annual income greater than $75,000, were more concerned with health care expenses during retirement than the rest of the sample.

Wednesday, February 18, 2015

What the Big Boys Are Doing

Insitutional investors generally have different goals and strategies than individual investors, but they also bring a lot of research and expertise to their investment decisions, which means it's wise for the little guys to keep an eye on what they're doing. And where they're headed, according to a new survey from BlackRock, is real estate.

BlackRock surveyed 169 of its global clients, and found that six in ten of these investors anticipate increasing their presence in real assets. They are primarily focused on adding real estate and private equity to their portfolios.

Where are they going to get the money for those investments? Some 39 percent plan to pull money out of fixed-income investments, primarily moving out of long-duration strategies. Another 26 percent plan to reduce their allocation to cash.

Tuesday, February 17, 2015

Women Are Shy About Money

Most financial professionals know that women and men tend to have very different approaches to managing their money. A new study points up one difference: Women want more advice on dealing with their finances, but they often think the subject is too personal to discuss.

According to the Fidelity Investments Money FIT Women Study, 92 percent of women want to learn more about financial planning, but 80 percent said they have kept from talking about their financial condition with someone they’re close to. The primary reason: 56 percent of them said it’s just too personal to talk about.

This reluctance extends as far as their husbands. Even when talking to their spouse, just 66 percent of the women felt comfortable discussing salary, and 65 percent felt comfortable discussing investments.

Monday, February 16, 2015

Is Europe Back?

The recovery in Europe is continuing to gain steam: Data on Friday showed that the eurozone's economic expansion is growing, with GDP growth for the fourth quarter of 2014 clocking in at 0.3 percent. For 2014 as a whole, the eurozone expanded at 0.9 percent.

Germany, the bulwark of the EU economy, reported growth of 0.7 percent for the fourth quarter and 1.6 percent for the year. None of these figures are great, but they're solid enough to represent progress, and Germany's fourth quarter figure is more than double what economists were expecting.

Europe's economies are benefiting from a lower euro versus the dollar - increasing purchasing power on imported goods - as well as lower oil prices. In Spain, to take one example, retail sales were reported at their highest rate in 11 years, and there are hopes that even Greece is getting its debt problems straightened out. All in all, it looks like the European economy is finally healthy.

Friday, February 13, 2015

Slow Hiring in New Jersey

If you've been looking for a job in our area, New Jersey might not be the most promising place to be. According to figures released by Gallup this week, the Garden State ranks sixth from the bottom among the 50 states in its annual Job Creation Index, a ranking of state job markets.

The entire region was relatively weak: Connecticut ranked as having the worst hiring climate in the entire U.S., and New York was tenth from the bottom. The rankings are based on workers' reports of whether their employer is hiring and expanding the size of its workforce, or letting people go and reducing its workforce.

The best state for hiring in 2014? That's North Dakota, still enjoying the fruits of its oil boom. It's followed by Texas, Nebraska, Wisconsin, Michigan and Iowa, in that order.

Thursday, February 12, 2015

Retirement Funds Reach New Highs

Assets in U.S. institutional retirement funds reached a new high in 2014, at $22.1 trillion. That's up 9 percent from the previous year, according to Towers Watson’s annual Global Pension Assets Study. How big is that number? Pension assets are now up to 127 percent of GDP  - they're bigger than our entire economy.

The U.S. holds 61 percent of the planet's total pension assets, but the numbers are increasing around the world, too. Global pension assets now amount to 84 percent of the world's GDP, up from 54 percent in 2008.

The study also showed that defined contribution assets - mostly 401(k)-type assets - are now a solid majority of all retirement funds in the U.S. They represent 58 percent of all retirement assets, up from 52 percent in 2004. Globally, defined-benefit assets are still the majority, but that's forecast to change within the next few years.

Wednesday, February 11, 2015

The New Dividend Index

There's a new index in town: Last week, S&P Dow Jones launched the S&P MidCap 400 Dividend Aristocrats. The companies on this index are mid-cap stocks that have increased their dividend payouts for at least 15 consecutive years.

The idea behind these dividend payers isn't that they'll offer much higher returns than other stocks. Over the past five years, the stocks in the Dividend Aristocrats have returned 15.6 percent, while the overall S&P MidCap 400 stocks have returned 17.0 percent.

The big selling point for these stocks, though, is that they smooth out returns. Dividend-paying stocks tend not to do as poorly during down markets, when their payouts counteract reductions in share price. In 2011, for example, the S&P 400 overall lost 1.7 percent  - but the Dividend Aristocrats gained 3.7 percent.

Tuesday, February 10, 2015

China Steps on the Brakes

The Chinese economy appears to be taking a few more steps backward: In January, exports from China fell by 3.3 percent from year-ago levels, while imports fell by a whopping 19.9 percent. Coal imports dropped nearly 40 percent and oil imports fell by 7.9 percent, signaling a slowdown in the world's second-biggest economy.

China posted 7.4 percent GDP growth in 2014, which sounds impressive compared to our figures but was the slowest pace for that country in 24 years. And the Chinese government is expected to lower its GDP target to around 7 percent for 2015.

China's total GDP was an estimated $10.36 trillion in 2014, according to the International Monetary Fund. That's a distant second to the U.S. at $17.7 trillion, and will likely stay that way for a while, if China's growth continues to slow.

Monday, February 9, 2015

Employment in Overdrive

Friday's employment report brought not just another big month of job growth, with the economy adding 257,000 jobs in January, but revisions to earlier months that added another 147,000.  The headline unemployment rate, though, ticked up from 5.6 percent to 5.7 percent - but even that may be good news.

Why is that? Because workers who had been discouraged by the slow economy are now coming back to the labor force in huge numbers - 703,000 in January alone. So even though we're adding more jobs, the denominator used to figure the unemployment rate is growing as well.

The upshot is that the economy is the strongest it's been in a long time. We've added an average of 268,000 jobs per month over the past year, and we hadn't had a 12-month stretch that strong since 2000. The revisions to the November jobs numbers that were released on Friday mean we added 423,000 jobs in that month alone - the strongest single month for job growth since 1997.

Friday, February 6, 2015

Good News for Retirees!

The aftereffects of the recession have left a lot of people feeling like they've lost ground financially, but a new survey from T. Rowe Price refutes that: Three-quarters of today’s retirees feel better off than their parents were at the same age. Fifty-seven percent say they're living as well as or better than they did before retiring, and nearly all - 85 percent - said that they didn’t need to spend as much in retirement to be satisfied with their lives.

Perhaps one crucial factor is that retirees spend a lot of time taking care of their financial decisions. The survey found that 80 of the retirees track their expenses carefully, and 63 percent stick to a budget.

The upshot is that nearly four out of five respondents reported being on track to meet their financial goals in retirement. They're getting there with a little help: About half of those surveyed said that they had a financial advisor guide them through the retirement process.

Thursday, February 5, 2015

Watching the Earnings Warnings

As you probably know, heading into earnings season, companies issue guidance reports so investors will know what to expect. So far this earnings season, many more companies have been lowering guidance as opposed to raising it - by a difference of 8.6 percentage points. 

It's not uncommon for more companies to be negative than positive. From 2011 through 2014, we saw negative spreads every single earnings season, with the sole exception of the first quarter of 2014. But a spread of 8.6 percentage points is the worst that figure has been since the depths of the recession, in the fourth quarter of 2008 and the first quarter of 2009.  In other words, companies are issuing negative warnings with more frequency than they have in five years.

That's the bad news. The good news is that investors are still responding well to earnings reports. Since the start of earnings season, according to Bespoke Investments, the average one-day change in reaction to earnings for the stocks that have reported has been a positive 0.43 percent. That's better than most quarters we've seen since the start of the recession.

Wednesday, February 4, 2015

The Gasoline Windfall

One of the biggest financial stories of last year was the dramatic drop in gasoline prices, down $1.22 a gallon from where they were a year ago. Bloomberg News has tried to asses what that meant for the average American consumer, and reported that what we saved at the pump had the impact of a $125 billion tax cut.

Obviously, we could afford to drive more. In November, Americans drove 241 billion miles, the most for that month since 2007. So one of the big winners was drivable vacation destinations: Car traffic to Las Vegas, for example, jumped in the last quarter of 2014, after being down six of the previous nine months. Other winners include mass-market, working-class companies like Popeyes Chicken and Family Dollar.

But the spending spree may be coming to an end. After the average gas price in the U.S dropped for 123 straight days, that streak finally ended last week, and gas prices are finally starting to turn upward again.

Tuesday, February 3, 2015

Avoiding Charity Scams

The IRS released its annual list of the "Dirty Dozen" taxpayer scams yesterday. This year, they focused on fake charities and how to avoid getting taken advantage of. Some tips from the IRS:
  • Be wary of charities with names (or web sites) that are similar to familiar, respected, nationally known organizations. Make sure the organization you're giving to is the one you intended. has a search feature, Exempt Organizations Select Check, to check up on any doubtful donees.
  • Don’t give out personal financial information, such as Social Security numbers or passwords, to anyone who solicits a contribution from you. If you use a credit card number to make a donation, be very careful about whom you're speaking with, especially if donating by phone.
  • Don’t give or send cash. Contributing by check or credit card provides documentation of the gift, making it better for both security and tax record purposes.

Monday, February 2, 2015

Welcome to Everyone's Least Favorite Month

Today is the first trading day of February, and investors might be expecting the market to be like the weather: cold and unforgiving. Over the past 20 years, February has had, on the aggregate, a negative return, with the S&P 500 index losing an average of 0.2 percent.

Only August has been a worse performer over that span, with an average monthly change of -0.9 percent. But the summer is historically a poor time overall for stocks. October through May is the part of the year when stocks make most of their money - and February is the only dud in that bunch.

There are two good things to say about this month. One, the trend has shown signs of turning around, with the last five Februarys all finishing in positive territory. And two, if this month has to be brutal, at least it's short.