More good news four our beleaguered economy, this time from the world of Treasury bonds: the spread between the 2-year and 10-year notes widened this week to 2.38 percent, or 238 basis points, marking its broadest since mid-November.
Why is that important? The difference between those two figures is the reward that investors get for putting their cash away for a longer period of time. When the spread between the two yields gets wider, it is a signal that people's long-term expectations for the economy are positive.
It's similar to the difference between money market accounts and the stock market. When people are nervous about the economy, they'll abandon the long-term returns of equities for the short-term safe havens of money markets. The same principle applies here. The fact that people have become more willing to make long-term investments is a very good sign indeed.
Wednesday, June 10, 2009
Monday, June 8, 2009
A Chance to Reassess
The turbulence in the markets for the past year or so has played havoc with just about everyone's portfolio. Savvy investors know that this means they need to go in and rebalance their portfolios to prevent being overweighted in those assets that have avoided serious declines.
But your portfolio is not the only thing that might need your attention. Have you considered how the market downturn might have affected your estate planning? Do you have assets set aside for your grandchildren's college tuition that might not cover that amount anymore? Perhaps you have a block of stock that is supposed to go to your church after your death. If that stock was in, say, General Motors, it's time to take a second look at that gift. Maybe your primary residence has been willed to one of your children, and your vacation home to the other. Has the crash in housing values put those gifts out of whack with each other?
We here at Echelon Wealth Strategies would be happy to help you reassess where your estate plans stand in light of the economic crisis. To answer any questions about the readiness of your estate plans or how to figure out if they're still set up to achieve what you want, feel free to give me a call at 908-647-6000.
But your portfolio is not the only thing that might need your attention. Have you considered how the market downturn might have affected your estate planning? Do you have assets set aside for your grandchildren's college tuition that might not cover that amount anymore? Perhaps you have a block of stock that is supposed to go to your church after your death. If that stock was in, say, General Motors, it's time to take a second look at that gift. Maybe your primary residence has been willed to one of your children, and your vacation home to the other. Has the crash in housing values put those gifts out of whack with each other?
We here at Echelon Wealth Strategies would be happy to help you reassess where your estate plans stand in light of the economic crisis. To answer any questions about the readiness of your estate plans or how to figure out if they're still set up to achieve what you want, feel free to give me a call at 908-647-6000.
Sunday, June 7, 2009
Are Car Sales Bouncing Back?
After a week in which General Motors declared bankruptcy, there was some surprising news on the automotive front: American sales of new cars actually rose in the month of May. Cars and light trucks moved out of the showroom at an annual pace of 9.9 million sold last month, up from a 9.3 million rate in April. They had bottomed out at a 9.1 million pace in February, the lowest level since December 1981.
The woes among American automakers might make those figures seem unlikely, but what seems to be happening is that people are flooding to their local Chrysler, GM and Ford dealers hoping to get a really sweet deal on a new car. They know Chrysler closed hundreds of dealerships and will need to liquidate thousands of cars, and that GM is desperate to get its sales moving again. That means bargains are to be had.
So it's not all good news; the automakers themselves are unlikely to reap a whole lot of long-term benefits from the bargain hunters. But on the other hand, anything that can help kickstart this economy is a good thing.
The woes among American automakers might make those figures seem unlikely, but what seems to be happening is that people are flooding to their local Chrysler, GM and Ford dealers hoping to get a really sweet deal on a new car. They know Chrysler closed hundreds of dealerships and will need to liquidate thousands of cars, and that GM is desperate to get its sales moving again. That means bargains are to be had.
So it's not all good news; the automakers themselves are unlikely to reap a whole lot of long-term benefits from the bargain hunters. But on the other hand, anything that can help kickstart this economy is a good thing.
Friday, June 5, 2009
TARP Update
A while back we commented that several big banks had begun talking about returning their TARP funds to the government, and even conducted stock offerings to raise the money. Now some banks have gone even further and filed paperwork with the appropriate regulatory bodies to actually return the funds.
JP Morgan, Goldman Sachs Group Inc., Morgan Stanley, American Express and Bank of New York Mellon all have applied to repay the more than $50 billion they have received from the Treasury Department. Now, one of the obstacles standing in their way is the Fed, which wants to make sure the banks will be able to continue lending to creditworthy borrowers and that they can maintain minimum capital levels. The banks also must prove they will be able to meet funding obligations to business partners while "reducing reliance on government capital."
As I said before, the important thing here is to watch what the banks do, not what they say. It is a very healthy sign that many of our most important banks think they're ready to move forward on their own. It will be an even healthier sign when they actually do so.
JP Morgan, Goldman Sachs Group Inc., Morgan Stanley, American Express and Bank of New York Mellon all have applied to repay the more than $50 billion they have received from the Treasury Department. Now, one of the obstacles standing in their way is the Fed, which wants to make sure the banks will be able to continue lending to creditworthy borrowers and that they can maintain minimum capital levels. The banks also must prove they will be able to meet funding obligations to business partners while "reducing reliance on government capital."
As I said before, the important thing here is to watch what the banks do, not what they say. It is a very healthy sign that many of our most important banks think they're ready to move forward on their own. It will be an even healthier sign when they actually do so.
Thursday, June 4, 2009
The Unemployment Figures
More bad economic news: In advance of a Labor Department report due out on Friday, the payroll firm ADP reported Wednesday that an estimated 532,000 workers had been dropped from American payrolls in May. ADP also reported that it was increasing its number of laid-off workers in April, from 491,000 to a new estimate of 545,000.
This is obviously not good news. At the same time, economists expect the recovery, when it comes, to happen in a certain order: The markets will come back first, followed by the employment numbers. Trailing all of that will be the housing market.
That makes some intuitive sense. The stock market is forward-looking, and prices will rise when people think the economy is headed in the right direction. We may be seeing the first stirrings of that already. The employment figures will be those rosy predictions taking hold in the here and now. And once people are back to work, they will go back to investing in the housing market.
Still, unemployment is perhaps the central issue in the recession. Until we start to see those numbers heading in the right direction, it will be hard to be optimistic about this economy.
This is obviously not good news. At the same time, economists expect the recovery, when it comes, to happen in a certain order: The markets will come back first, followed by the employment numbers. Trailing all of that will be the housing market.
That makes some intuitive sense. The stock market is forward-looking, and prices will rise when people think the economy is headed in the right direction. We may be seeing the first stirrings of that already. The employment figures will be those rosy predictions taking hold in the here and now. And once people are back to work, they will go back to investing in the housing market.
Still, unemployment is perhaps the central issue in the recession. Until we start to see those numbers heading in the right direction, it will be hard to be optimistic about this economy.
Wednesday, June 3, 2009
No Parking
Why are banks having so many problems these days? Lack of personal service is far from their biggest issue, but their increasingly impersonal nature sure can be frustrating. Does anyone like talking to a phone tree?
A few years back, a Washington State man did a little something about his bank's deteriorating level of personal service. His name was John Barrier, and since part of his line of work was refurbishing rundown old buildings, he went to his bank one day in dirty work clothes.
Barrier parked outside the Old National Bank in Spokane and went in to cash a check for a hundred dollars. He then asked the cashier to validate his parking ticket, but was told that the bank only validated parking for people making transactions. Cashing a check wasn't considered a transaction.
"She said you have to make a deposit," Barrier told a local newspaper. "I told her I’m considered a substantial depositor and she looked at me like… well." The bank manager was called, but also refused to validate Barrier's parking ticket.
The bank personnel may have treated Barrier a little better if they'd realized he was a millionaire. "The next day I went over and the first amount I took out was $1 million," Barrier said. There was another bank in Spokane that was more than happy to have his seven-figure deposit - and to treat him like a valued human being.
"If you have $100 or $1 million," Barrier said, "I think they owe you the courtesy of stamping a ticket."
A few years back, a Washington State man did a little something about his bank's deteriorating level of personal service. His name was John Barrier, and since part of his line of work was refurbishing rundown old buildings, he went to his bank one day in dirty work clothes.
Barrier parked outside the Old National Bank in Spokane and went in to cash a check for a hundred dollars. He then asked the cashier to validate his parking ticket, but was told that the bank only validated parking for people making transactions. Cashing a check wasn't considered a transaction.
"She said you have to make a deposit," Barrier told a local newspaper. "I told her I’m considered a substantial depositor and she looked at me like… well." The bank manager was called, but also refused to validate Barrier's parking ticket.
The bank personnel may have treated Barrier a little better if they'd realized he was a millionaire. "The next day I went over and the first amount I took out was $1 million," Barrier said. There was another bank in Spokane that was more than happy to have his seven-figure deposit - and to treat him like a valued human being.
"If you have $100 or $1 million," Barrier said, "I think they owe you the courtesy of stamping a ticket."
Tuesday, June 2, 2009
GM and the Dow
The bankruptcy of General Motors will certainly have plenty of ramifications for our economy, but there's one relatively trivial one that investors might want to take note of. Bankruptcy results in an automatic removal of a company from the Dow Jones Industrial Average. Since there are only 30 companies in the Dow, this might seem to be a fairly significant change.
And it's actually a switch of two companies. Dow Jones is taking the GM bankruptcy as an opportunity to remove the struggling Citigroup from the index as well. Cisco Systems will replace GM, and in an ironic move, Citigroup will be replaced by Travelers, which it had spun off seven years ago.
So can we expect a big jump in the Dow on June 8th, when the change will take effect? After all, GM is now priced at under a dollar, while Cisco has been trading around 20. But the Dow adjusts for this. The index is not simply the average of all 30 stocks included; the divisor is changed to reflect changes and keep an apples-to-apples comparison, even when the included companies get swapped around. So when this change takes effect next Monday, don't expect to notice any big disruptions in the Dow.
And it's actually a switch of two companies. Dow Jones is taking the GM bankruptcy as an opportunity to remove the struggling Citigroup from the index as well. Cisco Systems will replace GM, and in an ironic move, Citigroup will be replaced by Travelers, which it had spun off seven years ago.
So can we expect a big jump in the Dow on June 8th, when the change will take effect? After all, GM is now priced at under a dollar, while Cisco has been trading around 20. But the Dow adjusts for this. The index is not simply the average of all 30 stocks included; the divisor is changed to reflect changes and keep an apples-to-apples comparison, even when the included companies get swapped around. So when this change takes effect next Monday, don't expect to notice any big disruptions in the Dow.
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