Monday was a big day for the stock market, with the Dow soaring to a new high for 2009 and closing at its best level in over a year. It was also a big day for gold, with the precious metal climbing above $1100 an ounce.
What's the connection between the two? The weak dollar. A sinking dollar is obviously a key to the rising price of gold, since when the dollar loses value, it takes more of them to buy an ounce of gold - even when nothing happens to gold's underlying price.
But there's also the theory that the weak dollar also bolsters the stock market, for reasons that are less obvious. Any major American company that exports goods - which is most of them - benefits when the dollar is low, and they can make more money for selling their wares overseas. And investors run to the safe haven of the dollar when the markets drop, returning to equities and selling off dollars when the markets rise. It makes sense: As long as the dollar remains depressed, investors are better off putting their assets into other investments, whether that's stocks or gold.
Tuesday, November 10, 2009
Monday, November 9, 2009
Looking for Mutual Fund Money
There was a fascinating and somewhat scary article in yesterday's New York Times by veteran mutual fund watcher Mark Hulbert, pointing out that even in the bull market of the past few months, inflows into mutual funds have been barely more than a trickle. From the market's bottom on March 9 to the yearly high last month, equity funds took in only $7.8 billion in new money. By contrast, over the five years of bull market from 2002 to 2007, those same funds took in $250 billion.
Hulbert attributes this loss of money to investors who are wary of the stability of this market, and while I respect his credentials as a fund expert, I think he's missing an important point here. Unemployment is over 10 percent, and many of those who still have jobs have seen their employers slash or eliminate 401(k) funding. For most people the primary way they invest in mutual funds is through their 401(k).
If not the biggest reason for the dropoff in mutual fund purchases, that is at least a significant reason. And like so many other things in this screwy economy, it's a vicious circle. Companies won't beef up their employer match again until unemployment goes down and they have to compete for talent again. So we won't return to a free flow of money into the markets until the economy improves - which means we better hope the improvement of the economy isn't dependent on those mutual funds getting hundreds of billions of dollars again.
Hulbert attributes this loss of money to investors who are wary of the stability of this market, and while I respect his credentials as a fund expert, I think he's missing an important point here. Unemployment is over 10 percent, and many of those who still have jobs have seen their employers slash or eliminate 401(k) funding. For most people the primary way they invest in mutual funds is through their 401(k).
If not the biggest reason for the dropoff in mutual fund purchases, that is at least a significant reason. And like so many other things in this screwy economy, it's a vicious circle. Companies won't beef up their employer match again until unemployment goes down and they have to compete for talent again. So we won't return to a free flow of money into the markets until the economy improves - which means we better hope the improvement of the economy isn't dependent on those mutual funds getting hundreds of billions of dollars again.
Friday, November 6, 2009
Fraud Alert
There has been a fake email going around lately, purporting to be from the FDIC warning consumers that their bank has gone under, and they need to click on a link to find out about their deposit insurance. If you get this email in your inbox, delete it immediately. When you click on the provided link, what you're really doing is inviting malware, spyware and adware onto your computer.
The subject line of the e-mail reads "Check your Bank Deposit Insurance Coverage.” The e-mail itself says something like this: "You have received this message because you are a holder of a FDIC-insured bank account. Recently FDIC has officially named the bank you have opened your account with as a failed bank, thus, taking control of its assets." Then you're told to "visit the official FDIC website and perform the following steps to check your Deposit Insurance Coverage," but the link provided is fraudulent.
If your bank fails, and you somehow don't notice, you won't get notified by the FDIC - you'll hear from the bank. Even if you do get an unsolicited email from your bank, remember not to click on any links in it or offer up any personal information.
The subject line of the e-mail reads "Check your Bank Deposit Insurance Coverage.” The e-mail itself says something like this: "You have received this message because you are a holder of a FDIC-insured bank account. Recently FDIC has officially named the bank you have opened your account with as a failed bank, thus, taking control of its assets." Then you're told to "visit the official FDIC website and perform the following steps to check your Deposit Insurance Coverage," but the link provided is fraudulent.
If your bank fails, and you somehow don't notice, you won't get notified by the FDIC - you'll hear from the bank. Even if you do get an unsolicited email from your bank, remember not to click on any links in it or offer up any personal information.
Thursday, November 5, 2009
Buffett's Gamble
Standard & Poor's warned yesterday that they are considering a downgrade to the creditworthiness of Berkshure Hathaway, Warren Buffett's legendary investiment vehicle. Why? Because of Buffett's $34 billion bid for the Burlington Northern Santa Fe railway company. S&P is concerned that the massive outlay could hamper the liquidity of Berkshire Hathaway's core insurance businesses. Berkshire got downgraded eariler this year by the two other main rating agencies, Moody’s and Fitch, after Berkshire's first quarterly loss since 2001.
Berkshire Hathaway already owns 22 percent of Burlington Northern. Buffett famously says his favored time for holding onto a stock is forever, so he must feel that if owning a fifth of a company is good, owning all of it is even better.
But the concerns of the ratings agencies would be familiar to any knowledgeable investor. In a sense, it's just a matter of diversification. Buffett is going to have to take cash out of his existing position to quadruple his position in another holding. It wouldn't be an especially judicious allocation of assets for an individual investor, so why would it necessarily work for Berkshire Hathaway?
At the same time, it's never a good idea to bet against Warren Buffett.
Berkshire Hathaway already owns 22 percent of Burlington Northern. Buffett famously says his favored time for holding onto a stock is forever, so he must feel that if owning a fifth of a company is good, owning all of it is even better.
But the concerns of the ratings agencies would be familiar to any knowledgeable investor. In a sense, it's just a matter of diversification. Buffett is going to have to take cash out of his existing position to quadruple his position in another holding. It wouldn't be an especially judicious allocation of assets for an individual investor, so why would it necessarily work for Berkshire Hathaway?
At the same time, it's never a good idea to bet against Warren Buffett.
Wednesday, November 4, 2009
Layoffs at J & J
We got a reminder very close to home yesterday that even though the recession might technically be over, the hard times aren't. Johnson & Johnson announced it was planning to lay off more than 8,000 workers, and even though most of them are expected to be away from the New Brunswick headquarters, it's chilling that one of New Jersey's major employers is still shedding workers.
It's also a reminder that the improvement we've been seeing lately in the jobless figures has resulted from the fact that the number of people losing their jobs has been getting smaller. We haven't seen any growth in employment yet, and we may be a long way from seeing it.
J&J CEO William Weldon tried to put a brave face on all of this and said the move was an attempt to position the company to invest in itself and get even stronger at some point in the future. But he alluded to one of the key issues we've faced in this recovery when he admitted: "Until we get unemployment under control and people feel safe and comfortable, I don't think people are going to be spending in areas where they've spent previously." He said this, mind you, at the exact moment his company was adding to the unemployment numbers.
But he's right: Consumer spending won't really grow until more people have jobs. Jobs won't grow until consumers are able to start spending more. It's a maddening problem.
It's also a reminder that the improvement we've been seeing lately in the jobless figures has resulted from the fact that the number of people losing their jobs has been getting smaller. We haven't seen any growth in employment yet, and we may be a long way from seeing it.
J&J CEO William Weldon tried to put a brave face on all of this and said the move was an attempt to position the company to invest in itself and get even stronger at some point in the future. But he alluded to one of the key issues we've faced in this recovery when he admitted: "Until we get unemployment under control and people feel safe and comfortable, I don't think people are going to be spending in areas where they've spent previously." He said this, mind you, at the exact moment his company was adding to the unemployment numbers.
But he's right: Consumer spending won't really grow until more people have jobs. Jobs won't grow until consumers are able to start spending more. It's a maddening problem.
Tuesday, November 3, 2009
Buying Season?
As we mentioned at the beginning of last month, October tends to be pretty volatile in the stock market. Measuring the standard deviation of the daily change in the Dow, October has historically been 40 percent more volatile than the other 11 months. And October did turn out to be pretty blah for investors. So maybe we should be glad that we turned the page on the calendar over the weekend.
So what can we expect from November? It's historically been a very good motnh, for a couple of reasons. Many financial institutions mark the end of their fiscal year on October 31, leading many money managers to take a fresh look at the markets starting on November 1 and start buying again. And November has now become the unofficial start of the Christmas season, making it a strong time of year for consumer spending and leading many retailers to post positive numbers.
Add it all together, and November is, historically speaking, the best month of the year for the S&P 500. On average it's gained 1.7 percent in November dating back to 1950. Actually, it's tied with December, which also averages a 1.7 percent gain; if you add up the next three months, November through January, they have historically accounted for more than half of all gains on the stock market. Let's hope we have another season of good cheer ahead of us.
So what can we expect from November? It's historically been a very good motnh, for a couple of reasons. Many financial institutions mark the end of their fiscal year on October 31, leading many money managers to take a fresh look at the markets starting on November 1 and start buying again. And November has now become the unofficial start of the Christmas season, making it a strong time of year for consumer spending and leading many retailers to post positive numbers.
Add it all together, and November is, historically speaking, the best month of the year for the S&P 500. On average it's gained 1.7 percent in November dating back to 1950. Actually, it's tied with December, which also averages a 1.7 percent gain; if you add up the next three months, November through January, they have historically accounted for more than half of all gains on the stock market. Let's hope we have another season of good cheer ahead of us.
Monday, November 2, 2009
A Very Scary Halloween
Friday was a rough day for the markets. After seven straight months of gains, both the S&P 500 and the Nasdaq broke those streaks by ending October with a loss. After three months of solid gains, the Dow Jones ended October up only 0.45 points - as close to a flat month as you can get.
The spookiest thing about it was how remarkably broad-based the decline was. All 30 stocks in the Dow Jones Industrial Average closed down for the day.
For the NYSE as a whole, 84 percent of the stocks declined, and only 15 percent advanced. The Nasdaq was slightly better: 79 percent of its stocks declined, and 18 percent advanced.
Within the S&P 500, only 18 stocks advanced on the day. That leaves a whopping 482 issues that declined.
That's what you call a marketwide disaster.
The spookiest thing about it was how remarkably broad-based the decline was. All 30 stocks in the Dow Jones Industrial Average closed down for the day.
For the NYSE as a whole, 84 percent of the stocks declined, and only 15 percent advanced. The Nasdaq was slightly better: 79 percent of its stocks declined, and 18 percent advanced.
Within the S&P 500, only 18 stocks advanced on the day. That leaves a whopping 482 issues that declined.
That's what you call a marketwide disaster.
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