Bonds Bottoming Out

With interest rates running at historic lows, it is incredibly cheap for companies to borrow money right now. But with investors still spooked by the stock market, it's also very easy to sell high-quality bonds. Put those two trends together, and you get $92 billion in investment-grade 30-year corporate bonds sold so far in 2012. That's 26 percent more than was sold in all of 2011. You have to go back to 1995 to find a full year with as much corporate paper being sold - and we're not even halfway through September.

As a result, the yields investors are getting on these bonds are quite low. The average yield on a 30-year corporate investment-grade bonds is just 2.77 percent now. That's a record; the previous low (for data going back to 1973) before this year was 3.36 percent.

It's not just long-term bonds that have been dropping. Last month, D.R. Horton, a home-building company, issued $350 million in 10-year bonds, at a yield of just 4.375 percent. That's the lowest ever for a 10-year corporate bond.

What Investors Don't Know

Sometimes you hear it said that the stock markets run on perfect information, but that just isn't so. Many investors remain very much unaware of what is actually happening in the markets. For instance, the mutual fund firm Franklin Templeton recently surveyed 1000 American investors about the recent history of stocks, and the results were shocking.

Fully two thirds of the investors surveyed thought that the S&P 500 had lost ground in 2009, when in fact it actually gained 26.5 percent that year. Perhaps they were confused by the fact that 2009 was when the S&P hit its lowest point in the recent downturn, but roughly half, or 48 percent, also thought the index had declined in 2010. In reality, the S&P rose 15.1 percent that year.

That may help explain why there is nearly $6 trillion now parked in money market accounts or other cash equivalents, missing out on this bull market we've ben experiencing the past three years. When it comes to something as important as your financial future, it pays to stay well-educated.

The Problem With Small Businesses

Despite the fact that the headline unemployment rate dropped on Friday, it's clear that jobs growth in this country has been sluggish for a long time, and one thing that has held the recovery back over the past couple of years.  One problem has been that new businesses have been opening at a slower rate in recent years. After remaining fairly steady at around 600,000 new businesses per year for about 15 years, the number dipped to around 500,000 in 2010, and has yet to fully recover.

But that's not the only issue. The average number of employees at each of those new businesses has declined even more sharply. Back in 1999, the typical new business employed eight people; by 2011, it employed fewer than five.

Put the two trends together, and the total number of people employed by new businesses has taken a real hit. New businesses employed nearly 5 million people per year in 2000, but that number dropped to 2.5 million by 2011. Note that this is not solely an artifact of the recession: The figure had dropped to 3.5 million by 2005.

A Notch Down for Unemployment

According to figures released this morning by the Bureau of Labor Statistics, the economy added 114,000 jobs in September. That number is somewhat below the average we've seen for the year, which is 146,000 new jobs per month. Still. the headline unemployment figure dropped relatively sharply, from 8.1 percent to 7.8 percent.

Maybe the biggest reason for that was that the jobs figures for recent months got revised upward. August's disappointing number of 96,000 was revised up to 142,000. And July's figure, initially reported at 141,000, was revised to a very solid 181,000. Sometimes the unemployment rate drops because the number of people in the labor force falls, but that wasn't the case this time; the civilian labor force rose by 418,000 in September.

So now we have an unemployment rate below 8 percent for the first time since January of 2009, when it was also at 7.8 percent. The rate had been stuck between 8.1 and 8.3 percent for all of 2012 prior to this latest release.  

A Downbeat Earnings Forecast

Earnings season starts again next week, and many companies have been issuing guidance numbers as to what analysts and investors should expect. And those numbers have been disappointing, to say the least. Roughly 80 percent of companies that have made pre-earnings announcements have made negative ones, according to Strategas Partners.

Strategas says there haven't been so many negative announcements since 2001, when we were in the midst of the dot-com collapse. The consensus from the Wall Street analysts is that earnings for the S&P 500 will decline by about 1.7 percent, according to data from S&P Capital IQ.

As is traditional, Alcoa will kick off earnings season when it makes its announcement next Tuesday. Wednesday brings reports from Marriott, Family Dollar and Monsanto - a broad enough group such that we might have very quickly a good idea of where this season is headed.

Rainy Day People

Some interesting findings out this week from Gallup, which has been polling American investors on how much money they have set aside for a rainy day. The vast majority of people with $10,000 or more in investable assets - 81 percent - report that they do indeed have such an emergency fund.

But just because some money has been put away, that doesn't mean there's an awful lot of it. Only 30 percent of investors say they could live off their emergency funds for a year or more. Around half, or 51 percent, said they could live off their rainy-day money for six months or less. The numbers are much higher for retirees; fully half of them say they could live for a year on their emergency money.

Where do people keep this money? More than half - 55 percent - have it stashed away in a savings or checking account. Only 15 percent of all investors keep their rainy day money in stocks or bonds.

Little Big Stocks

The third quarter was a good one for large-capitalization stocks, with three of the members of the Dow Jones industrial average gaining more than 13 percent: Home Depot, J.P. Morgan Chase and Procter & Gamble.  But it's in the tiny stocks that you really see the big gainers.

Here are the ten stocks listed on any exchange that posted the strongest third-quarter gains:

Sarepta Therapuetics, up 313.5 percent on the quarter
IMPAC Mortgage Holdings, up 7.35 percent
Zale Corporation, up 156.5 percent
Wizzard Software, up 149.5 percent
GenMark Diagnostics, up 112.2 percent
WSB Holdings, up 108.5 percent
Savannah Bancorp, up 106.2 percent
Fidelity Bancorp, up 104.6 percent
Primero Mining, up 102.3 percent
Transcontinental Realty, up 97.1 percent