April 2013
April 26, 2013 04:30 p.m.
Your Retirement Finance Week in Review
Is the government going to confiscate your retirement account or other financial accounts? Recent news stories brought that fear front and center for many Americans.
First, there was the news that Cyprus enacted a “bail-in”. Bank account holders effectively had a percentage of their accounts taken by the government to help pay for the bank bailout. The percentage seized varied by the size of the account.
Second, a report was prepared by the FDIC and received some publicity in which the FDIC and Bank of England agreed that something similar to the Cyprus solution would be needed in the U.S. in case of some major bank failures.
Third, the President’s latest budget contained a proposal that that the size of retirement accounts, such as 401(k)s and IRAs, be limited to a few million dollars. Amounts in excess of that apparently would be taxed.
There are a couple of points to keep in mind.
None of these actions can take place in the U.S. without legislation. The FDIC report makes clear that its preferred plan would require authorization from Congress before it could proceed. The President’s budget simply is a proposal. Both the House and Senate already passed their budgets, so the President’s proposal wasn’t even considered as part of the current budget process. Presidential budgets over the years have been filled with a number of proposals that Congress never seriously considered.
I suspect the financial services industry would lobby very heavily against any attempt to limit IRA or 401(k) balances. They’ve been trying to increase current contribution limits and were able to have them increased over the years.
Even so, it’s important to remain politically informed and involved. Proposals such as these are clear examples of how things Congress does can directly affect your standard of living. These types of plans aren’t likely to be enacted in normal times, but could easily make it through Congress in some kind of emergency or as part of a large piece of legislation that covers many topics.
These types of proposals are among the reasons I recommend that people have tax diversification. You don’t know what Congress will do in the future and how the tax code will change. It’s best to have all the major types of accounts: taxable account, 401(k); traditional and Roth IRA; and perhaps annuities and investment life insurance. Then, you won’t be hurt badly by a change in the law and could be in a position to change your holdings quickly if Congress is making a change.
The Data
This week’s data clustered into two categories: housing and manufacturing. It generally continued the trend of recent reports: below expectations and indicating that the fiscal tightening in Washington is slowing the economy.
First, let’s look at Friday’s GDP report. It generally was viewed as a disappointment. Though the 2.5% growth rate was significantly higher than the last quarter of 2012 it was below expectations of 3% or higher. It don’t put a lot of emphasis on the GDP report because it is a lagging actual events and is a series of estimates that are revised, often significantly. The report showed generally what we already knew. Consumers spending and housing were fairly strong in the fourth quarter, and government spending was contracting.
The GDP also showed that inflation is under control and, if anything, is below the Fed’s preferred target rate.
The housing data showed that the sector still is growing but not as fast as in 2012. An interesting development is the trade off between existing home sales and new home sales. Since 2008, new home sales lagged severely because they couldn’t compete with the discount prices offered on foreclosure and distress sales. With the inventory of distress and foreclosure sales slowing, new home sales are picking up. In a few years, the two probably will be back to their historic relationship, probably from a substantial pick up in new home sales. The FHFA Home Price Index showed a 0.7% price increase for the month and 7.1% for 12 months. The recent increases are attributed largely to the inventory of homes for sale being less than the interested buyers.
Manufacturing data wasn’t as attractive. It continues to show that while growing, manufacturing activity is growing less rapidly than in 2012. The PMI Manufacturing Index Flash was less than last month and below expectations but still in positive territory.
The Richmond Fed Survey actually showed a contraction in activity, perhaps because a large portion of its region depends on federal spending and is hurt for the federal spending sequester. The Kansas City Fed showed a modest decline that was the same as the previous month’s decline.
Durable Goods has been volatile lately and registered a sharp drop after a strong increase the previous month. Much of the headline decline was due to the volatile transportation sector, but there was a decline after excluding transportation. The decline showed in all industries.
At the beginning of the year there was the potential for businesses to ramp up investments in capital and equipment if they believed sustained final demand was in the outlook. This would increase economic growth. But it appears businesses aren’t going to do that. Business investment is going to increase only in line with final demand, for now that’s at a 2% or so annual rate.
Jobless claims were one of the few data reports to deliver a positive surprise recently. They fell sharply and now are at one of the lowest levels of the recover. Continuing claims are at their lowest level of the recovery, but a large part of that decline is due to benefits expiring for the long-term unemployed.
Another positive surprise was Consumer Sentiment as measured by the University of Michigan. But it was positive only because sentiment didn’t decline as much as analyst forecast. It now is at a three-month low. Though the relationship isn’t hard and fast, lower consumer sentiment often leads to lower retail sales, which we’ve also seen in recent months.
The Markets
Stocks lost ground Friday but overall had a positive week. Friday’s declines broke a streak of five days of positive returns. But the gains among the indexes varied considerably. For the first time in a while, the Russell 2000 U.S. small company stocks index rose the most, gaining about 3.5%, after being up over 4% on Thursday. Another change is that next in line was the All-Country World Index with a gain of 2.5%.
The S&P 500 had a solid gain of about 2%. The Dow 30 was the most stable index of the week, gaining only 1.5%. Because it is 30 equally-weighted stocks, the Dow is can be influenced the most by only one or two companies and was held back by disappointing earnings from a couple of its components. Emerging market equities were volatile and closed the week with a 1.5% gain after being up 2.5% at one point.
Long-term treasury bonds and the dollar had unusually volatile weeks. The bonds declined most of the week and were down about 0.7% on Thursday. But they rose sharply on Friday after the disappointing GDP report, closing with a 0.2% gain. The dollar went the opposite way, rising early in the week only to fall on Friday and close with a 0.4% loss.
High-yield bonds had the best week in bonds, gaining 0.8%. They didn’t seem to be influenced by any of the factors affecting other assets, rising steadily during the week. Investment-grade bonds also rose steadily though at a lower rate, gaining, 0.4% for the week. Treasury Inflation-Protected Securities (TIPS) also had a good week, gaining over 0.6%.
It was another mixed week for commodities, though they all had positive gains. The best returns with a steady rise all week were energy-related commodities. They gained over 2.5%. Broader-based commodities rose only 1%. Gold had another volatile week but is making back some of its recent sell off. At one point it was up 4% for the week but closed with a gain just below 2.5%.
Some Reading for You
You might want to read this column from Steve Forbes on the potential for you retirement accounts or other assets to be seized.
Here’s more on the comments above about the relationship between new home and existing home sales.
Most people invest based on stories or narratives. It’s a bad idea, and here’s a good explanation of why.
I comment and link to these and other items on my public blog at http://www.bobcarlson.net.
April 18, 2013 04:30 p.m.
Your Retirement Finance Week in Review
We’re getting close to the last call for my two major presentations.
There still are a few slots left for the next online On May 1 at 3:30 p.m. eastern time I’ll discuss “Adjusting Your Investments for 2013’s Second Half.” You can register at this link. When I discuss these webinars I do so in my role as Managing Member of Carlson Wealth Advisors, LLC and for its joint venture with TJT Capital Group.
Later in the month, I’ll be speaking at the Las Vegas MoneyShow. It’s held from May 13-16, and I’ll give a workshop on May 14. There will be dozens of investment and economic speakers, including Steve Forbes, Jack Ablin, Roger Conrad, Robert McTeer, and Axel Merk. You can find more details here and register here. I always enjoy meeting readers in person at these types of events, so I hope you can make it.
This was a quiet week for data but not for the markets. A series of news events captured attention and moved markets. These ranged from events outside the markets, such as the terror attack at the Boston Marathon to earnings reports and economic data from China.
The data from China seemed to cause a lot of market movement early in the week. Most of the data from China indicated the economy was growing but at a slower pace than expected. This raised fears of a global slowdown. But Friday brought positive news from China, which triggered a recovery in stocks, especially from emerging markets.
The Data
There wasn’t much economic data this week. As I said, earnings reports and Chinese data moved markets the most for the week. Earnings generally have been disappointing or accompanied by somewhat pessimistic comments, dampening enthusiasm for stocks. It didn’t help that Apple declined significantly.
Over the last couple of months, most economic data in the U.S. has been worse than expected, or negative surprises. The discrepancy between actual data and expectations hasn’t been great, but negative surprises tend to increase pessimism.
What’s interesting is that the Fed’s monthly Beige Book, released Wednesday, painted a somewhat different picture than the data released over the last month. For example, the Beige Book indicated that manufacturing generally increased over the last month, while most data indicated it slowed. In general, the report was for continued moderate or modest growth across the country, with the Dallas and New York districts reporting that growth is accelerating a bit.
The Housing Market Index from the National Association of Home Builders declined for the second straight month and returned to its lowest level since October. Buyer traffic is down, and the builders report a lack of supply and restrictive mortgage lending. But later in the week housing starts were reported at a substantial increase and higher than expected. But a large portion of that increase was in apartments, not single family homes. Also, permits issued for new building declined.
In manufacturing, Industrial Production continues to diverge from other measures. It rose more than expected, but some of that gain can be attributed to utility output instead of manufacturing. Meanwhile, the Empire State Manufacturing survey and Philadelphia Fed survey both indicated that activity declined over the last month and were well below expectations.
Inflation is well under control, with both the headline and core CPI under 2%. If anything, there’s more of a threat of deflation than rising inflation. New unemployment claims increased a bit but were in the range they’ve been in for some time. They indicate little or no change in the labor market.
The Leading Economic Indicators actually declined after some months of increases.
The data for the week continue to show that the slowing growing economy is slowing as it absorbs the tax increases and fiscal tightening that began this year. My expectation continues to be that the economy is in for a ragged few months. But the Fed’s substantial monetary policy should be able to offset most of the effects of the fiscal tightening, avoid a recession, and lead to a higher but still modest growth rate later in 2013.
The Markets
There was a major sell off in gold last Friday that continued into Monday. Many rumors and theories circulated about this. I suspect this was a classic case of a market liquidation. Gold struggled for much of the last year. It’s most likely that one or more large investors had to liquidate their positions to meet margin calls or raise cash. Governments and central banks were among them. The selling accelerated when news leaked that Cyprus was required to sell its gold. This caused a price decline that triggered sell programs, broke through stop loss orders, and caused other margin calls. Gold recovered during the rest of the week and closed with a loss of less than 0.5%.
Other commodities had a mixed week. Broad-based commodities gain generally followed gold but with much less volatility. They gained just under 0.5% for the week. Energy-based commodities declined on Friday instead of rising with gold and registered a bigger loss for the week of almost 0.5%.
Stocks generally followed gold down on Monday, recovered on Tuesday, declined Wednesday and Thursday on the China data and earnings reports, and increased modestly on Friday. The exception to Friday’s gains was the Dow 30. It recorded a modest loss because of a substantial decline in IBM after a disappointing earnings report.
Emerging markets had the best week among stock indexes, gaining 0.5%. Global stocks as measured by the All-Country World Index lost 1.25%. The S&P 500 lost almost 1.75%, and the Dow 30 lost 2%. Small company U.S. stocks had the worst week, losing 2.5%.
Bonds had a mixed week. Long-term treasury bonds had a gain of over 1% on Wednesday but lost ground most of the rest of the week. They closed with a gain of just over 0.6%. Investment-grade corporate bonds were flat most of the week, closing with a gain of under 0.2%. High-yield bonds also were very stable and finished with a slight gain. Treasury Inflation-Protected Securities (TIPS) were flat until a steep slide Thursday afternoon. They finished with a 0.5% loss. The dollar fell sharply on Monday and Tuesday but recovered the rest of the week for a 0.6% gain.
Some Reading for You
There’s been a series of good and bad news about Medicare Advantage plans in recent weeks. Here’s a summary.
What’s your gold conspiracy theory? Here’s a good collection of reports and theories about the recent gold decline.
Do brokers tell lies about tax-exempt bonds? Read this.
I comment and link to these and other items on my public blog at http://www.bobcarlson.net.
April 12, 2013 06:00 p.m.
Your Retirement Finance Week in Review
You still have time to participate in one of my two presentations in May.
In a few weeks my next free online investment presentation will take place. On May 1 at 3:30 p.m. eastern time I’ll discuss “Adjusting Your Investments for 2013’s Second Half.” You can register at this link.
Following that, I’ll be speaking at the Las Vegas MoneyShow. It’s held from May 13-16, and I’ll give a workshop on May 14. There will be dozens of investment and economic speakers, including Steve Forbes, Jack Ablin, Roger Conrad, Robert McTeer, and Axel Merk. You can find more details here and register here. I always enjoy meeting readers in person at these types of events, so I hope you can make it.
The big news in this quiet financial news week was the release of the minutes from the last Fed meeting. The minutes cause a stir these days, but they shouldn’t. People misread and over-react to them.
The concern of many observers is that the Fed soon will stop quantitative easing, removing the main support for the economy and stock markets. The minutes detail how the committee members debated when to curb the program and indicate “many” members believe the time will come sometime in 2013, perhaps during the summer.
Here are a few points to keep in mind. Only a few members who participate in the debate have a vote. Most of those debating are nonvoting members. Most of the voting members are solidly in favor of continuing QE for a while. Chairman Ben Bernanke and his vice chairman and likely successor, Janet Yellin, are the strongest proponents of continuing the monetary expansion for several more years at least. They’re willing to risk higher inflation before they’ll let the economy slide further.
I believe a lot of the discussion described in the minutes has two purposes. One is to dampen enthusiasm in the markets a bit to avoid having bubbles form or expand too quickly. The other purpose is to have a full, honest discussion about the program, its effects, and how to modify it over time.
Even when the time comes to reduce QE, it won’t be a sudden move. The Fed has a series of steps in mind that start with reducing monthly purchases of bonds and mortgages. It will be a long time after that when it finally raises interest rates.
As Jeffrey Gundlach says, investors are asking the wrong question. The Fed is going to continue QE for some time. You shouldn’t ask when the Fed will end QE. Instead, accept that QE is in place and ask how that should affect your investment decisions.
The Data
There wasn’t much data this week, and only Friday’s reports moved markets.
Retail sales dropped in March after many months of increases and a strong increase for February. The drop was greater than expected. There really wasn’t anything positive in the report. This is another of a string of data for March that indicate the tax increases that took effect at the start of 2013 are having delayed effects. Probably through June we’ll have a bumpy ride in the economy until households adjust to the new tax situation.
The Producer Price Index showed that deflation continues to be more of a potential problem than inflation, despite all the Fed’s monetary stimulus. Producer Prices declined 0.6% for March and were up 0.2% after excluding food and energy. The decline in gas prices was a major factor in the decline in the headline number.
Consumer Confidence as measured by the University of Michigan tumbled from 78.6 to 72.3 for March. This has been an unusually volatile measure for about a year. The drop follows an unexpected surge last month. I watch the number because it tends to be a decent forecaster of retail sales and household demand. But that hasn’t been the case for the last year or so. It is another indication that the tax increases are starting to be felt.
The National Federation of Independent Business issued its monthly optimism index and posted a substantial decline. The 89.5 number was 1.3 points below the March number and is below the average since the recovery. This index has been at depressed levels for years. Small businesses aren’t doing as well as large companies. Business owners cite taxes, regulations, and lack of sales growth as their major problems. Until this changes, economic growth will continue to be below average at best.
I periodically address the weekly data on mortgage applications. This is important to follow, because it could be an indicator of where the housing market is going. The recent data aren’t very encouraging. Application growth has been flat to down in recent months. For the last year, growth is in the mid to low single digits. That indicates housing might continue the growth of the last year but it isn’t going to boom and could slide back a bit.
New unemployment claims have been very volatile lately, but they’ve been within a range. This week the move was sharply down. The four-week moving average has been around 350,000 to 360,000. This indicates the labor market is stable with the modest growth of recent months likely to continue.
The Markets
This was a good week for stocks, but not for most other assets.
The major stock indexes, whether U.S. or global, clustered around a return of just over 2%. The only exception was emerging market equities, which still managed a gain of over 1% after being up about 3% on Thursday. In fact, most of the stock indexes had gains of 2% to 3% by Thursday’s close and retreated a little on Friday.
Commodities had a tough week, led down by gold. We’re fortunate to have sold gold last week, because it lost over 5.5% this week. The fall was so sharp that analysts now are debating whether this week was a capitulation that marks the bottom of a cycle. Energy-based commodities declines just over 1.5%, while broader-based commodities lost about 1%.
Bonds didn’t do well, either. Long-term treasury bonds were down over 2.2% on Wednesday before recovering for a weekly loss of only 0.7%. Treasury Inflation-Protected Securities (TIPS) lost about 0.5%. Investment-grade corporate bonds eked out a gain of about 0.3%. High-yield bonds did best among bonds, finishing with a gain of about 0.8%.
Some Reading for You
In honor of Masters weekend I offer this link updating the attention on the site of Bubba Watson’s exciting shot in last year’s playoff.
Another light, but educational, item is this summary of the activities of Jim the Realtor in San Diego.
Finally, there’s a lot of debate on the reasons for and meaning of the decline in labor force participation. I refer to two views here and here.
I comment and link to these and other items on my public blog at http://www.bobcarlson.net.
April 5, 2013 05:50 p.m.
Your Retirement Finance Week in Review
We’re less than a month from my next free online investment presentation, and there still are spaces available. It will take place May 1 at 3:30 p.m. eastern time. I’ll discuss “Adjusting Your Investments for 2013’s Second Half.” You can register at this link.
Following that, I’ll be speaking at the Las Vegas MoneyShow. It’s held from May 13-16, and I’ll give a workshop on May 14. There will be dozens of investment and economic speakers, including Steve Forbes, Jack Ablin, Roger Conrad, Robert McTeer, and Axel Merk. You can find more details here and register here. I always enjoy meeting readers in person at these types of events, so I hope you can make it.
Don’t keep us a secret if you benefit from these reports. You’re free to forward them to anyone you think might benefit or be interested.
Two factors seemed to dominate the markets this week, and both were negative.
The first was the saber-rattling from North Korea. The country indicated it had nuclear missiles positioned to strike South Korea, Japan, and U.S. military bases in Asia, and perhaps the U.S. The U.S. also indicated that it was taking the threats seriously, such as by deploying a missile defense system to Guam.
But it’s likely the markets aren’t taking North Korea seriously. Markets in the countries most likely to be affected by the launch of missiles rose while U.S. markets were declining when the headlines were at their scariest.
More important was the economic data from the U.S., which also generally were interpreted as negative. Last week and this week we’re seeing the first effects on the economy of the recent fiscal austerity (higher taxes and the spending sequester). As expected, the measures reduced growth. But my forecast is that the Fed’s policies will more than offset the austerity, allowing growth to continue at a modest, positive rate until people adjust to the austerity. We’re at the worst point of the austerity’s effects. Later in 2013, growth is likely to increase from its present level. The risk here is that the Fed pulls back too soon or policymakers in Washington impose even more austerity. The economic data is discussed in more detail below.
I think the real reason U.S. markets didn’t have a good week was a speech from San Francisco Fed President John Williams. He said inflation isn’t a problem and employment is recovering at a good clip. He indicated that the Fed’s efforts to stimulate likely will peak in mid-year and begin to throttle back late in the year. Of course, he said all that before Friday’s employment conditions report.
People over-reacted to this speech. First, Fed officials are using speeches to dampen some of the enthusiasm investors feel in an effort to prevent asset bubbles, especially in stocks. Second, the Fed isn’t going to move in an extreme way. It’s going to adjust monthly purchases of bonds and mortgages based on the economic data. It might purchase fewer bonds later in 2013 if the data steadily improves. But it will be a long time before the Fed stops buying bonds and an even longer time before it either sells bonds it owns or raises interest rates. Given that pro-growth fiscal policies from Washington are unlikely, the Fed is likely to continue some form of quantitative easing for some time.
These actions all overshadowed the important announcement from Japan that its central bank would embark on a quantitative easing program that is more robust than the Fed’s. This is a big step in bringing Japan’s long deflationary depression to a close, though there still is a long way to go. It also is affecting global capital flows, for example making U.S. Treasury bonds and the dollar more attractive than the yen and Japanese bonds.
The Data
The economic data this week generally indicated that modest growth continues, but also generally was below expectations and indicated the growth rate slowed a bit in March.
The first week of the month is packed with much-watched employment reports. I like to remind readers of two facts. One is that employment is a lagging indicator. At best it tells you where the economy was, not where it is or is going. Second, the initial data aren’t very reliable. Market traders put too much emphasis on them.
The initial employment reports of the week were disappointing. The ADP Employment Report was below expectations, indicating only 158,000 jobs were created. But investors overlooked that last month’s number was revised sharply higher from 198,000 to 237,000.
New unemployment claims also disappointed by rising to 385,000. I’m not putting much stock in this either. The week was shortened by this year’s early Easter. That made it difficult for the Department of Labor and the states to put their numbers together and make accurate seasonal adjustments.
Friday’s Employment Conditions reports were even worse. Analysts expected over 200,000 new jobs, but only 88,000 were created. Earnings growth also was fl
