August 2010

August 25, 2010 02:15 p.m.
Earnings vs. the Economy

A number of stock market bulls buttress their advice with the point that corporate earnings growth is very high despite the disappointing economic data. They say don’t worry about the economic data, because the earnings prove companies continue to produce profit growth.

A look at the earnings picture isn’t that encouraging. Revenues aren’t growing nearly as fast as earnings, and for many companies revenue growth is flat or negative while earnings are growing. The earnings growth for these companies is produced by cost cuts, layoffs, and higher productivity. These methods produce earnings growth for only so long. At some point revenues have to increase. Also, much of the earnings growth is concentrated in multinational companies that are benefiting from better economic growth in developing countries. When multinationals break down their revenue growth, it is poor in the U.S. but the company is helped by its international business. Larger public companies also are the main beneficiaries of the federal stimulus programs. Smaller businesses, which make up a large part of the economy, are hurting because they don’t benefit from either the stimulus program or international growth.

Those are the reasons why economic data is disappointing though headlines for corporate earnings are positive.

Here’s a good review of last week’s economic data, especially the housing reports, that should give you a good perspective of how weak the economy is.

Longtime readers know that the bankruptcy of Lehman Brothers was a major turning point in the financial crisis. We still live with many effects of that collapse and will for some time. One blogger is reading all the reports from the bankruptcy court and elsewhere regarding the firm, and it’s worth skimming to see how bad things were and how badly they were managed at every level.

Do you still think you don’t need a will because there is no estate tax? Here’s a tragic story of what can happen. The family is poor, and there wasn’t much money at stake. Yet, a property dispute between siblings result in several deaths and a police shootout.

Wondering why your medical plan isn’t providing the benefits promised by reform? Many employer plans are grandfathered and don’t have to make the changes for a while. Here’s a review of how that works.

Finally, I forgot to note a few weeks ago the 30th anniversary of post-it notes. Here’s an interesting take and history from the New York Times.

August 18, 2010 03:15 p.m.
Crazy for Bonds

Some months ago when most investors were pouring money into stocks, we saw a lot of risk in stocks and filled our portfolios with income investments. Corporate bonds and mortgages are the foundation of our current portfolios. Investors have realized the benefits of this investment and suddenly are pushing the values of our portfolios higher. Investors want income so much that sales of high yield bonds are setting records.

We have to exercise caution. In the September issue of Retirement Watch we set sell signals for all our income investments. We’re worried this “hot money” could flee these investments as fast as it came in. Here’s one summary of how overbought and precarious bond investments are.

More of our views that investors are accepting are that the downturn was worse than many realized at the time, and the recovery is slowing faster than many anticipated. As we’ve said before, this is not your ordinary economic cycle, and we can’t expect some Federal Reserve easing to put the economy back on the growth track. Here’s one summary of how bad the economic data is. If you really want to hear a negative economic analysis, take a look at this argument that the U.S. is bankrupt already.

That’s enough bad news. Here are a couple of lighter but still useful items. One is about folks who keep working when they’re older. In this case, they’re looking at billionaires who are age 90 or older and still active in business, trying to increase their fortunes. Yes, there’s more than one.

Finally, an issue I frequently follow and discuss in Retirement Watch is what makes people happy. The goal behind our financial planning is for it to help make us happy. Money and things by themselves can’t make most people happy. Here’s the latest on what does and doesn’t make people happy.