December 21, 2012 04:55 p.m.
Your Retirement Finance Week in Review
I’m looking forward to the upcoming holidays and hope you are, too. Absent some significant event, I plan to take next week off. There’s won’t be a weekly Retirement Money Memo. I’ll be back the following week to start off the new year.
Another way we’ll be starting the new year is with our free online investment presentation “Managing Your Investments in 2013,” on Wednesday, January 9, 2013, at 3:30 p.m. eastern time. The presentation is free, but spaces are limited. To reserve your place, click here. Or you can call 877-282-4609 or email info@tjtcapital.com. I discuss these free investment webinars in my role as managing member of Carlson Wealth Advisors, L.L.C.
And don’t forget to make a quick trip now and then to my public blog. I highlight and discuss some important research and news that can’t be fit into Retirement Watchor these weekly messages. And don’t forget, you always can forward these e-mails to anyone you think might be interested in them.
The big news this week undoubtedly was centered in Washington with the discussions about avoiding the fiscal cliff. Stocks generally rose during the week with the combination of moderately positive economic data and reports from the fiscal cliff negotiations that were interpreted as being positive. With the cessation of progress Thursday evening, markets reversed course.
There’s not much to add. The data for the week continue to indicate a slowly growing economy, though growth might be slowing for the last month or so. Investors and businesses generally are stalled in making long-range decisions until there’s some resolution among policymakers.
The Data
The bulk of the week’s data was in housing, and it was positive. Housing continues to be one of the brightest parts of the economy in recent months. That is likely to continue into 2013, when residential housing will be a net positive for economic growth instead of the negative factor it was until 2012 or late 2011. There were several positive housing reports this week.
Housing starts were a bit lower than last month and slightly below expectations. But there still were 861,000 starts. This puts the starts on pace for a 25% increase in 2012. But keep in mind that while this is a substantial improvement over the last few years, it still is the fourth lowest year since 1959. The other three lowest were the three immediately preceding years. Another positive point is that the starts were led by single-family houses. Early in the recovery higher housing starts were led by apartment buildings.
Existing home sales rose sharply, by 5.9% in a month, and were well above expectations and last month’s number. It’s the highest reading since 2010, when sales were exaggerated by the first-time home buyers’ credit. Interestingly, a lack of supply of homes for sale probably kept sales from being even higher.
Home builders continue to be optimistic, as measured by the Housing Market Index. It increased a bit and was in line with expectations. The reading of 47 is the eight monthly increase in a row and is just below 50. The 50 level means more builders describe conditions as good than describe it as bad. Most elements of the report were positive. But keep in mind the reading still is below 50. It is likely to rise above 50 sometime in 2013.
The FHFA Home Price Index rose above expectations and registered a one-year price increase of 5.6%. Another point to keep in mind with all the week’s housing data is that the area affected by Hurricane Sandy had the worst results, and all of the numbers would have been better were it not for the disruptions from the storm.
The only negative for the housing market this week was mortgage applications. These declined sharply for both home purchases and refinancings. The report attributes this to a rise in mortgage interest rates in the latest week.
Manufacturing has gone from negative to mixed. The Empire State Manufacturing Survey has been contracting since August and declined again, coming in well below expectations. The report said there was no effect from Hurricane Sandy.
The Philadelphia Fed Manufacturing Survey surprisingly came in with a very positive number. This survey has been weak most of the year, and a number of analysts believe the survey is a reliable indicator for the entire economy. It could indicate manufacturing is recovery from its 2012 slump and be a positive harbinger for 2013.
But the Kansas City Fed Manufacturing Index reported another decline in manufacturing in that sector, though it was less of a decline than the previous two months. The Chicago Fed National Activity Index was slightly positive. But expectations were for a negative reading, and the previous month was negative. So, it’s a small improvement. The three-month average still is negative, as it has been for nine months.
Finally, durable goods orders were positive, up 0.7%, and slightly above expectations. Excluding transportation it was up even more and well above expectations. It’s tough to read much into this piece of data right now, because it’s been distorted by October’s Hurricane Sandy. Initially it was artificially depressed, and more recently the bounceback is exaggerated by the recovery actions.
Putting all the manufacturing data together, the sector might be recovering from the 2012 slump. But it’s not a strong recovery at this point.
The Index of Leading Economic Indicators declined 0.2% and was in line with expectations. The index isn’t all that reliable as a forecasting tool and is likely to turn around next month if manufacturing numbers continue to improve.
Consumer sentiment as measured by the University of Michigan was down substantially in the first two weeks of December. This follows a couple of months of strong improvement in consumer sentiment, and the report attributes the decline to the publicity over the fiscal cliff.
The personal income and spending report was positive, but this is another report that’s difficult to interpret because of the effects of Hurricane Sandy. Both income and spending increased more than expected in November. But the Commerce Department previously said October’s numbers were depressed by the hurricane, and the bounceback likely is from business returning to normal. The report also showed inflation to be comfortable under the Fed’s 2% target and the 2.5% level for tightening policy.
Jobless claims increased to 361,000, slightly above expectations. While the media make a big fuss about weekly changes in the number of new unemployment claims, the important point is that its been stuck between 350,000 and 400,000 since late 2011. That indicates we’re likely not entering a recession, but it also means businesses still aren’t hiring enough to bring down the unemployment rate quickly.
The third and final GDP report for the third quarter was revised upward again. GDP went from an initial estimate of 2.1% annualized increase to 3.1% in the final report. This was above expectations. Unlike the previous estimates, there were less cause for concern in the final numbers. But the GDP at this point is old news. Investors are focused on what’s happening in the fourth quarter and likely to happen in early 2013. The final GDP shows an increase in growth from the second quarter, but we still have a slowly growing economy, and the fourth quarter data indicate growth probably slowed a notch or two in the fourth quarter.
The Markets
It was not a good week for investors in any assets.
Gold was the big market news for the week. It dropped sharply with separate plunges on Tuesday and Thursday. At one point it had a loss of more than 3%, but it bounced back on Friday to close with a 2.25% loss. Some analysts believe generally positive economic data triggered the declines, causing investors to think central banks might curtail their easing policies sooner than expected. Others believe the volatility is more likely caused by hedge funds and other investors making some year-end moves in their portfolios. Despite the growth of the gold market the last few years, it’s still a fairly thin market that easily can be moved by a few big investors.
Other commodities also didn’t fare well. Broad-based commodities lost 1%. Energy-based commodities gained about 0.5%. The dollar was about even.
Stocks were doing well earlier in the week as investors interpreted news from the fiscal cliff negotiations as being positive. The S&P 500 was up 1.75% on Tuesday. But stocks declined sharply on Friday’s opening after news of the impasse on a solution. The S&P 500 and all major U.S. and global indexes closed with small losses. Small company U.S. stocks as measured by the Russell 2000 did better, closing with a gain of almost 2.5%.
Long-term treasury bonds in theory should move in the opposite direction of gold. Yet, they also declined during the week and were down 2.5% at the end of Tuesday. They recovered a bit on Friday’s fiscal cliff news and closed with a loss of about 1%. High-yield bonds had a slight gain, an investment-grade corporate bonds were about even. Treasury Inflation-Protected Securities (TIPS) lost about 0.25%.
Some Reading for You
All that money from the Fed is going somewhere. It might be creating a bubble in art.
A biography on Paul Volcker came out this year. You might want to read this review and the book.
Are policymakers making decisions about the economy using flawed models? This economist thinks so.
I comment and link to these and other items on my public blog at http://www.bobcarlson.net.
December 14, 2012 04:20 p.m.
Your Retirement Finance Week in Review
Thanks to all of you who signed up to participate in my next free online investment presentation. There’s still room available for more, but slots are filling up. I’ll be addressing the key factors we need to focus on and try to answer the question: How should you manage your portfolio in this environment?
You won’t want to miss “Managing Your Investments in 2013,” on Wednesday, January 9, 2013, at 3:30 p.m. eastern time. The presentation is free, but spaces are limited. To reserve your place, click here. Or you can call 877-282-4609 or email info@tjtcapital.com. I discuss these free investment webinars in my role as managing member of Carlson Wealth Advisors, L.L.C.
To learn more about your retirement and financial planning, make a quick trip to my public blog. I highlight and discuss some important research and news that can’t be fit into Retirement Watchor these weekly messages. And don’t forget, you always can forward these e-mails to anyone you think might be interested in them.
The major news this week was the Federal Reserve Open Market Committee’s meeting and announcement. The Fed made two significant announcements. First, it was specific about how long monetary stimulus would stay in place. Second, it will increase the amount of stimulus above recent levels. A third announcement is that the program will be more flexible and won’t rely on the calendar or Fed meeting schedule for changes.
The first announcement was telegraphed well in advance as far back as August’s annual Jackson Hole conference. Key speeches at the conference advocated that the Fed give more specific guidance about quantitative easing. I highlighted the discussions in my blog at www.bobcarlson.net.
The new rule is that QE will continue until unemployment falls to 6.5% or below; inflation is more than 2.5%, or long-term inflation expectations rise.
Stock markets didn’t react much to the news. Either investors are more concerned about fiscal issues, or they already priced in the new policies because they were expected. But gold fell rather dramatically. I suspect that’s because of a misunderstanding about the new policy. The expectations were that the Fed would allow inflation to rise to 3% before considering an end to QE, so 2.5% seems more restrictive. But details matter. QE remains in place until the Fed’s projections for inflation one to two years in advance are above 2.5% or there are indications that long-term inflation expectations are rising. That’s actually a higher bar than simply 3% inflation. Gold seems to have stabilized after the initial drop, but we need to watch it closely.
There’s another reason stocks and gold might have declined. Along with the major announcements, the Fed also said its members lowered their expectations for the economy. Under the assumptions, unemployment will remain above 6.5% until sometime in 2015, and inflation will be subdued for seven years. These assumptions, even after the additional stimulus, indicate the Fed believes the economy is in bad shape and that fiscal policymakers aren’t going to help.
The Data
An important announcement this week was retail sales. Consumer spending’s been the strong point in the economy in recent months. The question has been whether consumers would have to slow down at some point or businesses would be convinced the spending is sustainable and begin to add employees and capital equipment in response. Last month, retail sales increased by 0.3%, but this was lower than expectations. Also, if we combine it with the previous month’s 0.3% decline, sales the last two months have been poor. Combine this data with the Personal Consumption Expenditures from the GDP report, and it looks like consumer spending is at least pausing and perhaps slowing to match the rest of the economy.
Reflecting the recent downturn by businesses, the National Federation of Independent Businesses Small Business Optimism Index declined sharply after modest recent increases. The reading is one of the lowest ever. The NFIB attributes the decline to concern about the fiscal cliff, higher medical costs, and more regulations.
There was good news in the manufacturing sector, but it’s hard to interpret. Industrial production and manufacturing increased sharply, but the previous month’s negative number was revised further down. The PMI Manufacturing Flash Index also had a good increase for the first half of December. The data are hard to interpret because of Hurricane Sandy. The consensus is that October’s numbers were artificially negative because of the storm, and that November’s and December’s are artificially positive because of rebuilding after the storm.
New unemployment claims declined sharply, putting them back around 350,000 where they were last summer. But this figure also is believed to be distorted by the hurricane and shouldn’t be given much weight at this point.
Inflation is less and less of a problem. Headline numbers declined because of recent energy price decreases. In fact, for both Consumer and Producer prices we had deflation last month. That puts the CPI at only a 1.8% 12 month increase.
The Markets
This was a bad week for most investments.
Long-term treasury bonds had the worst week. They declined sharply after the Fed’s announcements, and at one point were down 2% for the week. They recovered a bit and closed down about 1.25%. Investment-grade corporate bonds followed a similar path though with milder swings. They lost just over 0.5%. Treasury Inflation-Protected Securities (TIPS) lost 0.75%. The dollar also declined, since the Fed’s policy makes clear that it isn’t concerned about the value of the dollar. The dollar lost about 1%. High-yield bonds broke even.
Stock indexes had a volatile week. U.S. stocks rose in the first part of the week with most indexes gaining 1% to 1.5% through mid-Wednesday. But they declined followed the Fed news. The major U.S. indexes all closed the week between break even and a 0.25% loss. International stocks did better. They also rose in the first part of the week and declined after the Fed news, but they didn’t decline as much. Emerging market stocks rose at the end of the week and closed with a gain of about 1.25%. The All-Country World Index rose about 0.33%.
Commodities followed a similar path to stocks. Gold lost about 1% and broad-based commodity indexes lost 0.5%. But energy commodities bounced up at the end of the week for a loss of less than 0.25%.
Some Reading for You
In my book, Invest Like a Fox…Not Like a Hedgehog, I discuss Philip Tetlock’s work evaluating forecasters and why they’re usually wrong. You can read an interview with Tetlock discussing both past and present research here.
A couple of economists came up with 10 rules for investors and investment managers that will improve returns.
Nobel Economics Laureate Edward C. Prescott co-authored an op-ed in The Wall Street Journal explaining why policymakers in Washington shouldn’t be discussing higher taxes.
I comment and link to these and other items on my public blog at http://www.bobcarlson.net.
December 7, 2012 04:15 p.m.
Your Retirement Finance Week in Review
Thanks to all of you who signed up to participate in my next free online investment presentation. There’s still room available for more, but slots are filling up. I’ll be addressing the key factors we need to focus on and try to answer the question: How should you manage your portfolio in this environment?
You won’t want to miss “Managing Your Investments in 2013,” on Wednesday, January 9, 2013, at 3:30 p.m. eastern time. The presentation is free, but spaces are limited. To reserve your place, click here. Or you can call 877-282-4609 or email info@tjtcapital.com. I discuss these free investment webinars in my role as managing member of Carlson Wealth Advisors, L.L.C.
To learn more about your retirement and financial planning, make a quick trip to my public blog. I highlight and discuss some important research and news that can’t be fit into Retirement Watchor these weekly messages. And don’t forget, you always can forward these e-mails to anyone you think might be interested in them.
The week’s most interesting data was the Federal Reserve’s quarterly Flow of Funds report. It measures the net worth of households and businesses and provides details such as the amount of different types of assets and liabilities.
The latest report came out this week, and you can read a detailed analysis here. The report showed that household wealth continues to increase as a result of three factors. Values of stocks and homes rose again in the third quarter. In addition, debt levels continue to decline. The debt decline is due mostly to defaults on mortgages. It’s partly offset by an increase in student loan debt. But new mortgages are hard to come by, and that traditional is the major form of consumer borrowing. Though debt is declining from its peak, it still is high by historic standards.
While household net worth is rising and is substantially higher than the 2009 low, it still is below the 2007 peak. In addition, a high percentage of homeowners still have little or no equity in their homes. The bottom line is that the deleveraging still has a ways to go. We’re in for a continuing period of slow growth with more deflationary than inflationary tendencies.
The Data
The week’s data are what I characterize as mixed. An investor inclined to a particular view of the economy could find enough data to support that view.
Employment data were the major reports this week. Friday’s Employment Reports were the big ones. The good news in the reports was that the unemployment rate declined, and state and local governments seem to have stopped layoffs, at least for now. A seemingly minor point that could be instructive is that part-time hiring for the holidays was strong, and that indicates retailers are expecting a good holiday sales season. Part-time workers overall declined. This is good, because last month’s report indicated that most of its increase in employment was in involuntary part-time employment.
There was some bad news. The data for the last couple of months were revised down. Once again, there was no increase in hours worked and wage growth was weak. The unemployment rate declined because a large number of people left the labor market.
Overall the report is said to be above expectations. That’s because most economists were expecting large disruptions and unemployment from Hurricane Sandy. But the Labor Department said that the hurricane had little effect on the labor market.
The ADP report was better than expectations but still below the highs of late 2011 and early 2012 with a gain of 118,000 private jobs.
New unemployment claims improved from the adverse recent numbers and were better than expectations. But at 370,000 we’re still a long way from the 350,000 and fewer weekly claims of last summer.
Consumer credit increased. But once again student loans were the leading cause. That’s not a sign of growth. It indicates that young people are staying in school or going back to school rather than facing the job market. Good news in the report is that auto loans increased.
Consumer sentiment as measured by the University of Michigan unexpectedly declined after a recent string of increases. The decline was so significant it reversed four months of increases. This is worth noting. Household spending has been the strong part of the economy recently, and this decline in sentiment could be an indicator of future declines in retail sales.
There were only two housing reports. Construction spending was up at a healthy rate and well above expectations and last month. Housing was the strong part of that number. The Mortgage Bankers Association reported a strong increase in weekly applications, but it was focused on refinancing. There was only a small increase in applications for new home purchases.
There were a lot of manufacturing reports with mixed results. The ISM Manufacturing Index was a big disappointment. It declined below 50 again, which indicates a contraction. That was below last month and the consensus. Importantly, new orders showed slight growth. The PMI Manufacturing Index, on the other hand, had a nice rise and also was above expectations. Factory orders also were positive. They were less than last month’s sharp increase (which was revised down a little) but above expectations. It wasn’t a great number, but it beat negative expectations. New orders were positive.
The ISM Non-manufacturing Index rose modestly but was above expectations, which anticipated a decline. New orders had a strong increase.
The quarterly Productivity and Costs report was interesting. It indicates businesses can continue to increase profit margins somewhat by generating more products with fewer employee costs and input. Productivity for the third quarter was revised higher from the initial estimate. In addition, unit labor costs were revised down. This report paints a very different picture than the initial third quarter report issued last month. But the report isn’t very good for demand, because it indicates businesses still aren’t doing much hiring or giving raises to current employees.
The Markets
It was a very good week for emerging market stocks, but not so good for other stocks. In fact, not many investments did well during the week. The emerging equities rose all week and closed with about a 1.75% gain for the week. The worst of the equity indexes was the S&P 500 with a loss of about 0.25%. But that’s better than the week’s low point of an almost 1.5% loss. Small U.S. company stocks as measured by the Russell 2000 lost a little less. The Dow 30 was the second-best equity index with a gain of just over 0.5% while global stocks as measured by the All-Country World Index lost about 0.3%.
Big losers for the week were commodities. Energy-based commodities lost 3% and fell steadily all week. Broader-based commodities lost 2%. The dollar had a good week, gaining more than 0.5%. Gold lost about 0.75%.
Long-term treasury bonds saw a strong, positive week turn into a mediocre week after the release of Friday’s employment reports caused a sharp decline. The bonds went from a gain of almost 1.75% on Friday to a 0.5% gain for the week. Investment-grade corporate bonds also lost ground on Friday and finished the week with a 0.25% gain. High-yield bonds gained about 0.33%.
Some Reading for You
There’s a big debate over whether the fiscal cliff debate really means anything. John Makin of AEI thinks it is important for policymakers to make a deal. Others think monetary stimulus can offset the fiscal effects.
There are five things you can do every day that will help you improve yourself.
If you plan to age in place, make improvements to your home when you don’t need them, according to this guide.
I comment and link to these and other items on my public blog at http://www.bobcarlson.net.
Log In
Forgot Password
Search