January 2015
January 30, 2015 04:25 p.m.
Your Retirement Finance Week in Review
Next week I’m going to be at the World MoneyShow in Orlando, Fla. So, I might not send a weekly review, or it might come at a different time than usual.
If you can’t make it to the MoneyShow, you still can catch one of my presentations (and about 45 more) from the comfort of your home or office. The MoneyShow is offering LIVE webcasts direct from the show and on-demand through March 1. See the ad below for details.
Now, on to this week’s review.
The news keeps coming, and the markets keep adjusting.
Last week, the European Central Bank announced that it was proceeding with a large asset-buying program (quantitative easing). Last Sunday, the election in Greece saw the formerly-fringe party, Syriza, become the largest vote-getter and form a ruling coalition with a small, far left party. The new prime minister spent his first week saying and doing things to upset the European establishment.
In the U.S., earnings season for the last quarter of 2014 began, and multinationals reported disappointing results blamed on the strength of the dollar. A strong dollar makes U.S. goods and services more expensive for international buyers.
The combination of the strong dollar and the sharp decline in energy prices caused a decline in industrial production and some other manufacturing measures. It’s important not to over-react to those numbers. Manufacturing is doing well, outside of the energy sector.
The Federal Reserve held one of its meetings and issued its new policy statement afterward. The statement indicated that the Fed remains concerned about low inflation, the strong dollar, and slow growth around the globe. Because of those factors, it delayed any increase in interest rates, probably to no earlier than September.
Through all this, U.S. stocks held up reasonably well until late Friday and bonds did very well. Major investments have had a choppy start to 2015. Expect more of this volatility as the economy continues to head toward the end of a cycle and events outside the U.S. continue to upset investors.
The Data
There wasn’t much data this week, but there were a few widely-watched reports.
Friday’s GDP reported received a lot of attention, though it is only the first estimate and is for the fourth quarter of 2014. It is backward-looking. It shows what we already knew from the data generated at the time. Growth for the fourth quarter was estimate at 2.6%. That’s below the final 5% rate for the third quarter of 2014 and also below expectations. The reduced growth primarily was attributable to higher imports, lower government spending, and lower nonresidential fixed investments.
There were two consumer confidence reports. Consumer Confidence as measured by The Conference Board increased sharply to the best reading of the economic recovery. The reading was well-above expectations, and the components of the survey were strongly positive. Consumer Sentiment as measured by the University of Michigan also remained high, its highest level since 2004.
Three residential housing reports indicated that the choppy recovery in housing continues. New home sales surged well ahead of expectations and justifying recent optimism in home builder surveys. In addition, prices increased. The S&P Case-Shiller home price report also showed a price increase above expectations at 0.7% for the month. The 12-month price increased dropped a little to 4.3%.
Pending home sales didn’t do as well, declining 3.7%. It’s hard to reconcile this report with new home sales and other recent housing data. But it shows the housing market still is making a long, slow transition back to a normal market.
In manufacturing, Durable Goods Orders decline 3.8%, as mentioned above. Excluding the volatile transportation component, they still decline 0.8%. But new orders were up 0.3%. The declines no doubt are due to the higher dollar and lower energy prices.
The Dallas Fed Manufacturing Survey, the leader nationally for the last few years, took a tumble and indicated activity was flat in Texas in January. The change of outlook was cross the board in the survey. The Richmond Fed Manufacturing Survey decreased a notch. That’s better than the other recent manufacturing reports but still indicates softness.
The rest of the economy, however, is doing well, The PMI Services Flash Index rose a little, indicating higher growth in the services sector. Interesting point: New business growth is at its lowest level in the five-year history of the report.
The Chicago PMI, which covers both manufacturing and non-manufacturing businesses, rose and was above expectations. It indicates a broad-based increase in growth in the Chicago area.
New unemployment claims declined sharply, by 43,000. The Department of Labor says volatility after the Martin Luther King Day Holiday is normal. The reading is the lowest since April 2000.
The Markets
Stocks were doing okay for the eek despite the bad news until a late Friday decline. Reversing last week’s results, emerging market equities fared worst, losing almost 4%. The S&P 500 and Dow Jones Industrial Average both lost about 2.5%. The All-Country World Index lost just under 2%, and the Russell 2000 U.S. Smaller Companies Index did best with a 1.5% loss.
Bonds had a good week. Long-term treasuries soared, especially on Friday, gaining 2.4%. Treasury Inflation-Protected Securities (TIPS) and investment-grade bonds both gained just over 1.2%. High-yield bonds were the laggards of the group, gaining just under 0.4%.
The dollar lost ground early in the week but made it up to close with a marginal gain.
Commodities lost a lot of ground on Thursday but more than gained it back on Friday to close with a decent week. Energy-related commodities had their first positive week I a while, gaining 2.4%. Gold gained a fraction. Broad-based commodities lost about 0.5%.
Some Reading for You
If you want more details about the last days of Casey Kasem, read here.
Why do we have record profit margins and what will happen to them next? Read here for details.
Can nursing homes take over patients who don’t pay? Here’s some interesting news.
I comment and link to these and other items on my public blog at http://www.bobcarlson.net.
January 16, 2015 05:50 p.m.
Your Retirement Finance Week in Review
You still have time to make your free registration to the World MoneyShow in Orlando, Fla., February 4-7, 2015, at the Gaylord Palms Resort & Convention Center. I’ll be making two presentations, and we’ll be at Booth 530. I’ll be available there a good portion of the conference for those who want to stop by and say hello. Of course, there will be a number of other financial experts to answer your questions about stocks, options, trading strategies, and other financial topics. Registration for my readers is free by clicking here.
Also, take a look at the item below on the upcoming webinar by TJT Capital Group.
We’ve had wild times in the markets to start the year. Major U.S. indexes started with a 3% loss, worked their way back to even, and this week lost ground again. But they had a nice bounce on Friday that reduced the week’s losses. Other investments also began the year with a lot of noise, though some did better than others. U.S. Treasury bonds generally rose the first two weeks while commodities, especially energy, generally declined.
One reason for all this commotion is the news from overseas. Last week the focus was on Greece, its upcoming election, and whether it would leave the European Union (and whether its leaving would be voluntary or otherwise). This week the Swiss National Bank surprised everyone by deciding it no longer would try to keep a lid on the Swiss franc. The news was so sudden and unexpected that it appears several foreign currency brokers are in trouble, because their customer’s losses are so steep the brokers aren’t sure they’ll be able to collect. It’s a serious turn of events when the middleman losses money. In coming months reports will trickle out of banks and investment firms that lost money on big bets on the Swiss franc.
A second reason for the volatility is a turn in the economic data in the U.S. The last half of 2014 was very strong in the U.S. But 2015 is starting weaker. Not weak, but weaker. This is largely because the second stage of the oil price decline is kicking in. The first stage is very positive. Consumers have more money to spend, because of lower oil prices. That’s equivalent to a tax cut or salary increase. In the second stage, however, oil producers start to cut back. They reduce or eliminate new investments, cut production, and lay off workers. This spreads to other industries, and over time gradually reduces growth.
Overlaying these factors are the other worries that have been in the background. Slower growth in Europe and China, which spreads to other emerging economies. The global instability caused by Russia. The terrorist attacks in France followed by strong police actions throughout Europe and various news reports about the potential for more such attacks in Europe and the U.S.
All of this makes for a shaky start to 2015. It looks to me that the U.S. economy still is in a sustainable period of above-average growth. This should continue as long as the Fed doesn’t act prematurely and there is no major international shock to the system. Inflation is well-contained in the developed world, so there’s no reason for the Fed or other central banks to prematurely tighten policy.
There remain two main risks to the U.S. One is that Europe unravels in a chaotic way. I don’t rule that out, but it doesn’t make sense to act as though that were a certainty. The other main risk is that the developed world central banks don’t have much left in their arsenals if their economies turn down again. Back in 2008, they had a lot of room to reduce interest rates and engage in massive asset buying. Now, there isn’t much room to reduce rates, and the recent asset buying sprees showed that tool is less effective the more it is used. Central banks know their tools are limited, so they aren’t likely to raise interest rates before they have to, putting their economies at risk.
As I said in the February Retirement Watch (now available online), we’re in for a period of market volatility and divergences between the different investment markets. I think our portfolios are well-positioned, but we also have some sell signals in place in case there are major negative surprises.
The Data
The major report this week was Wednesday’s retail sales, which said sales decreased sharply in December. There’s not much positive in the report. It was a negative surprise. But retail sales are volatile month to month. It’s important to look at trends for several months. Taken together, the last quarter of the year showed good retail sales growth. Also, consumer and small business confidence surveys are very positive, and that usually indicates a good base for retail sales. Households will vary their sales from month to month. They might take a break after heavy Christmas spending, or save for a few months to make a major purchase. I think investors overreacted to the retail sales report.
As I said, small business and consumer optimism are high.
The NFIB Small Business Optimism Index soared after losing a little ground the previous month. The index now is at its highest point since October 2006. They expect higher sales, capital outlays, and employment. Surprisingly, 22% said they plan to try raising prices in the near future. That’s a modest hint of future inflation pressures.
Likewise, Consumer Sentiment as measured by the University of Michigan surged to its highest level since January 2004. This was a mid-month reading, which tends to be more volatile than the traditional month-end reports. The sharp drop in gasoline prices clearly is boosting both small business and household confidence.
The JOLTS (Job Openings and Labor Turnover Survey) report was another positive one. The number of job openings increased a modest amount. Layoffs continue well below their financial crisis highs, and the quit rate continues to modestly increase. The quit rate is important, because it shows workers have enough confidence about the job market to seek other opportunities.
On the other hand, new unemployment claims increased 19,000. That puts the new claims above 300,000 for the first time in a while and at the highest level since September. The four-week moving average still is under 300,000.
Inflation as measured by the Producer Price Index was negative, making the 12-month inflation 1.1%. Even after excluding food and energy, inflation was a modestly-positive 0.3% and actually moved above 2%, to 2.1%, over 12 months.
The Consumer Price Index also was negative for the month, 0.4%. The year to year change was only 0.7%. Excluding food and energy, inflation was 0% for the month and 1.6% for twelve months.
There were three mixed manufacturing reports for the week. The Empire State Manufacturing Survey, which has been the national laggard most of the last year or so, had a nice surge after declining last month. The Philadelphia Fed Survey was positive but far less positive than last month’s surge. It still indicates growth, but a slower rate of growth than last month. Finally, Industrial Production was mixed. The headline number was a negative 0.1%. But the manufacturing sector in the report was a positive 0.3%. The drop in the headline number primarily was due to utilities, which could be due to the decline in oil prices.
The Markets
There was a big change in stock markets this week. Emerging market stocks were positive all week and closed with a gain just under 1.5%. The All-Country World Index was close behind with a gain of just under 1%.
U.S. indexes didn’t do as well. After gains early Monday, the steadily declined most of the week. The Dow Jones Industrial Index had the worst return of the group for the week, losing about 0.5%. The S&P 500 lost a little less, and the Russell 2000 U.S. Smaller Companies Index lost a fraction.
Bonds did better. Long-term treasuries had a good week, gaining 1.5%. Treasury Inflation-Protected Securities (TIPS) gained 0.75%. Investment-grade bonds gained a fraction. High-yield bonds lost a fraction.
The dollar had another strong week, gaining about 0.75%.
Gold had a good week, and other commodities recovered after losses most of the week. Gold gained 4%, with steady gains all week. But it surged after the Swiss National Bank announced it no longer would try to control the price of the Swiss franc. Energy-based commodities gained almost 1% after being down more than 2% early in the week. Broad-based commodities followed the same path and gained 0.5% for the week.
Some Reading for You
Is Manhattan the ideal place for a senior to live? Is it the model for the rest of the country? Read here.
Who carries cash in the U.S.? Here’s a report I found interesting.
Here’s a perspective from Stratfor.com on the changes taking place in Europe.
I comment and link to these and other items on my public blog at http://www.bobcarlson.net.
January 9, 2015 05:45 p.m.
Your Retirement Finance Week in Review
Happy New Year. And welcome back to another year of managing your finances to create the retirement you desire.
Before we start with this week’s review, I want you to be aware of a free webinar to be presented by TJT Capital Group. I won’t be participating in this one, but I have a long-term relationship with TJT Capital and know many of you will be interested in it. The webinar is Wednesday, January 21, 2015, at 3:30 p.m. eastern time, and is titled “2015: Why TJT Capital Group is Still Constructive.” Registration is free. See more details below. CLICK HERE to register.
Also, as many of you know, in a few weeks I’ll be attending the World MoneyShow in Orlando, Fla. The investment conference is set for February 4-7, 2015, and is based at the Gaylord Palms Resort & Convention Center. I’ll be making two presentations, and we’ll be available to talk with you at Both 530. Of course, there will be a number of other financial experts to answer your questions about stocks, options, trading strategies, and other financial topics. Registration for my readers is free by clicking here.
The stock markets were closing 2014 with strength before declining sharply on the last day of the year. The Dow Jones Industrial Average had its sixth straight year of positive returns, with a 7.5% return. Only in the 1990s, when the index rose nine years in the row has been better. Of course, there were two very steep, confidence-shattering declines between those two periods.
The S&P 500 returned 11.4% for its third straight year of positive returns. Possibly the most overlooked news is that the Nasdaq’s 13.4% return for 2014 brought the index to 4736. Few people remember that before the tech stock crash of the early 2000s the Nasdaq peaked at just over 5000. After all these years it is making its way back to the old record.
Trivia question answers: Utilities were the strongest sector in the S&P 500 during 2014, returning 24%; energy was the worst sector, losing 10%.
U.S. stocks were far and away the top major asset class of 2014. The Stoxx Europe 600 returned 4.4%. The Hang Sang index gained 1.3%. Gold lost 1.5%, and other commodities generally fared far worse with oil leading the slide down to a five-year low.
The dollar had its best year in about a decade, gaining more than 12% against a basket of major currencies, according to the Wall Street Journal Dollar Index.
The Data
As we closed out 2014, perhaps the biggest report was GDP for the third quarter. This third estimate of GDP was reported as a 5% annual growth rate. We knew growth was strong in the third quarter, but this was substantially higher than the two previous estimates. I think it overstates GDP growth, because of one-time events such as a big jump in government spending and some accounting quirks. Even so, the economy still was growing at 3% or better.
Housing closed the year with the same softness that characterized 2014. Manufacturing’s year-end reports indicated the sector continued to grow but at slower rates than in the third quarter and early fourth quarter. Consumer confidence also ended the year on a high note, surprising many people and creating confidence for the start of 2015.
The small amount of data reported this week indicated most sectors of the economy slowed in December but still were growing.
The PMI Services Index came in at 53.3 which indicates that sector of the economy is growing but at a slower rate than in last month’s report. The most worrisome part of the report is a reduction in the growth of new business for the third straight month and at the lowest growth rate since September 2012. The ISM Non-Manufacturing Index was similar. Last month’s number was very strong, and this month’s report showed growth but at a much slower rate. This report also showed slower growth in new orders.
Factory orders declined for the fourth straight month and was weak across the board.
There were several employment reports this week. New unemployment claims declined 4,000 after increasing 17,000 last week. The four-week average is down to 290,000 and shows a steady decline. The ADP Employment Report showed a sharp increase in private payroll growth for the last month, and one that exceeded expectations. The month’s private payroll growth is at one of its highest levels of the recovery and substantially higher than a year ago.
Friday’s big monthly Employment Situation report indicated the labor market is in the same mode it has been in. The number of jobs created was a bit higher than forecast at 252,000, and last month’s very strong number was revised upward to 353,000 jobs. That marks the year as the one with the most job growth since 1999, and that’s before likely revisions to this month’s number.
Even so, the report wasn’t entirely positive. The labor participation rate decreased another tenth of a percent. The hours in the average workweek haven’t changed. Most importantly, average hourly earnings declined. That’s good news for inflation watchers, but it is bad news for those hoping for a stronger economy.
The bottom line is that the labor market is continuing is slow, steady improvement from the bottom of the financial crisis. But we’re still some distance from a normal, healthy labor market.
The Markets
The first full trading week of the new year was a wild week one in the markets.
Global stock indexes moved almost in unison this week, which is quite a contrast to the last couple of years. They declined the first couple of days, spiked higher on Wednesday and Thursday, then gave up gains on Friday.
Emerging market stocks led the way with a gain of more than 2.5% for the week. The S&P 500, Dow Jones Industrial Average, and All-Country World Index very close tracked each other all week and closed with a fractional gain. Losing about 0.25% for the week was the Russell 2000 U.S. Smaller Companies Index.
Bonds also were volatile, but the different types of bonds took separate paths. Long-term treasuries had the best week, closing with a gain of 1.8% after being up more than 2.2% early in the week. High-yield bonds generally followed stock indexes during the week and closed with a gain of 1.4%. Investment-grade bonds gained about 0.6%. Treasury Inflation-Protected Securities (TIPS) didn’t show much volatility for the week and closed with a fractional gain.
The dollar had another strong week, though it lost some ground on Friday. It closed with a gain just under 0.6%.
Commodities weren’t as volatile as other assets. Energy-based commodities declined steadily all week, closing near their lows with a 4% loss. Broader-based commodities lost about 0.5%. Gold rose about 1.5% early in the week, stayed there most of the week, and closed with almost a 2% gain for the week.
Some Reading for You
Will Greece leave the euro? An interesting view, with a link to a contrary view. Also, see this review.
It seems the Harvard faculty doesn’t like the new health care law that some of its members helped shape.
Take a look at Doug Kass’s surprises for 2015.
I comment and link to these and other items on my public blog at http://www.bobcarlson.net.
