July 2014
Save the Date:
Please join me at The MoneyShow San Francisco, this August 21-23! I’ll be making two presentations and always enjoy these opportunities to meet with some of my readers. There also will be dozens of other financial advisors making presentaitons. Get their latest stock picks, current market outlooks, most successful trading strategies and more when you attend the Show at the Hilton Union Square. Registration is now open, so reserve your place today! To register, click here.
July 25, 2014 04:15 p.m.
Your Retirement Finance Week in Review
Before we begin this week’s review, let’s briefly discuss a couple of other items.
First, a quick reminder to Retirement Watch members that you don’t have to receive occasional advertising emails from other businesses if you don’t want to. You can set your Privacy Preferences on the members’ web site at www.RetirementWatch.com. Click on “Member Login” near the top right of the page. On the next page, log in using your customer number or click on “click here” under the headline “Don’t have a Login yet or forgot your Login information?” On the member home page, scroll down and click on “Change Address” on the right side. On the next page, click “Change Address.” On the next page, click “Preferences” under “Privacy Preferences.” On the next page you can set your preferences.
On another note, there still is time to claim your free registration to the San Francisco MoneyShow from August 21-23. We’ll be at the Union Square section of the city. I’m making a couple of presentations, and we’ll have a booth at the show where members can visit. Of course, there will be many other speakers for you to listen to. Reserve your place today here.
Now, on to this week’s review.
The big news this week was what didn’t happen. With all the geopolitical disturbances and with the beginning of earnings season not being exciting, it would be reasonable to expect some kind of decline in risky assets and a flight to safe assets. Instead, the opposite happened until Friday. In the Markets review below we’ll have the final numbers, but they’re misleading. Through Thursday, stocks generally rose, and bonds declined before reversing course at the end of the week.
As I’ve mentioned in the recent past, investors generally are complacent. Market volatility is low. Markets prices indicate that investors anticipate central banks to do a good job in the next year or so. Market prices indicate investors expect moderate economic growth, low interest rates, and low inflation.
I think investors shouldn’t be as complacent as they appear to be. Though I don’t anticipate a sudden change in trends, there are a lot of things to worry about. That’s why we’re still diversified in our portfolios, continue to insist on a margin of safety, and have “sell below” prices in place. For now, we’re holding our positions and are in line with market trends, but we’re alert and not complacent.
The Data
It was a quiet summer week on the data front.
Most of the week’s data related to housing. Existing home sales were a pleasant surprise after several months of weak housing data. Last month’s data were revised higher, and this month’s data jumped higher than expected. That gives us three month’s of steadily increasing sales after sales declined the first three months of 2014. Prices also increased 5.3%. The rise in prices is attracting more sellers to the markets, resulting in an increase in the number of homes for sale. This is important, because for some time Realtors have stated that one thing holding back sales is that there isn’t enough inventory of homes for sale.
The FHFA Home Price Index told a little different story. It did record a price increase the latest month, but the year over year increase declined to 5.5%. A few months ago it was 7.0%.
New home sales also were a disappointment. Last month’s number was revised sharply lower, and this month’s number came in below that and well below expectations. The positive angle to this report is that new home sales in the first part of 2013 were unusually strong, so we shouldn’t expect 2014 to be as strong. Other than that, this simply is a weak report and indicates housing is slower than in 2013. One problem is that the inventory of completed homes available for sale is low.
Manufacturing continued to have mostly good data this week.
The Richmond Fed reported a strong increase in manufacturing activity in its region for the fourth straight month. The region recovered nicely from the winter weather that slowed activity. Manufacturers in the region even indicated that they are looking at hiring more people.
The Kansas City Fed also registered an increase, though not as strong as Richmond’s. But Kansas City was stronger than Richmond the last few months.
The PMI Manufacturing Index Flash showed solid growth but at a slightly lower level than last month. In some ways this is in conflict with recent reports from the Fed regional banks. The banks generally are reporting strong increases so far this summer, while PMI indicates a continuation of generally strong growth. The PMI also indicates that U.S. business is doing better than international activity.
Durable Goods Orders had a strong recovery month after declining the previous month. Orders exceeded expectations and were well-above last month’s numbers. After excluding the volatile transportation sector, the gain was even stronger.
New unemployment claims had a sharp drop to 284,000, the lowest level since 2006. The four-week moving average is the lowest since 2007. It could be that the economy has recovered to the point that more businesses have to hire additional workers.
This month’s Consumer Price Index deserves some comment. It came in right at expectations of 0.3%, or 2.1% for the last 12 months. We’ll probably marking a turning point in the CPI. Since 2008, price increases have been contained and deflation has been more of a threat than inflation. With this release, we have several months of the CPI being in the Fed’s target range of 2% to 2.5%. Further, the price increases are not focused in a few areas but are broad-based. We’re a long way from any kind of inflation scare, and the Fed doesn’t need to raise interest rates to slow the economy. But it’s a sign the economy is edging its way back closer to normal and we can’t take low inflation for granted going forward.
The Markets
Stock indexes finished the week mixed. The Dow 30 fared worst, losing just under 0.6%. The Russell 2000 U.S. Smaller Companies Index lost a fraction after being up 1.4% around mid-day Thursday. The S&P 500 gained about 0.2% while the All-Country World Index gained 0.4%. Emerging market equities did best, gaining 1.6% after being up 2.2% on Thursday.
Bonds were almost the inverse of stocks. Long-term treasury bonds finished with a gain of over 0.4% after being down more than 0.6% on Thursday. Investment =-grade bonds squeaked out a marginal gain while Treasury Inflation-Protected Securities (TIPS) gained 0.2%. Both were down through Thursday. High-yield bonds did better, gaining almost 0.4% and being up almost all week.
The dollar had a strong week, gaining 0.5%.
Commodities also were mixed. Gold lost about 0.5% despite a strong gain late Thursday and Friday. It was down 1.5% for the week at Thursday’s low. Energy-related commodities and broader-based commodities followed similar tracks for the week. The energy-based group gained just under 0.6%, while the broader group gained 0.2%.
Some Reading for You
Does life seem to go faster as you age? Here are some things you can do to reverse that.
Buying collectibles is fraught with peril and really isn’t investing. Here’s an example.
The more you know, the more you buy generic or store-brand goods, says this study.
I comment and link to these and other items on my public blog at http://www.bobcarlson.net.
July 18, 2014 04:15 p.m.
Your Retirement Finance Week in Review
There’s just over a month to go until the San Francisco MoneyShow on August 21-23. You still are able to obtain your free registration. I’ll be making a couple of presentations and looks forward to meeting some of my readers there. You’ll also be able to hear from more than 75 other financial experts. As I said, registration is free and space still is available, so reserve your place today here.
Now, on to this week’s review.
It was another quiet week in data releases. The reports for the week indicate the economy continues on recent trends. After a period of slow growth in the first quarter, growth seems to have picked up and probably is at the highest rate of the recovery that began in 2009. Even the data that at first seemed negative this week is positive after probing into the details.
In short, it appears that the negative GDP was an aberration. Growth now as we are early in the third quarter is 3% or higher. Keep in mind that the GDP report doesn’t capture all economic activity. Manufacturing appears to be very strong. There are a few stray report each week that show some weakness or reduced growth, but the majority of reports show a very healthy manufacturing sector. The housing market is slower than last year but still healthy. Commercial real estate doesn’t receive a lot of attention, but it is doing well.
Overall, we’re in the boring, steady-as-she-goes, middle part of the economic cycle. The Fed is reducing its “extraordinary measures” and throttling back to ordinary easy money. It will be a while before the Fed tightens and tries to slow economic growth. There are longer-term threats to the economy and markets. For now, the best policy is to invest along with market trends and stay alert for meaningful trend changes.
The Data
Let’s start with the Fed’s Beige Book, released this week. This compilation of anecdotes and data from around the country reports growth around the country. Every region is either moderately or modestly expanding. Manufacturing is doing well, and consumer demand is healthy. Inflation is under control, and the labor market continues its steady healing. There even are districts in the country that report some difficulty finding enough workers in skilled positions. Overall, the Fed reports steady, solid growth with no imminent inflation threat.
Retail sales initially appeared to be disappointing, coming in below estimates and last month’s number. But last month’ report was revised higher. Also, sales growth was healthy after excluding auto sales, which can be volatile and subject to some reporting problems. Also, retail sales month to month are volatile. Averaging several months and also looking at consumer sentiment measures (which reasonably forecast future retail sales) indicate sales area growing moderately.
There were several manufacturing reports. Industrial production appeared weak at first. But utilities are included in this report, and their contribution is volatile and weather-related. After strong growth from utilities over the winter due to unusually cold weather, the mild spring and early summer is reducing utility use. Excluding utilities, industrial production is fairly strong. When reviewing several months at a time, industrial production also looks strong. Over the second quarter, production rose at a 6.7% annual rate.
The Empire State Manufacturing Survey was very strong this month. New orders were particularly strong. Throughout 2014 this survey has lagged other manufacturing surveys, but not this month. The Philadelphia Fed Manufacturing Survey, the other that lagged others in 2014, also reported a surge in activity. It came in at its highest reading since March 2011.
There were a couple of housing reports. The Housing Market Index from the NAHB had a strong month, generating its highest level since January. Sales expectations increased, though traffic through new homes still is low. Housing starts disappointed analysts by coming in well below expectations and recent months. But the shortfall generally is attributed to unusually rainy weather in the south. This led to a record decline in starts in the south. In the rest of the nation, starts grew at a healthy rate.
The bad housing starts number led to a disappointment in the Leading Economic Indicators from The Conference Board. The LEI rose lower than expected and than recent months. But excluding housing starts the other components of the index were strong.
Consumer Sentiment at measured by the University of Michigan declined a bit. But some components, such as current conditions, were positive. The measure remains below the highs of the summer of 2013 and April 2014.
Producer Prices rose a little after a decline last month. The increase was largely because of higher energy prices.
The Markets
On Thursday it appeared that international events would take over the markets. News that an airliner was shot down over Ukraine was followed by an announcement that Israel launched a ground attack in Gaza. But by Friday morning investors seems to have put these events behind them. Even so, the sharp moves on Thursday distort and dominant the week’s returns.
The major stock indexes recovered enough on Friday to converge on a 0% return. That includes the S&P 500, Dow 30, All-Country World Index, and emerging markets. The exception is the Russell 2000 U.S. Smaller Companies Index. It was down for the week even before the Thursday events. It recovered a bit n Friday to close with a 1.5% loss.
In bonds, the big news is in high-yield bonds. After Thursday’s losses, they didn’t recover much on Friday. Unrelated to the international events, high yield bond funds and ETFs had their highest monthly outflow of money since the summer of 2013. High-yield bonds lost about 0.6% for the week. Long-term treasury bonds did well, gaining about 1% after being up about 1.4% during Thursday. Investment-grade bonds gained about 0.4%, while Treasury Inflation-Protected Securities (TIPS) gained a fraction.
The dollar gained just over 0.4%.
It was a volatile and mixed week for commodities. Broad-based commodities fared worst, losing 0.5%. Energy-based commodities did a little better but lost about 0.2%. Gold managed about a 0.3% gain but was up 1% for the week at Thursday’s close.
Some Reading for You
Social Security seems to deliberately give low estimates of future retirement benefits. Here’s one example.
Here are 10 simple things anyone can do to increase happiness. All are backed by academic research.
And here’s the latest gossip about PIMCO. (Subscription might be required.)
I comment and link to these and other items on my public blog at http://www.bobcarlson.net.
July 11, 2014 04:45 p.m.
Your Retirement Finance Week in Review
I’m going to be in San Francisco in late August to make a couple of presentations as part of the San Francisco MoneyShow. I enjoy these opportunities a couple of times a year to meet my readers and make longer presentations on topics. I’ll be making two presentations this time.
Registration is free, and there’s still time for you to join me and 75 other financial speakers from August 21-23. Registration is free and now is open, so reserve your place today here.
July 1 has come and gone, and the dollar still is intact. Surprised? Well, you are if you bought into a lot of the promotional hype delivered by one newsletter publisher beginning late in 2013. The ubiquitous promotions said that a law taking effect on July 1 would cause a rapid decline in the dollar as foreign investors sold all dollar assets.
It was a silly proposition from the start. The law increased the reporting required of foreign banks with U.S. assets and records they had to keep. They also have to be more cooperative with U.S. tax authorities. The theory was that international investors wouldn’t put up with this invasion of privacy and would sell all their assets.
Turns out, the international banks were very cooperative. They didn’t want to pull out of the U.S. So, they worked with their customers to comply with the law. Also, the law was enacted several years ago and the IRS has been issuing regulations over time. Anyone who was interested in or concerned about the effects of the law knew about it for some time. The notion that the effective date of the law would trigger a major, sudden change in behavior was .
The people behind the collapse of the dollar promotions also delivered the End of America and End of Obama forecasts of recent years. They’re very good at marketing and delivering scary stories, but not much else.
It’s an important lesson. Don’t pay much attention to scary stories and to forecasts, unless you treat them as entertainment. There are much better ways to manage your finances.
The Data
This was a very quiet week for data. The main focus was the release of the minutes from the Fed’s June 17-18 meetings. The news from the minutes, which shouldn’t have surprised anyone, is that the members collectively didn’t see any reason to alter the schedule for reduced bond buying. They expect the bond buying to end in October.
Small business owners aren’t quite as positive as they were a month ago, according to the NFIB Small Business Optimism Index. After three months of strong improvements, the index declined a bit. The causes of the decline were reductions in those who expect the economy to improve and those who expect sales to increase.
I like to look at the JOLTS (Job Openings and Labor Turnover Survey) because it is more detailed than the monthly Employment Situation reports. It also probably is more accurate though less timely, because it comes out about a month later than the Employment Situation reports. This week’s report, which related to May, showed little change in anything. Many of us have been watching the separations rate, which shows the number of people quitting jobs. An increase here would indicate people believe the job market is in good job and they are willing to quit jobs to accept or seek other jobs. In the latest report, this rate essentially was unchanged. Other categories in the report also indicated little or no change.
Consumer credit outstanding increased again. The big news here is that credit card and other revolving credit use has increased for the second month in a row. This is an indication that consumers are more optimistic about their financial situations and could be a good sign for retail sales.
New unemployment claims declined more than expected, by 11,000. That indicates steady improvement in the labor market. Though weekly claims still above 300,000 is not traditionally associated with a strong economy.
The Markets
The week was kind to bond owners. Long-term treasuries had their best weekly rally in four months. They recorded a 2% gain. Other bonds generally did well. Treasury Inflation-Protected Securities (TIPS) gained about 0.9% while investment-grade bonds rose 0.8%. The standard bond index, the Barclay’s Aggregate, rose about 0.5%. But high-yield bonds followed stocks more than bonds as usual, losing a fraction.
The dollar was about even for the week.
Stocks on the other hand were down all week. Small company stocks fared the worst, with the Russell 2000 index losing over 3%. The All-Country World Index lost 1%. The S&P 500 lost 0.5%. The Dow 30 lost about 0.4%. Emerging market equities lost a fraction.
Commodity returns varied widely. Gold soared, gaining 2%. Broad-based commodities lost 2%, and energy-based commodities lost 2.5%.
Some Reading for You
Here’s a first reading of how the legalization of pot in Colorado is going.
Here’s an analysis of the growing popularity of Medicare Advantage plans, despite the administration’s efforts to discourage it.
These two stories show how hard it is to succeed in business, and how easy it is to damage a business.
I comment and link to these and other items on my public blog at http://www.bobcarlson.net.
July 3, 2014 03:45 p.m.
Your Retirement Finance Week in Review
I’m pleased with the number of people who are interested in joining us at the San Francisco MoneyShow in August. There’s still time and space for you to take advantage of the free registration. I’ll be joined by more than 75 other financial and investment experts at The MoneyShow San Francisco from August 21-23. I’ll be making two presentations and others will give their latest stock picks, current market outlooks, and most successful trading strategies and more. We’ll be at the Hilton Union Square. Registration now is open and free, so reserve your place today here.
Happy Independence Day to all of you. I hope you have a good holiday. We’ll be hanging around the neighborhood, playing some golf, and taking a moment to appreciate our liberties.
The second quarter ended this week, so let’s take one of our periodic longer-term reviews.
As I discussed in the July issue of Retirement Watch, market volatility has been very low in the first half of 2014. Though some people try, there isn’t a strong factual basis for anticipating which way markets will turn once normal volatility returns.
One trend in the first half that isn’t widely-acknowledged is the disparity between different stock indexes. The S&P 500 returned 6.05% while the Dow Jones Industrial Average returned only 1.51%. This disparity is unusual. Only five times has the Dow performed worse than that relative to the S&P 500, according to Bespoke Investment. This is largely because late in 2013 the Dow removed three stocks (Alcoa, Bank of America, and Hewlett-Packard) and replaced them with Visa, Goldman Sachs, and Nike. The three new stocks all lost value in the first half while Alcoa and HP each gained over 20%. It’s a good example that the stock indexes are not “the market.” They’re man-made portfolios.
Also interesting is the performance of growth and value stocks. Early in the year growth stocks continued their strong performance of 2013. But growth stumbled from early March through mid-April, giving value a strong outperformance and making it appear a strong growth stock era was ending and a value stock era was beginning. Instead, a few key growth stocks recovered. Value stocks have done well the last few months, but growth stocks surged. By mid-May growth stocks were ahead of value for the year. At the close of the half, growth had gained 9% while value was ahead only 7%.
The big news of the first half I think is the performance of bonds. At the end of 2013, almost all forecasts were for higher interest rates and lower bond prices. The only disagreement was over how high and how fast rates would rise. Instead, rates declined and bonds returned some nice profits.
The Data
With few exceptions, the data this week was positive. For several weeks we’ve had continuing signs that, despite the negative reading of first quarter GDP, growth is accelerating.
Employment reports received most of the attention. The good news started with Wednesday’s ADP Employment Report, which was much higher than expected and than recent reports. New unemployment claims rose only 2,000, staying within the same range they’ve been in for a few months. Finally on Friday the Employment Situation reports estimated 288,000 new jobs created for the month. In addition, the previous two months’ estimates were revised higher, with April’s new estimate exceeding 300,000. That’s the first month above 300,000 new jobs since January 2012.
The numbers in the report I continue to watch are average hourly earnings and average workweek. The average workweek was unchanged. Average hourly earnings rose 0.2%. Those numbers indicate modest increases in household income and a continuation of the modest increases in demand that we’ve seen for some time.
The Dallas Fed Manufacturing Survey as usual was strong and indicated growth was increasing in that region. The Chicago Purchasing Managers Index dropped a bit but still indicated strong growth in that region. The PMI Manufacturing Index for June also showed a healthy increase over last month. The ISM Manufacturing Index headline number essentially was flat. But there was strong growth in two key components of the index: new orders and production.
The only disappointing manufacturing data this week was Factory Orders, which declined 0.5%. But when the volatile defense sector is excluded, orders rose 0.2%. Also, the important nondefense goods excluding aircraft had a healthy increase, indicating higher business investment.
The PMI Services Index and ISM Non-Manufacturing Index both indicated steady, healthy growth in the non-manufacturing portion of the economy.
There was one housing report, and it was positive. The Pending Home Sales Index increased 6.1% for the month but was down 5.2% over 12 months. This is the largest monthly increase since April 2010. This index notes contract signings, so it should be an indication of higher home sales reported in June and July, unless a high percentage of the contracts fall through.
The Markets
Major U.S. stock market indexes continue to set records, with the Dow 30 closing above 17000 for the first time and the S&P only a few ticks below the 2000 level. For the week, the Russell 2000 U.S. Smaller Companies Index led the way with a 2.5% gain. Emerging markets and the All-Country World Index were tied with a 2% gain. The Dow 30 and S&P 500 both recorded a 1.5% gain.
Bonds didn’t fare as well, apparently due to investors’ fears that the favorable employment reports would cause the Fed to raise interest rates faster than previously expected. Long-term treasuries lost about 2.5% for the week. Investment-grade bonds and Treasury Inflation-Protected Securities (TIPS) both lost about 1.4%. High-yield bonds did a little better, losing only 0.5%.
The dollar managed a marginal gain for the week on the favorable economic reports.
Commodities were mixed. Gold broke even for the week after being up almost 1% most of the week. Both energy-based commodities and broader-based commodities lost about 1.75%.
Some Reading for You
Not enough attention is being paid to the civil demonstrations and protests in Hong Kong.
Apparently the requirement that medical records become electronic is exposing us all to the greatest risk of identity theft ever.
A new IRS rule makes it easier to hold longevity annuities in IRAs and 401(k) accounts.
I comment and link to these and other items on my public blog at http://www.bobcarlson.net.
