March 2013
March 29, 2013 12:00 p.m.
Your Retirement Finance Week in Review
You still can attend my upcoming presentations in May.
The first is one of our regular free online investment presentations. This one is 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 be speaking 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 started as a volatile week, due largely to events in Cyprus. But once the banks opened, the crisis seemed to abate. There’s still a long, tough road ahead in Europe. Much of the continent is in a depression, and all of it except perhaps Germany is in recession. That hurts companies around the globe. But the central banks seem able to keep the rest of the world from tipping into recessions. European leaders seem to have figured out how to avoid an uncontrolled crisis, and that’s all we really need to maintain modest growth in the U.S.
The Data
This week we saw the first data indicating that the tax increases and federal spending sequester might be having some effect on growth. Still, the data weren’t strongly negative. The data were mixed. When averaged with the strong data from January and February, we still see an economy with moderate growth.
Housing, a traditional growth engine for the economy, still is doing well. The Case-Shiller Home Price Index reported a strong monthly price increase of 1% for the 20-city index. For the last 12 months that’s a 8.1% increase. The increase in home prices is an important factor in sustaining consumer demand in the face of weak hiring, weak payroll growth, and higher taxes.
New home sales were less than the previous month and below expectations. But they were in line with recent numbers and when averaged with the last few months show a trend of modest growth. New home sales have been difficult the last few years, because they have to compete with distressed sales of existing homes. As the number of distressed homes coming on the market slows, new home sales should rise relative to existing home sales.
Pending home sales also declined modestly after several months of strong gains. This indicates existing home sales will be flat for the next month or two.
Manufacturing also continued its recent moderate growth and recovery from the decline in late 2012. The only Fed regional bank with a survey showing a reduction in manufacturing for the month was Kansas City, which was the last bank to report. But even that report was optimistic, showing producers were more optimistic about coming months than they’d been recently.
The Chicago Fed National Activity Index exceeded expectations and was well above last month’s measure. The Chicago PMI Index, on the other hand, showed a decline in activity in the Chicago area for the month, but still indicated positive growth. The Dallas Fed survey indicated faster growth than last month.
Durable goods orders also continued to register moderate growth. The headline number had a strong increase. But after subtracting the volatile transportation segment, durable goods declined slightly. But new orders had a strong increase. When incorporated with strong reports in recent months, the report indicates the recent trends are intact.
The final revision of the GDP report for the fourth quarter was consistent with the previous two reports, showing a slightly higher 0.4% growth in the quarter. Since the fourth quarter is well behind us and trends have changed, the report doesn’t mean much at this point.
New unemployment claims rose about 16,000. That is in line with the recent trend and indicates there is slight, continuing improvement in the labor market.
Corporate profits continued to grow in the fourth quarter in line with growth over the last year and higher than 2011’s profit growth, as measured by the Bureau of Economic Analysis. The profit growth was 13.3% in the fourth quarter, compared to 17.9% in the third quarter of 2012.
Consumer Sentiment as measured by the University of Michigan took a sharp jump in March. This continues a recent pattern of unusually high changes in sentiment. Though hard to explain, the sudden increase could bode well for the upcoming retail sales and employment reports.
The Personal Income and Expenditure report was a mixed bag. Personal income rose 1.1%, more than expected. But spending rose only 0.7%. Probably a fair amount of that gain was due ot higher gasoline prices. But for much of the last year spending rose faster than income. But this month income rose faster than spending. The report also showed inflation remains under control.
Overall, this week’s data indicates the modest economic growth trend remains intact. The higher taxes and lower government spending reduced growth a little, but Fed policies are offsetting that austerity. If the economy holds up through this period, growth in the last half of the year could increase.
The Markets
Most markets were closed on Friday, but there was a lot of activity during the week.
The only losers for the week were in commodities. Gold was down all week and was the biggest decliner, losing 0.8% for the week. Broad-based commodities also were down, thanks to a sharp decline on Thursday. They lost about 0.6% for the week. The dollar did well, mostly because the situation in Cyprus caused a sharp decline in the euro. The dollar rose about 0.4%. Energy-based commodities, however, had a strong week. They rose 1.8% after being up almost 2.2% at Wednesday’s close.
In stocks, emerging markets were the week’s big winner for the first time in a while. They rose 2.2%. Other stock indexes didn’t fare as well but had positive returns. The S&P 500 gained just over 1%, closing at a new record. The Russell 2000 Index of small U.S. companies, Dow 30, and All-Country World Index all rose about 0.6%.
Long-term treasury bonds had a strong increase early Wednesday but lost most of the gains, closing with a 0.6% gain for the week. High-yield bonds broke even for the week, which is unusual in a week when stocks rise. Investment-grade corporate bonds rose about 0.3%, and Treasury Inflation-Protected Securities (TIPS) rose about 0.45%.
Some Reading for You
New York Fed President William Dudley set out a roadmap for how the Fed eventually can reverse quantitative easing.
Tax season doesn’t have to be as expensive and painful as it is. Refund fraud and identity theft don’t have to be as easy either. But lobbyists and bad congressmen keep it that way. Read here.
Don’t worry about those forecasts of perpetual slow economic growth resulting from resource shortages. They’re debunked here.
I comment and link to these and other items on my public blog at http://www.bobcarlson.net.
March 22, 2013 05:25 p.m.
Your Retirement Finance Week in Review
You’ll have two opportunities to hear from me in detail in May.
First, I’ll be giving another free online investment presentation on May 1 at 3:30 p.m. eastern time. These presentations have been very popular, and attendance is increasing. My topic is “Adjusting Your Investments for 2013’s Second Half.” There is a limit to the number of participants. You can register at this link.
Then, I’ll be speaking at the Las Vegas MoneyShow May 13-16. I’ll be giving a workshop on Tuesday the 14th. There will be dozens of investment and economic speakers, including Steve Forbes, Jack Ablin, Roger Conrad, Robert McTeer, and Axel Mark. 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.
Now, let’s review this week.
Cyprus, of all topics, dominated the headlines and markets for the week. I tend to view the problems in Cyprus as unique. There are some differences in their banking structure that exclude solutions that could be used in other countries. Some other analysts believe the depositor tax format could be imposed in other countries and create a Europe-wide bank run.
The Fed also made news after its regular meeting. The official release indicated the board still believes the economy is growing too slowly and that quantitative easing needs to be in place for a while. Afterwards in his media conference, Chairman Ben Bernanke indicated that the board is considering when and how it will begin restricting policy. Several things were clear from a careful reading of Bernanke’s words. First, is that we’re still at least months away from a policy change. There will have to be sustained strong numbers from a range of data points, not simply one or two as many have interpreted recent statements. Second, the change will be gradual. The Fed first will vary its monthly purchases of debt in the markets. Only after an extended period of reducing purchases will it consider stronger measures, such as selling its existing portfolio and raising interest rates.
Early in the week investors used the carnival in Cyprus as a reason to sell assets that have done well so far in 2013, especially stocks. The economic data indicated that the economy continues its rate of moderate growth. There were no significant negative reports from corporations. It looks like stock indexes either are consolidating or perhaps are ready for a correction after going a long time without one.
The Data
There was a lot of data during the week, and the bulk of it related to housing. This week’s data plus previous data demonstrate that housing is in a good recovery. Demand for homes by both owners and investors is rising. This shouldn’t be surprising. Household wealth has increased, and debt declines, which means balance sheets are improved. Mortgage interest rates remain low. In addition, the excess supply is declining. There hasn’t been much building the last few years, and the shadow inventory of foreclosed and about-to-be-foreclosed homes is steadily declining.
There are a couple of interesting developments. The number of homes purchased in cash transactions remains high. This indicates investors are taking money from elsewhere to buy investment properties. Also, the low price end of the market is doing better than higher valued homes. That’s largely because most of the mortgage lending is dominated by the federal agencies, and they have a ceiling on the amount they will lend or guarantee. The private, uninsured mortgage market is only starting to recover. It still is difficult in many areas to obtain a mortgage exceeding federal guarantee levels.
Housing isn’t about to enter another boom. But it appears to have a moderate growth rate locked in. Housing and the ancillary effects (such as home improvement and furniture sales) are making a contribution to the modest overall economic growth and no longer are subtracting from economic growth.
Let’s look at this week’s specific data.
The Housing Market Index from the National Association of Home Builders turned down and we below expectations. The main problems are lack of inventory of homes and sales lots, plus difficult for homeowners to obtain credit. On the positive sign, sales traffic continues to increase.
Housing starts increased, and last month’s sharp drop was revised higher. The biggest component in the increase was in apartment buildings. Housing permits had a sizeable increase, which is a sign of higher starts and sales a few months ahead.
Existing home sales also increased, and last month’s number was revised higher. Prices also increased. The price increases of the last year (over 11% as measured by the National Association of Realtors) is causing an increase in supply. That’s important, because supply recently was the lowest in many years.
Home prices increased again, according to the Federal Housing Finance Agency. It recorded a 6.5% increase over the last 12 months.
There was positive data from manufacturing. The Philadelphia Fed Survey’s been the most negative recently and differed from most other manufacturing data. But for it rose to a reading of 2.0, which compares very favorably to February’s negative 12.5. Likewise, the PMI Manufacturing Index flash reading declined only slightly from last month, indicating modest growth continues.
The Leading Economic Indicators recorded another 0.5% increase. This indicates a continuation of the modest growth of recent months. Eight of the 10 components of the index increased.
New unemployment claims increased slightly but at 336,000 still are well below the 350,000 that seemed a barrier a few months ago.
The bottom line is that the federal spending sequester and recent tax increases still don’t appear to have slowed growth or consumer spending much. Some economists say there normally is a lag between tax increases and reduced consumer demand, so we still need to keep a close eye on the data for signs of weakness. But so far, modest, steady growth continues.
The Markets
One of the under-reported stories of the year is the divergence between emerging market equities and developed country stocks, especially U.S. stocks. Problems and worries about problems in China appear to be holding back emerging market equities. The trend continued this week with emerging market stocks being the week’s big losers in the capital markets. They lost about 1.2%. The S&P 500 was the leading stock index, gaining about 0.4% after a bounce on Friday. The Dow 30 was a fraction behind. The All-Country World Index eked out a fractional gain, while small company U.S. stocks as measured by the Russell 2000 lost a fraction.
Long-term treasury bonds were a winner for the week, gaining 0.6% after tailing off at the end of Friday. In an unusual move, the dollar lost almost 0.4% in the same week treasuries gained. High-yield bonds, investment-grade bonds, and Treasury Inflation-Protected Securities all gained 0.2% or less for the week.
Broad-based commodities had a good week, gaining almost 0.4%. Energy-based commodities had a volatile week, ranging from a gain of about 0.7% on Monday to a low of a 0.5% loss several times during the week before closing with a fractional gain. Gold also had a volatile week but lost ground on Friday to close with a 0.2% loss.
Some Reading for You
There were several pieces about retirement medical care, especially in light of the changes due from full implementation of Obamacare next year. I recommend you visit my public blog to review them.
The latest annual Retirement Confidence Survey was released during the week to a lot of publicity. You can review it here.
Perhaps the most positive factor in the economy is the improvement in the housing market. The improvements are summarized here.
I comment and link to these and other items on my public blog at http://www.bobcarlson.net.
March 15, 2013 05:25 p.m.
Your Retirement Finance Week in Review
You’ll have two opportunities to hear from me in detail in May.
First, I’ll be giving another free online investment presentation on May 1 at 3:30 p.m. eastern time. These presentations have been very popular, and attendance is increasing. My topic is “Adjusting Your Investments for 2013’s Second Half.” There is a limit to the number of participants. You can register at this link.
Then, I’ll be speaking at the Las Vegas MoneyShow May 13-16. I’ll be giving a workshop on Tuesday the 14th. There will be dozens of investment and economic speakers, including Steve Forbes, Jack Ablin, Roger Conrad, Robert McTeer, and Axel Mark. 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.
Now, let’s review this week.
There wasn’t much news this week, and that was good news for investors and the markets.
The tax increases from January and the federal spending sequester aren’t inflicting much damage on the economy. Most economists believe the combination is reducing GDP 1% or so from what it would have been. The Fed’s continued quantitative easing, however, apparently is more than enough to offset those austerity measures.
Helping U.S. markets this week was news from around the globe. China’s economy is displaying weaker growth. Industrial output had its weakest start to a calendar year since 2009. Lending and retail sales slowed. At the same time, inflation accelerated. The result of weak growth with rising inflation is that China’s stock indexes have declined since early February.
Europe, of course, still is in a recession. There was another summit of European leaders on Thursday and Friday. Investors apparently expect the leaders to relax some austerity measures, because European stocks crept up to four and a half year highs despite the poor economy.
That leaves the U.S. as the world’s strongest developed economy. There’s still the potential for the austerity measures to have a stronger negative effect than they have to date. Until that happens, however, money will continue to flow to the U.S., helping the dollar and stocks.
The Data
This was a light week for data.
The Small Business Optimism Index from the NFIB had a nice increase. While this is good news, the level of the Index still is well below early 2012 levels and is in or below typical recession levels. Small business owners continue to be concerned about weak sales. Real estate and retail businesses tend to be a larger portion of small businesses than the overall economy, which can explain the low optimism among small business owners.
There were two big surprises this week. One was retail sales, which increased 1.1% compared to expectations of about 0.5%. Higher gasoline prices and continuing auto sales were part of the increase. But after excluding those factors, retail sales still increased more than expectations. Some analysts dove deeper into this and other sales data and concluded that the payroll tax increases affected spending by lower income households but higher-income households are more optimistic and spending at a higher rate.
New unemployment claims also were a positive surprise, declining well below expectations for the second week in a row.
One report I don’t cover regularly is JOLTS, Job Openings and Labor Turnover Summary from the Department of Labor. It has more detail than the monthly employment situation reports, but it is less fresh, with the January data being reported in mid-March.
This month’s JOLTS is consistent with other reports in showing a gradually improving labor market. The number of people quitting jobs increased by 13% in the last year and is at the highest level since 2008. People generally don’t quite jobs unless they are confident of finding another job. The number of job openings, hires, and separations were about the same as in December.
Inflation remains under control and below the Fed’s level of concern, as reported in both the Producer Price Index and Consumer Price Index. There was a sharper-than-expected increase in the CPI, but that was due largely to the recent rise in gas prices. The core rate (minus food and energy) remains modest.
The only manufacturing reports this week were the Empire State Manufacturing Survey and Industrial Production and both were positive. The Empire State Survey was higher for the second month in a row, but growth was slower than in January. Industrial Production was sharply higher and better than expectations. Taken together the two indicate manufacturing bounced back in February.
The only real negative report for the week was Consumer Sentiment as measured by the University of Michigan. It fell sharply from 77.6 to 71.8. This is the first indication that higher gas prices and payroll taxes could be having an effect on some consumers. So far, that negative outlook hasn’t been reflected in retail spending.
The Markets
Emerging market stocks had the worst returns for the week, probably due to the economic news from China reported above. They lost about 2.5%. Other stock indexes did better, despite declines on Friday. The S&P 500 did the worst of the major indexes, gaining about 0.33%. The All-Country World Index did fractionally better, while the Dow 30 gained slightly more than 0.50%.
It was the first bad week in a while for the dollar. It fell steadily on Thursday and Friday, losing about 0.70% for the week. Bonds didn’t follow the dollar down the way they often do. Long-term treasury bonds gained over 0.5%, and high-yield bonds gained about 0.40%, while investment-grade bonds rose about 0.3%.
Gold had one of its few positive weeks in some time, gaining about 0.7%. Broader-based commodities did even better, rising 1%, and they were up over 1.4% early Friday. Energy-based commodities had a sharp rally late Friday, gaining 1.2%.
Some Reading for You
If you missed the reports that scientists soon might have a drug that would extend life expectancy to about 150, click here.
Many people misunderstand the meaning of insider sales for the stock market. Here’s a good summary.
For a good explanation of how the Fed’s quantitative easing boosts stock prices, read this.
I comment and link to these and other items on my public blog at http://www.bobcarlson.net.
March 8, 2013 04:25 p.m.
Your Retirement Finance Week in Review
You can join me at the Las Vegas MoneyShow May 13-16. I’ll be giving a workshop on Tuesday the 14th. There will be dozens of investment and economic speakers, including Steve Forbes, Jack Ablin, Roger Conrad, Robert McTeer, and Axel Mark. 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.
It looks like the Fed is winning, and we might be entering a sweet spot for the economy. Last week I explained that there’s a battle between the Fed’s easy money and austerity in Washington. We started the year with tax increases and reduced federal spending, which tend to be a drag on the economy. That austerity plus the continuing drama and uncertainty over the budget, appropriations measures, and debt ceiling raised the risk of slowing economic growth and perhaps tipping the economy into a recession.
The data so far indicate that the Fed’s monetary expansion more than offset the austerity measures. As I’ve been reporting the last few weeks, housing and manufacturing appear to be sustaining their growth rates and might even be accelerating. The economy isn’t in great shape. It’s still growing slower than the long-term average and well below post-recession rates. But all the signs to this point are that the growth rate will at least be sustained.
The Data
The big report in a fairly quiet week of economic reports was the Employment Situation on Friday. I’ve always believed this is an overhyped report. It’s actually two reports in one that often are contradictory because they’re based on different surveys. They’re based on estimates and tend to be heavily revised later. Surprisingly, investors this week didn’t react much to the report.
In general the report was much better than expected. There was a 236,000 increase in payrolls. That was substantially above recent months and expectations. This helped drop the unemployment rate to 7.7%. So, jobs grew faster than expectations, and the labor market is looking better.
But the report wasn’t unqualifiedly positive. Last month’s payroll increase was revised down by 38,000 jobs. Last month’s average hourly earnings were revised down, and this month’s earnings increased slightly. Hours worked also increased only slightly. The unemployment rate decreased partly because the number of participants in the workforce decreased. That’s not particularly positive for an increase in long-term growth. As one analyst said, it’s a good report for corporate earnings but not especially good for the unemployed or those seeking higher wages. It means we’re likely to stay in our recent trend of modest but positive growth.
Along the same lines new unemployment claims declined to 340,000 and are at the low end of their range since 2009.
Productivity for the fourth quarter declined and by more than expected. In fact, it was negative. This is a slippery number. The previous quarter’s number was revised from a negative 2% to a positive 3.1%. That’s a large swing. Last quarter’s negative report was taken as a sign that the economy was slowing and corporate profit margins could be in trouble. On the negative side, unit labor costs shot up by 4.6%. But again, last quarter’s costs initially were reported as increasing 4.5% but were revised to a decline of 1.9%.
Factory orders initially indicated manufacturing might be slowing, because of a 2% decline. But when volatile transportation is excluded, there was a decent 1.3% increase. Best of all was a surge of 7.2% in new orders.
The ISM Non-Manufacturing Index had a nice increase to 56, which was above expectations. This indicates good growth in the 70% or so of the economy is covers.
Probably the second-biggest report of the week was the Fed’s Beige Book. Each district bank reports conditions in its region using a combination of anecdotes and data. So far, the report indicates only modest negative effects from the payroll tax and other tax increases that started the year. The Beige Book reaches the same conclusion you should reach from reading the other data. We’re in a period of modest growth that looks sustainable and might be increasing. If growth is maintained through the next few months when the austerity measures probably are their strongest, growth should be sustained the rest of the year.
The Markets
It was a quiet week for data but a noisy week for the markets. Unlike the past quantitative easings, the current QE isn’t affecting all risky assets the same. U.S. stocks and most other stocks are doing well. But the dollar also is doing well, while commodities and gold are doing poorly. Bonds are taking a beating. Those who continued to bet on stocks as in the previous QEs are doing well, but those who expected all assets to increase are having mixed results.
Stocks took a break from their 2013 rally last week but re-engaged this week. Emerging market stocks had the best week, rising steadily all week for a rise of over 3%. The Dow 30 was next with about a 2.5% return, and the S&P 500 and All-Country World Index were just behind.
Long-term treasury bonds had a tough week. They fell all week and finished with a 3.25% loss. Investment-grade bonds were next in the line of losers with a 1.25% loss. High-yield bonds tend to follow stocks more than treasury bonds and did th
