November 2012

Last update on: Oct 01 2019

Topics: Bob's Journal, Retirement Investing, Stock Markets and the Economy

November 30, 2012 04:40 p.m.
Your Retirement Finance Week in Review

There’s still room available at my next free online investment presentation, but slots are filling up. I’ll try to make some sense and order of current economic and market issues and 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.

While the media and many on Wall Street are focused on the fiscal cliff and the efforts (or lack of effort) to avoid it, there are more important issues for investors to examine. Whatever resolution is reached or not reached in Washington, the result will be some level of austerity (tax increases and spending cuts) imposed on the economy. That will reduce growth below what it would have been.

What really matters is the disconnection between consumers and businesses. Consumer sentiment has been becoming more positive since June. Retail sales are up. Households report increased plans to buy cars and houses. Granted, all these indicators are rising from depressed levels, but they are rising.

Businesses on the other hand remain pessimistic and might be becoming more pessimistic. They continue to hoard cash and avoid hiring or investing in equipment. The latest earnings season was the worst in some time, and many companies issued negative outlooks for 2013.

The key to 2013 is how this disconnection is resolved. If businesses don’t loosen up, consumers might pull back because of frozen incomes and reduced opportunities. But businesses might conclude that the recent increase in demand is real and sustainable, in which case they’ll hire more people. The increased hiring likely would make the higher demand sustainable.

It’s a tough call at this point. That’s why my recommended portfolios are diversified. Parts of the portfolio will benefit from each likely course of events, and sell signals are in place so we’ll dispose of any investments that sink. That’s the best way to invest in this turbulent, uncertain environment.

The Data

Some of the economic data continues to be distorted by Hurricane Sandy, and that will continue for a while. Much of what was issued this week was either moderately positive or negative. The data continues to reveal a slowly growing economy that is downshifting.

Housing delivered the best news of the week, though it wasn’t all positive. The Case-Shiller Home Price Index and the FHFA House Price Index both recorded another month of increases in home prices. The Case-Shiller Index showed prices rising 3% over the last 12 months, while the FHFA data indicated a 4.3% rise over the last year. This data could explain a lot about recent consumer optimism. But we should expect the numbers to moderate in coming months, because that is the traditional slow season in real estate.

Pending home sales rose sharply and well above expectations. The bit of bad housing news for the week was new home sales. Last month’s positive number was revised down, and this month’s number came in below last month’s revised number and well below expectations. The report also showed a 4.2% price decline for the month.

New home sales have been the weakest part of the housing market for some time, and that should continue a little longer. The problem is new homes have to compete with the great number of distressed sales of existing homes on the market, and the new homes tend to cost more. New home sales should improve sometime in 2013 as the inventory of existing homes stabilizes and foreclosure rates slow.

Manufacturing had several reports during the month, and most were neutral to negative. This could be partly due to Hurricane Sandy. The Chicago Fed’s National Activity Index was below last month’s number and expectations. The Dallas Fed Manufacturing Survey was negative and below expectations. Generally production remained about even but perceptions of future business conditions darkened. The Kansas City Fed report showed another month of reduced manufacturing activity. The Richmond Fed, on the other hand, showed a sharp pick up in activity in its region.

Durable Goods Order fell sharply but came in above expectations. Some analysts found reasons for optimism in the details, such as a rise in the index after excluding the volatile transportation sector.

Consumer Confidence as reported by the Conference Board reported another increase and a revision of last month’s number to a higher level. While perceptions of current conditions weren’t good, for some reasons consumers reported optimism about coming months and plans to buy homes, cars, and major appliances.

At odds with this is Personal Income and Outlays report. Personal income was unchanged for the month, and consumer spending actually declined. The year to year change in both personal income and spending was 3%. The good news in the report was that inflation remains under control at less than 2% as measured by the PCE Price Index. It’s hard to reconcile this report with other recent reports of higher consumer spending and confidence.

New unemployment claims improved a bit, but they’re still around the 400,000 mark and well above where they were during the summer.

The second report of GDP for the third quarter initially appeared to be positive but then wilted as details were revealed. The revision rose to 2.7% from 2.0% and were just below forecasts. But the increase was due largely to increases in inventories and exports. The increase in inventories could mean businesses were optimistic about future demand so they produced more and stockpiled inventory. Or it could mean they were caught holding too much inventory as demand declined. The report doesn’t answer that question. We’ll find out over the coming months.

The data add up to an economy that is growing slowly and under pressure.

The Markets

Gold had a bad week, largely due to a sharp drop late Tuesday and early Wednesday. It closed with a loss of about 2%. Broad-based commodities did better with a loss of about 0.6%, and energy-based commodities actually gained just under 0.5%. The dollar was about flat for the week.

Stocks had a volatile week, dropping a lot on Tuesday and recovering most of the rest of the week. The major indexes were clumped with gains between 0.5% and 1.0%. The All-Country World Index did best with a return just below 1.0%, and the Dow 30 did worst with a gain just above 0.5%.

Among bonds, long-term treasury bonds also were volatile with sharp gains early Wednesday and losses the rest of the week. They finished with a loss around 0.25%. Investment-grade corporate bonds gained a small amount, and TIPS gained just over 0.5%. High-yield bonds had the best week with a gain of just under 1%.

Some Reading for You

How will the fiscal cliff be resolved? I like this analysis.

The home sales information this week was mixed and in some respects puzzling. Here’s a good explanation.

I like this review by Chris Whalen of a recent defense of big banks by a Deutsche Bank employee.

I comment and link to these and other items on my public blog at http://www.bobcarlson.net.

November 23, 2012 01:10 p.m.
Your Retirement Finance Week in Review

Before we dive into this week’s discussion, I want to remind you about my next free online investment presentation. I’ll try to make some sense and order of current economic and market issues and answer the question: How should you manage your portfolio in this environment?

It was a quiet, holiday-shortened week for both the markets and economic data. So, this week’s report will be fairly brief.

The Data

The week’s major reports were on housing and were positive. Housing starts and sales of existing homes were both positive and above expectations. The Housing Market Index from the National Association of Home Builders also both increased and was above expectations. Clearly, housing no longer is a drag on the economy and is one of the few sectors now contributing to growth. But keep in mind that all housing numbers still are extremely depressed. We’re making only small bounces above the bottom. Also, the growth rate is still low and is likely to remain there until all of the homeowners who are underwater see a change in their positions.

New unemployment claims again were above 400,000, but this time were actually better than expectations. We can’t read much from this number for a while until the effects of Hurricane Sandy are washed out.

There was only one manufacturing report during the week, and it was positive. The PMI Manufacturing Index flash rose to 52.4 and was above expectations. This indicates accelerating growth. This is inconsistent with other recent manufacturing reports, and this is a relatively new indicator. So, we’ll have to see what the other manufacturing reports say.

Leading indicators rose modestly and in line with expectations. That’s a sign of continuing modest growth. Consumers sentiment declined modestly for the first time since June. It’s still at recession levels, though it remains near the high for this economic recovery.

The Markets

It’s important not too read too much into market action during holiday weeks. Trading volume is low as many professionals take time off. It doesn’t take much to move the markets.

It was a good week for risky assets, probably due to the announcement of a cease fire in the Middle East. Stocks reversed several weeks of declines, though they still show losses for the last month. The leading index was the All-Country World Index with a gain above 2%, followed closely by U.S. small company stocks. The Dow 30, S&P 500, and emerging market stocks each gained about 1.75%.

Long-term treasury bonds were the week’s loser, dropping about 1%. The dollar lost slightly less.

Broad-based commodities had a good week, gaining over 1%. High-yield bonds were closely behind, gaining a little under 1%. Gold surged on Friday after declining most of the week, ending with a gain just under 1%. Energy-based commodities gained about 0.5%. Investment-grade bonds had a small gain for the week.

Some Reading for You

I was fascinated by this discussion of the bankruptcy of management consultant Michael Porter’s firm.

This article on how to age well doesn’t have anything that wasn’t in Retirement Watch before, but it’s a good summary of what you should know.

This summary of the new Consumer Financial Protection Agency is worth reading.

I comment and link to these and other items on my public blog at http://www.bobcarlson.net.

November 16, 2012 04:50 p.m.
Your Retirement Finance Week in Review

The investment markets are being hit from all sides these days. In addition to the uncertain state of the economy and corporate earnings, there are the actions, or inactions, of policymakers in Washington, Europe, and China. How should you manage your portfolio in this environment?

I’ll cover that and more in my next 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.

A lot of economic and political events dominated the news recently. I think they overshadowed one interesting and telling series of stories. A number of top-level executives at major U.S. companies recently were fired, allowed to retire, or left to “pursue over interests.” Changes at the top of firms usually isn’t sudden. It’s usually managed with a careful transition, and turnover near the top for performance reasons is rare, except for companies that are in trouble. But senior executives left at Microsoft, Apple, McDonalds, and Lockheed Martin in the immediate past.

One message I take from these events is that the economy is very tough and getting tougher. Another message is that boards and top management are demanding results and not giving executives the benefit of the doubt or much time. (Funny, there aren’t any financial services firms, especially banks, on that list.) Another lesson is that less-than-ideal personal behavior isn’t going to be indulged, at least not without top results. Major companies are underperforming, they’re worried about future performance, and they’re willing to replace top people.

The Data

There was a relatively small amount of economic data this week. One thing we learned is that Hurricane Sandy already is affecting data and probably will for a while. That will make it harder to interpret the data. The general effect of the storm will be negative on GDP. Some sectors, such as construction, likely will benefit. But the lost economic activity from the storm will overwhelm the benefits and result in a net negative for growth.

The week started with the National Federal of Business Small Business Optimism Index rising by a small amount. The index still is at typical recession levels, and overall small business owners are pessimistic. They remain worried about sales growth and have few plans to create new jobs.

Inflation in the U.S. remains under control despite all the monetary stimulus. We expect this. In a deleveraging economy, households don’t borrow and spend as much and the bias is towards deflation instead of inflation. Consumer prices barely rose by 0.1%, and the 12-month rate was 2.2%, just above the Fed’s target of 2.0%. Excluding food and energy the numbers were similar, 0.2% and 2.0%. The Fed will be watching, because the core CPI was a little higher than the headline number. But most of the increase was in housing, which is not a realistic number because of the owners’ equivalent rent the Department of Labor uses.

Producer prices saw declines for both the headline number and the core that excludes food and energy. The one year changes were 2.3% for the headline number and 2.1% for the core. Overall, inflation is under control and within the Fed’s targets. The Fed won’t be concerned about inflation until it consistently is around 3%.

Retail sales were the big negative surprise for the week. They actually declined by 0.3%. Analysts attribute at least part of the decline to Hurricane Sandy. But we’ve been saying for a while that recent increases in retail sales weren’t sustainable. Households have been reducing savings, because retail sales were rising faster than incomes. That can’t continue forever. We’ll continue to watch this number.

There were several manufacturing reports, and they generally were negative. It also isn’t clear what effect the hurricane had on the reports. The most positive report was on business inventories. These increased for the third month in a row. This is a sign that businesses are optimistic about sales so they are building inventories to meet expectations. But the Empire State Manufacturing Survey and Philadelphia Fed Survey both were negative. The Empire State report showed a contraction for the second month in a row, and survey respondents reported little effect from the hurricane. Employment fell sharply, and optimism about the next six months declined. The Philadelphia Fed negative report was the sixth in seven months. More businesses reported an effect from the hurricane, because the survey covers southern New Jersey.

Industrial production declined and was well below expectations. The Fed, which prepares the report, estimated a significant effect from the hurricane.

New unemployment claims rose by 78,000, putting the total back well over 400,000 to 439,000. The previous week’s claims were revised upward. The hurricane is believed to have some effect on the numbers and the data collection process. But it was a surprisingly negative number that can’t be blamed entirely on the hurricane. It shows a weak labor market that now appears to be getting weaker instead of slightly stronger.

The Markets

Before reviewing what the markets did over the last week, let’s take a look at how the Retirement Watch recommended portfolios performed in recent months. This is a good time for the exercise, because many markets changed directions in recent weeks.

In the two months ended Thursday, our biggest loser in our managed portfolios (Sector, Balanced, and Income Growth) is Tocqueville Gold. It’s down over 12%, with most of that loss in the last few days. The fund is more effected by stock price movements than gold’s movements. iShares Gold trust is down just over 2% and held fairly steady while Tocqueville Gold was declining this week. We expect volatility from the goldmining shres and give them a lot of room. The fund’s recent close still is well above our sell below price.

Another significant decliner is MainStay Marketfield. It’s down about 4%. That’s about half the loss of the stock market indexes and about what we should expect.

At the other end is Hussman Strategic Growth. Its market hedges are generating profits as stock indexes decline. The fund’s gained about 5% in the last two months with more than half of that coming since Nov. 5.

The rest of the funds are either even or has modest losses. PIMCO All Asset All Authority has about a 1% loss, while DoubleLine Total Return Bond and Vanguard High Yield Corporate Bond are close to unchanged.

In the Retirement Paycheck Portfolio, the big decliner is Enterprise Products Partners. It’s now declined to a very attractive price. In the December issue, which now is available on the web site, I removed both the recommended limit on making new investments and the “sell below” price. I believe the price rose too high earlier this year, but the recent selling corrected for that and brings the price to a good level. There could be more selling because in general market sympathy and the panic over the fiscal cliff, but those should be temporary factors.

PIMCO Corporate Income & Opportunity is down about 6%, all in the last two days. Don’t worry about that. It’s still well above our “sell below” price, which is set to reflect a market panic.

The rest of the portfolio has positive returns or a 0% return. DoubleLine Total Return Bond is about flat, while Vanguard Intermediate Investment-Grade Income, DoubleLine Emerging Markets Income, and Cohen & Steers Preferred Securities & Income have gains of 1% or less. All of these numbers reflect only changes in market prices or net asset values unadjusted for distributions.

In the last week in the investment markets, we see high correlations among most assets. Most of them have negative returns.

The positive returns are in long-term treasury bonds, the dollar, broad-based commodities, and investment-grade corporate bonds. Except for commodities, which had a surge on Friday, it looks like a classic flight to safety. The gains weren’t high. Treasuries gained 0.5%, and the rest had fractional gains.

The biggest losers are stocks. Emerging market equities are down 2%, as was the Dow 30. Close behind with losses around `.5% were the S&P 500 and All-Country World Index. The biggest losers are small-company U.S. stocks as represented by the Russell 2000 Index, with a loss of about 2.5%.

Energy-related commodities lost a fraction, while high yield bonds lost just over 0.5%. Gold lost just under 1.5%.

Some Reading for You

People often make bad financial decisions because their process is wrong. For some examples of how to make decisions, click here.

Fidelity is shutting down some mutual funds. Understanding why could make you a better investors. Learn more here.

Your medical care’s going to change. Here’s an overview and some actions you should take.

I comment and link to these and other items on my public blog at http://www.bobcarlson.net.

November 9, 2012 04:50 p.m.
Your Retirement Finance Week in Review

The week was dominated by news and factors outside the markets and economy. Politics took a big part of the week. There was the election Tuesday and its aftermath, with numerous reports and theories about the results and what they mean. With the election behind us, policymakers no longer can defer taking a look at expiring tax breaks, the sequestration of federal spending, and other issues.

Markets were volatile this week and will be volatile through the end of the year as the two sides engage in brinksmanship and public negotiating over the terms. My guess is at the end of the year they’ll agree to a temporary extension of current law into early 2013 and resume negotiating again in 2013. No one can be sure what will happen, but that appears to be the most likely scenario.

Whatever happens with the year-end provisions, they aren’t the real issue. Policymakers need to get that behind them and focus on the long-term revenue and spending problem plus the issue of unsustainable entitlement programs. If policymakers can deal with the year-end issues fairly quickly and show some progress on the long-term issues, then we should see jumps in the markets and economy. Otherwise, we’ll continue to have frozen business investment and a slowly-growing economy that’s frequently at risk of slipping into a recession.

The Data

This was a very light week for economic data in the U.S., but a couple of important pieces were issued.

Consumer sentiment rose strongly, as measured by the University of Michigan. Both measurements of current conditions and expectations of the future rose. The index now is at recovery highs. Even so, the absolute level measured against history isn’t good. We’re still at typical recession levels. You can see the long-term picture here.

The increases in consumer sentiment and retail spending in recent months are something of a puzzle. The labor market isn’t in good shape, and household incomes aren’t rising by much. Rising stock and home prices explain some of the improvement, but those factors aren’t exactly in roaring bull markets and it usually takes some time for improvements in wealth to transfer into higher spending and optimism. It could be the improvement in housing is enough to trigger the optimism and increased spending. We’ll see how long it can last without an improvement in household incomes and the labor market.

The ISM Non-Manufacturing Index came in below expectations and below last month’s level. It still is above 50, which indicates an expansion rather than a contraction. But the index is below the January 2012 and January 2011 peaks.

Wednesday brought a couple of important reports that didn’t get much attention because of election news.

Consumer credit rose, but much of that increase, as in the recent past, was due to a rise in student loans. Credit card debt, which was rising earlier in the year, declined for the third time in four months. This report, coupled with the recent rise in retail sales, indicates consumers are reducing savings and using cash to finance the purchases.

Related to that report was another decline in mortgage applications reported by the Mortgage Bankers Association. Applications for both home purchases and refinancing declined. This occurs despite record low mortgage rates.

Consumer borrowing is an important component of economic growth, and a lack of consumer credit growth means little or no economic growth. Because of the high levels of debt households took on during the boom period, they don’t have the incomes or assets to finance more borrowing. Many homeowners also don’t have any equity against which to borrow.

New unemployment claims declined, but the four-week average still is at 370,000. This is about where it’s been for some time and is too high for unemployment to decline by much.

The data continues to add up to a slowly growing economy. There are inklings from consumers that demand might be picking up, which would lead to higher growth if sustained. At the same time, businesses are retrenching but spending less on equipment and labor, and manufacturing is slowing. It’s hard to see how the consumer spending can be maintained without an improvement in household incomes, but we’ll see how things develop.

The Markets

Stocks captured the investment headlines this week, and they had a bad week. They started well with a modest rise on Monday and a stronger one on Tuesday. It was downhill after that. The top performer of the week was emerging market stocks with about a 1% loss. Bringing up the rear were U.S. small company stocks with a 2% loss. Falling in between with roughly a 1.5% loss each were the S&P 500, Dow 30, and global stocks as measured by the All Country World Index.

Stock indexes are down from their mid-September peaks. Over the last three months, U.S. stocks are down about 2% while indexes outside the U.S. are up about 1%. Over six months, there’s been a lot of movement but all the indexes registered between 0% and 2% returns.

The big winner for the week was gold, with a 3% rise. It took a big jump on Tuesday and rose steadily the rest of the week. Energy-related commodities rose sharply early in the week, taking a 3% gain, declined sharply, and then rose on Friday for a better than 1.5% gain. Broader-based commodities had a smoother week and a slightly better than 0.5% gain. The dollar was relatively stable for the week, finishing with a gain of less than 0.5%.

Among bonds, long-term treasuries had the best week. They declined Tuesday but rose sharply Wednesday after the election results were announced and stocks declined. They shot up again at mid-day Thursday to finish the week with a better than 2% gain. Treasury Inflation-Protected Securities had a smoother ride for about a 0.5% gain. High-yield bonds and investment-grade corporate bonds didn’t fare as well, each losing about 1% for the week.

Some Reading for You

The big news this week that didn’t get enough attention outside of prof

November 2012

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