Womack Advisers Blog

All you need to know about new 401(k) plan disclosure rules

Tue, 14 Feb 2012 00:00:00 -0500

As 401(k) plans have become more popular, plan participants have become increasingly responsible for making their own retirement savings decisions. The Department of Labor (DOL) has become concerned that participants in self-directed 401(k) plans (those that allow participants to direct the investment of their own accounts) might not have access to, or might not be considering, information critical to making informed decisions about the management of their accounts--particularly information on investment choices, fees, and expenses.

As a result, in October 2010, the DOL issued new regulations that require self-directed 401(k) plans to provide detailed information to participants about the plan and its investments, on a regular and periodic basis, so that participants can make informed investment decisions. Some information must be provided on an annual basis, and some information must be provided quarterly. For most plans, the initial annual disclosure must be furnished no later than August 30, 2012. The first quarterly statement must be furnished no later than November 14, 2012 (for July through September).

What's changing?

If you're currently participating in a 401(k) plan, chances are you're already receiving similar information as a result of an earlier set of DOL regulations. However, employer compliance with the older regulations was voluntary, whereas the new disclosure rules are mandatory for all self-directed 401(k) plans. Even participants in plans that previously complied with the earlier disclosure rules will see some changes when the new regulations take effect. For one, you'll receive more detailed information about investment fees and expenses. Another change is that plan investment information must be provided in a chart, so that you'll be better able to compare investment alternatives. And plans will no longer be required to automatically provide a prospectus, although one must be provided if you request it.

Which plans do the new rules apply to?

These new disclosure rules apply to 401(k) plans and other plans that allow participants to direct their own investments, but they do not apply to IRAs, SEPs, or SIMPLE IRA plans. They also do not apply to plans that are not covered by the Employee Retirement Income Security Act of 1974 (ERISA), including governmental plans, owner-only plans, certain 403(b) plans, and certain church plans.

Market Week, Feb. 13, 2012

Mon, 13 Feb 2012 00:00:00 -0500

The Markets

Concerns about whether Greece would fulfill the conditions necessary to obtain a second bailout brought on the first down week of 2012 for the domestic equities indices (except for the Dow, which had a down week in late January). Meanwhile, 10-year Treasury yields remained relatively stable as investors continued to seek out bonds.

Market/Index	2011 Close	Prior Week	As of 2/10	Week Change	YTD Change*
DJIA	12217.56	12862.23	12801.23	-.47%	4.78%
Nasdaq	2605.15	2905.66	2903.88	-.00%	11.47%
S&P 500	1257.60	1344.90	1342.64	-.17%	6.76%
Russell 2000	740.92	831.11	813.33	-2.14%	9.77%
Global Dow	1801.60	1976.98	1964.70	-.63%	9.05%
Fed. Funds	.25%	.25%	.25%	0 bps	0 bps
10-year Treasuries	1.89%	1.97%	1.96%	-1 bps	7 bps

*Equities data reflect price changes, not total return.

Last Week's Headlines

·Greece's coalition government reached an agreement on austerity measures needed to receive the second bailout from its peers, and at the insistence of the eurozone's finance ministers, the agreement was approved by the full Greek parliament. To protest the measures, Greece's unions called a 48-hour strike over the weekend and demonstrators took to the streets.

·Five major banks will pay $26 billion to settle a suit by 49 state attorneys general and federal officials over faulty foreclosure procedures, and nine other financial institutions are also in negotiations over the same issue. According to the agreement, $17 billion will be used over the next three years to assist homeowners, and 60% of that amount will help reduce principal on qualifying mortgages.

·According to the Commerce Department, higher imports of autos, auto parts, and industrial machinery helped push the U.S. trade deficit to $48.8 billion, the highest level since June. Imports rose 1.3% while exports were up 0.7%

Eye on the Week Ahead

European economic growth data and Wednesday's meeting of eurozone finance ministers, when final approval of the newest Greek bailout is expected in the wake of last weekend's parliamentary vote, will be a focus of attention. Domestic data on inflation, manufacturing, and housing also will be watched.

Key dates and data releases: retail sales, business inventories (2/14); Empire State manufacturing survey, industrial production, Federal Open Market Committee minutes, international capital flows (2/15); housing starts, wholesale inflation, Philadelphia Fed survey (2/16); consumer inflation, index of leading economic indicators, options expiration (2/17).

Womack: Market rally spurred by more job

Fri, 10 Feb 2012 00:00:00 -0500

The Markets

How do you spell market rally? How about “Jobs.”

A much higher than expected 243,000 jobs were added to our economy in January and that helped push the Dow Jones Industrial Average to its highest close since May 2008, according to Bloomberg. On top of that, the unemployment rate dropped to 8.3 percent – the lowest since February 2009.

More good economic news came from the services sector as the pace of growth in January accelerated to its highest level in nearly a year, according to the widely followed index from The Institute of Supply Management and reported by CNBC.

While the overall economy has gained some momentum lately, the housing market is still stuck in the gutter. According to data released last week, the S&P/Case-Shiller index of home prices in 20 major cities declined 3.7 percent in the 12 months ending November 2011. Since its 2006 peak, average homes prices in the index have dropped 33 percent and prices are now back to where they were in mid-2003.

On the bright side, if you’re looking to buy a house or refinance, now is a great time. The average rate on a 30-year fixed-rate mortgage fell to 3.87 percent last week. That’s an all-time record low, according to MarketWatch.

Overall, after a scare back in the fall of 2011, the economy seems to be gaining steam and stock prices have reflected that. The big question remains… is this sustainable growth or is it temporarily driven by government stimulus and intervention?

Data as of 2/3/12	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor's 500 (Domestic Stocks)	2.2%	6.9%	2.6%	17.1%	-1.5%	2.1%
DJ Global ex US (Foreign Stocks)	2.5	10.1	-10.3	15.9	-3.7	5.9
10-year Treasury Note (Yield Only)	2.0	N/A	3.5	2.8	4.8	4.9
Gold (per ounce)	0.5	10.1	30.6	24.2	21.7	19.7
DJ-UBS Commodity Index	-0.7	3.5	-11.4	9.9	-2.5	5.0
DJ Equity All REIT TR Index	2.1	9.0	12.5	32.1	-1.5	11.1

Notes: S&P 500, DJ Global ex US, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods. Sources: Yahoo! Finance, Barron’s,djindexes.com, London Bullion Market Association. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

CAN THE INTERSECTION OF TWO MOVING AVERAGESforetell the future direction of the stock market? Chart watchers like to follow what’s called the 50-day moving average (50 DMA) and the 200-day moving average (200 DMA). These are lines which plot the closing price of the S&P 500 index for the last 50 and 200 days. When a new day is added, the oldest day is dropped off, hence the term “moving” average.

The 200 DMA is supposed to reflect the longer-term “wave” or trend in the market while the shorter 50 DMA captures the shorter-term trend or momentum. How these two lines move relative to each other is what gets chart watchers excited.

Last week, the 50 DMA crossed above the slower moving 200 DMA. Market technicians refer to this as a “golden cross.” In layman’s terms it’s considered a bullish market signal, according to CNBC. In fact, Birinyi Associates said that in the 26 instances since 1962 when the 50 DMA crossed above the 200 DMA, the market was higher six months later 81 percent of the time.

Not surprisingly, when the 50 DMA crosses below the 200 DMA, there’s a name for that, too. It’s called a “death cross” and it’s supposed to signal bad times ahead. However, the last two “death crosses,” which occurred on August 15, 2011 and July 2, 2010, were not very prescient, according to The Wall Street Journal.

And, we can get further carried away with the funny technical names by throwing in the “Hindenburg Omen.” By its very name you can tell it’s not something you want to see in the markets, and, we’re happy to report, it is not being signaled right now.

Okay, does all this technical stuff really matter? It matters to the extent that some serious market participants invest based on these technical signals and their buying and selling based on these signals may affect the markets.

So, whether you believe in this type of market analysis or not, it may be helpful to at least be aware of it.

Weekly Focus – Does this make sense?

Of our five senses, which one do you think is most important? Interestingly, if brain space indicates the importance of a sense, then vision is the most important. According to The National Geographic Society, roughly 30 percent of neurons in the brain's cortex are devoted to vision. By contrast, just 8 percent are devoted for touch and 2 percent for hearing.

Market Week, Feb 6, 2012

Mon, 06 Feb 2012 00:00:00 -0500

The Markets

Bolstered by a strong rally in the wake of Friday's encouraging employment report, both the Nasdaq and the Dow ended the week above last year's highs, and the Nasdaq actually hit a closing level last seen in December 2000. The S&P 500 and Russell 2000 weren't far from their 2011 highs; the Russell has now risen more than 36% from its most recent low in October 2011.

Market/Index	2011 Close	Prior Week	As of 2/3	Week Change	YTD Change*
DJIA	12217.56	12660.46	12862.23	1.59%	5.28%
Nasdaq	2605.15	2816.55	2905.66	3.16%	11.54%
S&P 500	1257.60	1316.33	1344.90	2.17%	6.94%
Russell 2000	740.92	798.85	831.11	4.04%	12.17%
Global Dow	1801.60	1928.27	1976.98	2.53%	9.73%
Fed. Funds	.25%	.25%	.25%	0 bps	0 bps
10-year Treasuries	1.89%	1.93%	1.97%	4 bps	8 bps

*Equities data reflect price changes, not total return.

Last Week's Headlines

·The U.S. economy added 243,000 jobs in December, and according to the Bureau of Labor Statistics, retail jobs for the holidays weren't the major reason. Professional/business services, manufacturing, and leisure/hospitality saw the biggest job growth. The number of unemployed people also fell to a three-year low of 12.8 million. The gains brought the unemployment rate down to 8.3% and represented the fifth consecutive month of lower unemployment.

·The nonpartisan Congressional Budget Office predicted the nation's budget deficit for 2012 will be $1.1 trillion, down slightly from 2011's $1.3 trillion. The report said spending cuts and tax increases scheduled for the end of 2012 will increase the deficit by $3.1 trillion over the next 10 years, but that ending them would increase the deficit by more than $11 trillion in that time. The CBO also predicted that those tax and spending measures would cut GDP to 1.1% next year, as well as keep the unemployment rate above 8% for the next 2 years and above 7% until 2015.

·Home prices in the 20 cities tracked by the S&P/Case-Shiller index fell 1.3% in November, putting the year-over-year decline at 3.7%. According to the report, home prices have now fallen 32.9% on average since July 2006. The monthly decline was the third consecutive decrease.

·U.S. labor productivity rose 0.7% during Q4 2011; business output was up 3.6% while the number of hours worked rose 2.9%, according to the Bureau of Labor Statistics. Meanwhile, the Commerce Department said factory orders were up 1.1% in December. And the Institute for Supply Management's index of the manufacturing sector rose 1% to 54.1%, with 9 of 18 industries reporting growth, while the ISM's services index was up 0.6% to 52.6%.

·Construction spending rose 1.5% in December, putting it 4.3% above a year earlier, according to the Commerce Department. The bulk of December's growth--2.1%--was in the private sector, with nonresidential construction accounting for most of the increase.

·Status update: Facebook, founded in 2004, filed plans to go public later this year.

·Federal Reserve Chairman Ben Bernanke lectured Congress about the need to address unsustainable deficit levels to prevent the possibility of another financial shock. However, he also said that at the same time, lawmakers need to be careful not to choke off economic recovery, which he said was not incompatible with fiscal responsibility.

Eye on the Week Ahead

As earnings season continues, the elusive Greek debt deal will continue to be a source of speculation. The European Central Bank and Bank of England are expected to keep interest rates stable during a week that's light on economic data.

Key dates and data releases: international trade, consumer sentiment (2/10).

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indexes listed are unmanaged and are not available for direct investment.

Womack: Same data doesn't always equal same conclusions

Tue, 31 Jan 2012 00:00:00 -0500

The Markets

At its most basic level, a trade takes place when a buyer is willing to buy at a certain price and a seller is willing to sell at that price. Both parties could be smart, experienced, and looking at the same data, yet somehow one party thinks it’s a good price to buy and the other thinks it’s a good price to sell.

Last week, several news items represented good examples of how investors could look at the same data and draw different conclusions. Consider these:

1. Gross domestic product rose at a 2.8 percent pace in the October through December period.

Bullish investorssay that’s up from 1.8 percent the previous quarter and the fastest pace in a year and a half.

Bearish investorssay it’s less than the 3.0 percent growth expected by economists and most of the growth was due to inventory accumulation.
Source: MarketWatch

2. The International Monetary Fund (IMF) cut its forecast for global economic growth in 2012 and 2013.

Bullish investorssay fears are overblown as private-sector economic activity in the 17-nation euro zone showed small, but unexpected, growth in January and durable-goods orders were up a strong 3.0 percent in December in the U.S. – the third straight increase.

Bearish investorssay just heed the IMF’s warning, “Global growth prospects dimmed and risks sharply escalated during the fourth quarter of 2011, as the euro-area crisis entered a perilous new phase.”
Source: MarketWatch

3. Spanish and Italian bond yields dropped dramatically lately.

Bullish investorssay the drop in yields and the strong demand in January’s bond auctions suggest the euro zone crisis is easing.

Bearish investorssay the Portuguese bond market is now imploding, the Greek restructuring could fall apart, and the European Central Bank's December offer of unlimited three-year loans to banks has simply delayed the inevitable day of reckoning.
Source: The Wall Street Journal

Its differences of opinion like this that makes markets. Thanks to the free market, there always seems to be a buyer for every seller – at a price.

Like Joni Mitchell who sang, “I’ve looked at life from both sides now,” we look at the markets from both the bullish and bearish sides and, ultimately, make decisions which we think will best position you to meet your long-term goals and objectives.

Data as of 1/27/12	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor's 500 (Domestic Stocks)	0.1%	4.7%	3.1%	15.9%	-1.5%	1.5%
DJ Global ex US (Foreign Stocks)	1.9	7.4	-12.2	14.5	-3.8	5.5
10-year Treasury Note (Yield Only)	1.9	N/A	3.4	2.5	4.9	5.1
Gold (per ounce)	4.4	9.6	29.3	24.4	21.8	20.0
DJ-UBS Commodity Index	3.8	4.2	-8.1	9.9	-1.8	5.2
DJ Equity All REIT TR Index	3.0	6.8	10.3	29.7	-1.5	10.9

Notes: S&P 500, DJ Global ex US, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods. Sources: Yahoo! Finance, Barron’s,djindexes.com, London Bullion Market Association. Past performance is no guarantee of future results.Indices are unmanaged and cannot be invested into directly.N/A means not applicable.

WHAT WORRIES AMERICANS THE MOSTabout the national economy? Here’s the top 10 answers and the percentage who said it, according to an early January Gallup survey.

1. Jobs/unemployment 26%
2. National debt/Federal budget deficit16
3. Continuing economic decline/economic instability10
4. Outsourcing of jobs overseas/creating jobs in U.S. 6
5. Obama not doing a good job/no plan/lack of leadership5
6. Political bickering/Congress4
7. Healthcare/Medicaid3
8. Corporate corruption/corporations run the government3
9. Housing crisis3
10. The future of our children2
11. Eight other responses also checked in at 2 percent

The top two items are not really a surprise, but what’s revealing is how low some “important” issues ranked. Taxes, recession, social security, gas prices, education affordability, and the divide between rich and poor (think Occupy Wall Street) all pulled just 2 percent. The stock market and interest rates barely made the list at 1 percent each and ranking 21st and 25th, respectively, out of 26 on the full list.

Interestingly, if we can resolve the two biggest items on the list – the jobs and debt situations – it would most likely also resolve the third item on the list – continuing economic decline.

Do you think the politicians are listening?

(Note: responses total more than 100 percent due to multiple answers.)

Weekly Focus – Just for fun: How to Turn a Watch into a Compass

Let’s assume that you are lost in the wilderness, but you have a watch that still works. You can easily find the cardinal points by pointing the hour hand at the sun. Then form an imaginary line directly through the center of the “wedge” that is created between the hour hand and 12 o’clock. This is your south–north line. The height of the sun in the sky and the time of day will then show you which end of the line is north and which is south, remembering that the sun sets in the west and rises in the east. Try this at home first!

--Bear Grylls, survivalist, TV host, adapted from his 2008 book, “Man vs. Wild”

Market Week, Jan. 30, 2012

Mon, 30 Jan 2012 00:00:00 -0500

The Markets

A rally in domestic equities in response to Wednesday's Fed announcement of plans to keep interest rates low couldn't be sustained through the rest of the week. The Nasdaq and small-cap Russell 2000 saw the bulk of the week's gains, demonstrating resilience in the face of uncertainty about Greece's talks with its bondholders. The Fed's announcement pushed intermediate-term Treasury yields down but had little effect on longer maturities.

Market/Index	2011 Close	Prior Week	As of 1/27	Week Change	YTD Change*
DJIA	12217.56	12720.48	12660.46	-.47%	3.63%
Nasdaq	2605.15	2786.70	2816.55	1.07%	8.11%
S&P 500	1257.60	1315.38	1316.33	.07%	4.67%
Russell 2000	740.92	784.62	798.85	1.81%	7.82%
Global Dow	1801.60	1908.00	1928.27	1.06%	7.03%
Fed. Funds	.25%	.25%	.25%	0 bps	0 bps
10-year Treasuries	1.89%	2.05%	1.93%	-12 bps	4 bps

*Equities data reflect price changes, not total return.

Last Week's Headlines

·The exception becomes the rule: The Federal Reserve's Open Market Committee announced that interest rates will remain at today's exceptionally low levels longer than previously expected. Saying economic expansion continues to be moderate, the Fed forecast low rates will last through at least late 2014.

·Greece continued to negotiate with its private bondholders over a planned writedown on its sovereign debt. The sticking point is reportedly the interest rate on the bonds that will be exchanged for existing bonds. Meanwhile, leaders attending the Davos World Economic Forum said that despite economic uncertainty, they believe the European debt crisis has begun to come under control.

·The U.S. economy grew 2.8% in the final quarter of 2011. The initial estimate of gross domestic product is higher than the third quarter's 1.8% GDP, but according to the Bureau of Labor Statistics, higher inventory levels were a major factor.

·Sales of new homes fell sharply in December, according to the Commerce Department. The 2.2% monthly decline put sales 7.7% below December 2010, and the 302,000 homes sold in all of 2011 was 6.2% below 2010's total.

·Demand for transportation-related equipment helped produce a 1.8% increase in new orders from manufacturers in November. The Commerce Department said the strongest increase came in durable goods designed to last at least three years, which saw a 3.7% increase in orders. Even excluding transportation, new durable goods orders were up 0.3%, and non-defense-related orders other than aircraft were up 1.8%.

·The International Monetary Fund cut its forecast for 2012 global growth to 3.3%, slightly lower than 2011's 3.8%. Rising interest rates on European sovereign debt and bank deleveraging could bring on a mild recession there, the IMF said, but it also warned that overly aggressive austerity programs could choke off growth.

·The Conference Board's index of leading economic indicators rose 0.4% in December to 94.3. The organization said the reading would have been stronger except that the index included for the first time a measure of credit conditions, which was negative and helped moderate positive contributions from 7 of the index's 10 indicators.

Eye on the Week Ahead

Believers in the January indicator will be eyeing the end of the month on Tuesday for clues about how the rest of the year might go. A Greek bond agreement could produce euphoria, and a failure to come up with one could produce the opposite. Little change is anticipated in Friday's unemployment figure, and data on the nation's manufacturing and services sectors also will be watched.

Key dates and data releases: personal income/spending (1/30); home prices (1/31); auto sales, U.S. manufacturing, construction spending (2/1); weekly new jobless claims, business productivity and labor costs (2/2); unemployment/payrolls, U.S. services sector, factory orders (2/3).

Market Week, Jan. 23, 2012

Mon, 23 Jan 2012 00:00:00 -0500

The Markets

Downgrades? What downgrades? Having just lowered its long-term ratings on nine eurozone sovereigns, Standard and Poor's downgraded the European Financial Stability Fund itself early last week. European equity markets responded with a four-day rally, choosing to focus instead on the renewed possibility of a deal on Greek debt, and strong bond sales by France and Spain. The rally petered out on Friday, however, as doubts about Greece began to creep back in. Domestically, equities reached six-month highs, with the S&P 500 and Dow Industrials gaining every day of the holiday-shortened week (and the Nasdaq just missing that feat with a 1.63 point loss on Friday). This third straight week of equity gains--fueled by bank earnings, encouraging economic news, and eurozone optimism--slowed, at least temporarily, the flow of funds to U.S. Treasuries, which finished the week with yields on benchmark 10-year notes rising back above the 2% level.

Market/Index	2011 Close	Prior Week	As of 1/20	Week Change	YTD Change*
DJIA	12217.56	12422.06	12720.48	2.40%	4.12%
Nasdaq	2605.15	2710.67	2786.70	2.80%	6.97%
S&P 500	1257.60	1289.09	1315.38	2.04%	4.59%
Russell 2000	740.92	764.20	784.62	2.67%	5.90%
Global Dow	1801.60	1841.21	1908.00	3.63%	5.91%
Fed. Funds	.25%	.25%	.25%	0 bps	0 bps
10-year Treasuries	1.89%	1.89%	2.05%	16 bps	16 bps

*Equities data reflect price changes, not total return.

Last Week's Headlines

Standard and Poor's downgraded its long-term rating on the European Financial Stability Fund from AAA to AA+, expressing some concern about the fund's bailout capabilities in light of S&P's downgrade of member states Austria and France.
Negotiators for Greece's private creditors left talks in Athens suddenly on Saturday, leaving the status of a possible deal unclear and resurrecting the specter of a disorderly default.
Despite the selloff in traditional notes, the Treasury Department announced the record sale of $15 billion of 10-year Treasury Inflation Protected Securities (TIPS) last week with a "high-yield" of negative 0.046%, marking the first time 10-year TIPS have been sold with a negative yield.
After revising the prior week's numbers back over the 400,000 benchmark, the Department of Labor reported that seasonally adjusted initial claims for unemployment benefits dropped by 50,000 to 352,000, the lowest total since April 2008. The somewhat less volatile 4-week moving average was 379,000, a decrease of 3,500 from the previous week's revised average of 382,500.
The Federal Reserve announced that industrial production increased 0.4% in December after having fallen 0.3% in November. For the fourth quarter as a whole, industrial production rose at an annual rate of 3.1%, its 10th consecutive quarterly gain. Manufacturing production climbed 0.9% in December, the largest increase in a year, with gains widespread among major industry groups.
The Bureau of Labor Statistics reported that the Consumer Price Index for All Urban Consumers (CPI-U) remained flat for December. The index for all items other than food and energy (core inflation) increased just 0.1% in December, after rising 0.2% in November. However, the CPI rose 3% overall in 2011, compared to a 1.5% increase in 2010.
The Bureau also reported that the producer price index for finished goods (PPI, measuring wholesale inflation) declined 0.1% in December. Excluding food and energy, however, the index rose 0.3% in December, the largest increase since July 2011. The PPI rose 4.8% in 2011, after rising 3.8% in 2010.
There was some positive news in the housing sector. The National Association of Home Builders reported that builder confidence in the market for newly built single-family homes continued to rise for the fourth consecutive month, reaching its highest level since June 2007. The National Association of Realtors announced that sales of existing homes rose 5% in December to an 11-month high. For all of 2011, existing home sales rose 1.7% to 4.26 million, up from 4.19 million sales in 2010. And the Commerce Department reported that new single-family housing starts rose 4.4% in December. However, 2011 ended as the worst on record for single-family home construction. Meanwhile, Freddie Mac reported that the average 30-year fixed rate mortgage edged down slightly for the week ending January 19 to 3.88%, a new all-time record low, marking the seventh consecutive week below 4%.

Eye on the Week Ahead

The first look at U.S. economic growth for the final quarter of 2011 could suggest the potential for further recovery in the coming year. Wednesday's Fed announcement is scheduled to include a forecast for the federal funds interest rate at the end of the year; any projected change could affect bond markets. But Greece may take center stage yet again, as the race to avoid a disorderly default continues.

Key dates and data releases: Federal Open Market Committee announcement (1/25); durable goods orders, new home sales (1/26); initial estimate of Q4 2011 gross domestic product (1/27).

Calculating Cost Basis Gets Easier This Year

Thu, 19 Jan 2012 00:00:00 -0500

Anyone who has ever been baffled by calculating the net proceeds from the sale of an investment will find some relief, starting with the 2011 tax return due April 17. If you bought any stocks after January 1, 2011, and sold them later in the year, you should be receiving information from your broker shortly that tells you the adjusted cost basis of those stocks. Your adjusted cost basis, which affects the amount of tax you may owe on the sale, represents the original purchase price plus any commissions or other fees, and takes into account factors such as stock splits, corporate acquisitions or spinoffs, and reinvested dividends.

In the past, cost basis information has sometimes been available as a service; the Emergency Economic Stabilization Act of 2008 now requires all broker-dealers and other financial intermediaries to report the information on your 1099-B form. However, you won't be the only one to receive that information; your broker also is required to report the same information to the Internal Revenue Service. Individual taxpayers (or their tax preparers) will still be responsible for accurately reporting the net proceeds of a sale on their federal income tax returns, but the IRS will now have a better way to double-check those figures.

In some cases, you're still on your own this year

The new reporting requirements don't mean you can empty your files completely. Because they're being phased in, the rules don't apply to stocks bought before January 1, 2011, for which you'll still need to do your own calculations, or to securities held in retirement accounts. Cost basis reporting does go into effect this year for mutual funds and stock bought as part of a dividend reinvestment plan; however, it will apply only to shares bought after January 1, 2012, and will be reported on the 1099-B that will be available in 2013 for the tax year 2012. And cost basis for bonds, options, and other securities won't have to be reported until 2013, so those will still need to be monitored independently.

Brokers also will be required to report losses that are disallowed as a result of a wash sale (which occurs when shares are sold and then repurchased within 30 days). However, they only have to do so if the newly acquired securities are identical to the securities sold (meaning the securities share the same CUSIP identification number). They also are not required to report adjusted cost basis for wash sales when the purchase and sale transactions occur in different accounts.

You can tailor your reporting method to suit your tax situation

Investors sometimes use cost basis to help manage their tax liability on a securities sale. If you're one of them, the reporting requirements make it more important to determine in advance what accounting method you wish to use for each sale. Most broker-dealers will designate a default option to use if you do not specify a method. That default will typically be the so-called FIFO method (an acronym for "first in, first out"), which means that the first shares of a security purchased are considered the first shares sold. However, your broker might also allow you to specify LIFO ("last in, first out") or designate specific shares as the ones sold. In some cases, such as shares bought through a direct reinvestment program, using an average cost basis for all shares may be most convenient (most mutual fund companies already employ this method of calculating cost basis).

If you don't want to use your broker's default method, you may be able to put in a standing order specifying the method you want to use for all trades, or choose on a case-by-case basis; you may also authorize your financial professional to make that decision for you. The rules permit investors to change the designated method for a given trade until the settlement date (the date on which money actually changes hands, which for a typical stock sale is three business days after execution of the trade). After the trade settles, you cannot change your mind about the method used.

Brokers also will be required to report to the IRS the cost basis of a short sale in the year in which the short is closed (in the past, it was done for the year a short sale was opened).

Who wants to join the downgrade club?

Wed, 18 Jan 2012 00:00:00 -0500

The U.S. became a member last August and, now, so has most of the eurozone. Unfortunately, it’s not a club you want to join.

Late last week, Standard and Poor’s (S&P) announced it was downgrading the credit rating of nine of the eurozone’s 16 members including behemoths France and Spain. In addition, 14 of the 16 members have “negative outlooks” which means S&P believes, “that there is at least a one-in-three chance that the rating will be lowered in 2012 or 2013.” The only two countries with stable credit outlooks are Germany (no surprise) and Slovakia, a former Communist country that became an independent state in 1993 after the dissolution of Czechoslovakia.

What does this mean for the future of Europe and the economy?

The New York Timescalled it, “A move that may have more symbolic than fundamental financial impact, but served as a reminder that Europe’s economic woes were far from over.” Underscoring that, the U.S. downgrade, has – so far – not caused much of a problem. The 10-year U.S. Treasury bond yielded a slim 1.85 percent last Friday, an indication that investors still view the U.S. as a safe haven. The bottom line is everybody knows Europe has problems and the downgrade, while not helpful, simply puts an exclamation point on the obvious.

Back in the U.S., investors seemed more interested last week in tracking our economic momentum which included an eight-month high in consumer sentiment and an improved assessment of the economy from the Fed’s Beige Book. Econoday summed it up nicely when they wrote, “Traders and investors have been moving toward the position that European problems deserve less weight than they have been given in recent months.” That may be true in the short term, but if Europe craters because of their sovereign debt problems, it’s unlikely the U.S. will escape unscathed.

Unlike Las Vegas, what happens in Europe may not stay in Europe.

Data as of 1/13/12	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor's 500 (Domestic Stocks)	0.9%	2.5%	-0.3%	13.9%	-2.1%	1.3%
DJ Global ex US (Foreign Stocks)	1.3	1.5	-16.7	10.6	-4.9	4.8
10-year Treasury Note (Yield Only)	1.9	N/A	3.3	2.3	4.8	4.9
Gold (per ounce)	1.2	3.9	18.4	25.5	21.1	19.0
DJ-UBS Commodity Index	-1.4	-0.1	-13.2	7.4	-2.4	4.5
DJ Equity All REIT TR Index	1.4	1.2	8.6	26.8	-2.0	10.2

Notes: S&P 500, DJ Global ex US, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.Sources: Yahoo! Finance, Barron’s,djindexes.com, London Bullion Market Association.Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

THE ANNUAL CONSUMER ELECTRONICS SHOW (CES)just wrapped up in Las Vegasand, as usual, it featured a dazzling array of must-have new gizmos and gadgets that willlikely show up in your hand or in your family room sometime down the road. With 2,700 exhibitors and 150,000 total attendees, it’s the showcase event for everything electronic.

We thought it’d be fun to take a look at some of today’s commonplace gadgets that were introduced at CES and have you guess the year of their debut. So, here goes…

• Digital video discs (DVDs)
• Satellite radio
• Videocassette recorder (VCR)
• CD player
• Blu-ray disc
• High-definition television
• Camcorder

It’s not all fun and games at a show like CES. As you can see from the list above, these devices have spawned major industries that generated tremendous economic activity. Innovation is vital for economic growth, and a show like CES helps spotlight the latest electronic advances and, perhaps, the next driver of the economy.

One of the big highlights at the just concluded show was the unveiling of LG's 55-inch OLED TV packed with 3D bells and smart TV whistles. So, what in the world is an OLED TV? It’s a TV that uses a new display technology called OLED (Organic Light Emitting Diodes). OLED televisions are brighter, more efficient, thinner, and feature better refresh rates and contrast than either LCD or Plasma TVs. And boy is it thin. The LG 55-inch OLED TV is only 0.2 inches deep at its thinnest point and weighs a measly 16.5 pounds. If you’re an early adopter, you’ll want one of these beauties in your home theater later this year.

Okay, here are the answers to the “device debut” question, according to CNBC.

Digital video discs (1996), Satellite radio (2000), Videocassette recorder (1970), CD player (1981), Blu-ray disc (2003), High-definition television (1998), and Camcorder (1981).

How many did you correctly answer?

Weekly Focus – Think About It

“It's easy to come up with new ideas; the hard part is letting go of what worked for you two years ago, but will soon be out of date.” --Roger von Oech, author, inventor, consultant

Market Week: Jan. 17, 2012

Tue, 17 Jan 2012 00:00:00 -0500

The Markets

Two in a row: Helped along by benign economic reports, domestic equities built on last week's gains. However, market leadership migrated to the Nasdaq and small-cap Russell 2000. Friday's after-hours release of Standard and Poor's European downgrades prevented the news from having much impact last week, though rumors weighed on markets during the week's final hours.

Market/Index	2011 Close	Prior Week	As of 1/13	Week Change	YTD Change*
DJIA	12217.56	12359.92	12422.06	.50%	1.67%
Nasdaq	2605.15	2674.22	2710.67	1.36%	4.05%
S&P 500	1257.60	1277.81	1289.09	.88%	2.50%
Russell 2000	740.92	749.71	764.20	1.93%	3.14%
Global Dow	1801.60	1812.76	1841.21	1.57%	2.20%
Fed. Funds	.25%	.25%	.25%	0 bps	0 bps
10-year Treasuries	1.89%	1.92%	1.89%	-3 bps	0 bps

*Equities data reflect price changes, not total return.

Last Week's Headlines

·Standard and Poor's downgraded the AAA bond ratings of both France and Austria to AA+. It also cut Spain's rating to A and Italy's to BBB+, and reduced Portugal's rating to BB (junk bond status), all of which are likely to increase the cost of borrowing for those countries. Because France is Europe's second-largest economy and a pillar of the European Financial Stability Fund, the downgrades raised concerns about the impact on the fund's bailout capabilities.

·Meanwhile, the German economy contracted by 0.25% during the fourth quarter, and the 3% growth rate for all of 2011 was lower than the previous year's. Both the European Central Bank and the Bank of England kept their benchmark interest rates at 1% and 0.5%, respectively.

·Falling exports and higher foreign oil imports helped increase the U.S. trade deficit by more than 10% to $47.8 billion in November, the Commerce Department said. That's the largest increase since May.

·The Commerce Department also reported that retail sales rose 0.1% in December, up 6.5% from last December. However, not counting a 1.5% increase in auto sales, retail sales were down 0.2%.

·The Federal Reserve turned over to the U.S. Treasury $76.9 billion in net income, derived mostly from interest earned in 2011 from purchases of U.S. Treasuries and mortgage-backed securities bought as part of its quantitative easing programs. That's slightly less than the previous year's $79.8 billion, but still well above 2009's $47.4 billion.

·The Fed's "beige book" report said economic conditions increased at a "modest to moderate pace" during late November and December. That was an improvement from earlier in the year, and was helped along by retail sales that beat last year's and strong auto sales.

Eye on the Week Ahead

Though the reaction to the European downgrades will likely steal the spotlight, a data-heavy week also will include inflation and manufacturing data.

Key dates and data releases: Empire State manufacturing survey (1/17); wholesale inflation, industrial production, international capital flows (1/18); consumer inflation, housing starts, Philadelphia Fed manufacturing survey, weekly new jobless claims (1/19); home resales, options expirations (1/20).

What characteristic equaled best performance in 2011

Tue, 10 Jan 2012 00:00:00 -0500

Which stock characteristic most impacted the S&P 500’s performance in 2011?

To answer that question, Bespoke Investment Group performed a decile analysis and concluded that having a high dividend yield was the most important factor affecting stock prices in 2011.

In their analysis, they discovered that the three deciles with the highest dividend yield were the only ones to experience a positive return for the year. In fact, while the S&P 500 index was unchanged for the year, the top three highest-yielding deciles rose 10.4 percent, 6.4 percent, and 8.7 percent, respectively. The remaining seven deciles all experienced a loss for the year.

Now, it won’t always turn out that the highest dividend yielding stocks are the best performers. Some years, investors will be more adventurous and bid up the riskier stocks that tend to pay low or no dividends.

Will the tide turn in 2012 and see the outperformance of the low or no dividend stocks? A lot will depend on how the economy shakes out.

Based on last week’s unemployment report, it looks like we ended 2011 with some economic momentum. The U.S. economy added 200,000 jobs in December and the unemployment rate dropped to 8.5 percent, the lowest in almost three years, according to BusinessWeek.

This week marks the beginning of another quarterly earnings season so the next 30 days or so should give us a good indication of the strength of the underlying economy.

Data as of 1/6/12	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor's 500 (Domestic Stocks)	1.6%	1.6%	0.5%	11.0%	-2.0%	0.9%
DJ Global ex US (Foreign Stocks)	0.2	0.2	-16.1	7.7	-4.9	4.3
10-year Treasury Note (Yield Only)	2.0	N/A	3.4	2.5	4.7	5.1
Gold (per ounce)	2.7	2.7	18.1	24.0	21.5	19.2
DJ-UBS Commodity Index	1.3	1.3	-10.3	4.9	-1.9	4.4
DJ Equity All REIT TR Index	-0.2	-0.2	7.8	20.8	-1.2	10.1

Notes: S&P 500, DJ Global ex US, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, Barron’s,djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

WERE THE “NIFTY-FIFTY” REALLY THAT NIFTY?Back in the early 1970s, pundits fawned over some of the era’s fastest growing, industry-leading companies who seemed to defy the sluggish overall economy. Dubbed the Nifty-Fifty, these glamour stocks were well-known “one-decision” stocks that institutional investors clamored to own. So, how well did these stocks do over the last 40 years? Were they truly “one-decision” stocks?

While there was no official list of the Nifty-Fifty, two competing lists of 50 stocks are commonly cited, according to a research report titled, “The Nifty-Fifty Re-Revisited,” by Jeff Fesenmaier and Gary Smith of Pomona College. For today’s purpose, we’ll look at the 24 stocks that made both lists and were dubbed the “Terrific 24” by Fesenmaier and Smith.

Some of the household names on the Terrific 24 list include: McDonald’s, Walt Disney, Avon, Johnson and Johnson, and Coca-Cola. These companies are still doing well. However, some other household names on the Terrific 24 list performed poorly. Consider the following:

Xerox:It’s still around, but is a shadow of its former self and trades for about $8 per share.

MGIC Investment Corp:It went through various corporate restructurings throughout the years, but is still around as a private mortgage insurer. However, it got battered in the mortgage insurance meltdown of recent years and trades for about $4 per share.

Polaroid:The inventor of instant film couldn’t make the transition to a new world and filed for bankruptcy in 2001.

Eastman Kodak:Perhaps the saddest story of the bunch, Kodak has struggled for years to make the transition to a digital world and is now rumored to have filed for bankruptcy as early as this month, according to Reuters. Its stock sold for less than 50 cents per share last week. Ironically, Kodak invented the digital camera in 1975, but was never able to capitalize on it.

With 40 years of history, here are three key lessons we can learn from the Nifty-Fifty story:

1. Some “glamour” stocks do remain glamorous for many years, e.g, McDonald’s, Walt Disney, and Coca-Cola (although each had its “rough periods” over the past 40 years).
2. Promoting “one-decision” stocks is more of a headline-grabbing marketing strategy than a sound investment strategy.
3. Even the “best” stocks can fall to zero so it’s important to have a sell discipline.

As the British statesman and philosopher Edmund Burke said, “Those who don’t know history are destined to repeat it.”

Weekly Focus – Think About It

“The supreme purpose of history is a better world.” --Herbert Hoover, U.S. President

Market Week, Jan. 9, 2012

Mon, 09 Jan 2012 00:00:00 -0500

So far, so good: The new year got off to a moderately encouraging start, beginning with solid reports on manufacturing and construction and ending with a fourth month of improved employment data. The Nasdaq took the lead; it was the first week since early October in which its gains outpaced those of the other three domestic indices. Not surprisingly, the Global Dow continued to be sluggish.

Market/Index	2011 Close	Prior Week	As of 1/6	Week Change	YTD Change*
DJIA	12217.56	12217.56	12359.92	1.17%	1.17%
Nasdaq	2605.15	2605.15	2674.22	2.65%	2.65%
S&P 500	1257.60	1257.60	1277.81	1.61%	1.61%
Russell 2000	740.92	740.92	749.71	1.19%	1.19%
Global Dow	1801.60	1801.60	1812.76	.62%	.62%
Fed. Funds	.25%	.25%	.25%	0 bps	0 bps
10-year Treasuries	1.89%	1.89%	1.92%	3 bps	3 bps

*Equities data reflect price changes, not total return.

Last Week's Headlines

Unemployment fell in December for the fourth straight month, hitting 8.5%; that's almost a full percentage point from last December's 9.4%. The Bureau of Labor Statistics said employers added 200,000 net new jobs, with the biggest gains occurring in transportation/warehousing, retail, and manufacturing. The measure of unemployment that includes underemployed workers also fell; it's down from 15.6% to 15.2%.
U.S. manufacturing growth accelerated in December, according to the Institute for Supply Management. The ISM's index hit 53.9%, its highest level since June; it was the 29th straight month of expansion. Meanwhile, the Commerce Department said new durable goods orders also rose by 3.8%. The growth, driven primarily by new orders for aircraft and other transportation equipment, represented the fourth increase in the last five months.
The Federal Reserve will start spelling out its expectations for the direction of short-term interest rates, including when it might start to raise rates. The forecasts will be made quarterly beginning with the January 25 release of other Fed economic forecasts, which will include projections for the end of this year.
Expansion in the U.S. services sector picked up at a faster pace in December as the Institute for Supply Management's index rose 0.6% to 52.6%. It was the 26th consecutive month of growth, with 11 of the index's 18 industries reporting improvement.
The average interest rate on 30-year fixed mortgages fell to 3.91% during the first week of 2012. According to mortgage giant Freddie Mac, that's as low as it's ever been. It also was the fifth straight week of rates under 4%.

Eye on the Week Ahead

Bond auctions are scheduled in Italy and Spain; with Italian 10-year yields over 7%, the results will be watched. Also, Monday's Alcoa earnings announcement represents the informal kickoff for the fourth-quarter earnings season.

Key dates and data releases: Fed "beige book" report (1/11); weekly new jobless claims, retail sales, business inventories (1/12); international trade, import/export prices, consumer sentiment (1/13).

Welcome back: Market Week for January 3, 2012

Tue, 03 Jan 2012 00:00:00 -0500

Shortened by the Christmas holiday, the last week of 2011 saw low volumes that, despite some volatility, left the domestic equity indices little changed. The Dow was the only one of the four to end the year with a gain, due in no small part to its nearly 12% bounce in the fourth quarter. Meanwhile, the S&P 500 closed out 2011 just four-hundredths of a point below where it began, with a Q4 gain of just over 11%. The summer's volatility cost the Nasdaq and small-cap Russell 2000 dearly; at year's end, they were down 9% and 14% respectively from their April 2011 highs despite the Russell's fourth-quarter 15% gain.

Market/Index	2010 Close	Prior Week	As of 12/30	Week Change	YTD Change*
DJIA	11577.51	12294.00	12217.56	-.62%	5.53%
Nasdaq	2652.87	2618.64	2605.15	-.52%	-1.80%
S&P 500	1257.64	1265.33	1257.60	-.61%	-0%
Russell 2000	783.65	747.98	740.92	-.94%	-5.45%
Global Dow	2087.44	1803.20	1801.60	-0%	-13.69%
Fed. Funds	.25%	.25%	.25%	0 bps	0 bps
10-year Treasuries	3.30%	2.03%	1.89%	-14 bps	-141 bps

*Equities data reflect price changes, not total return.

Last Week's Headlines

Home prices fell in October for the sixth straight month, according to the S&P/Case-Shiller 20-city composite index. Prices were down 1.2% from September, with all but one of the 20 cities tracked by the index showing a decline. Prices also were 3.4% lower than a year ago.
The National Association of Realtors® said pending home sales (sales for which a contract has been signed but which have not closed) rose 7.3% in November. That represented its highest level since April 2010.
Spain's new government announced a package of €8.9 billion worth of budget cuts and tax increases to try to attack a deficit that represents roughly 8% of the country's output.

Eye on the Week Ahead

Investors who believe that the first five days of January suggest something about the rest of the year will watch the coming week closely. Manufacturing and construction indicators as well as unemployment data on Friday could suggest whether economic recovery is likely to continue in 2012.

Key dates and data releases: U.S. manufacturing, construction spending, Federal Open Market Committee minutes (1/3); auto sales, factory orders (1/4); U.S. services sector, new weekly jobless claims (1/5); unemployment/payrolls, consumer credit (1/6).

Data sources: Includes data provided by Brounes & Associates. All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results. Equities data reflect price change, not total return. The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indexes listed are unmanaged and are not available for direct investment.