The Good 

Economy grew in third quarter 

The Commerce Department said today that the economy expanded at a 2% annual rate in the July-September quarter, which is a marked improvement from the 1.7% growth in the prior quarter. 

Consumers helped boost last quarter’s economic growth with 2.6% growth in spending.  That was better than the prior quarter and marked the biggest quarterly increase since the end of 2006 before the recession hit. 

A stock-market rebound made people feel better about spending.  Bargains, on everything from cars to home furnishings, also drew them out.  Consumer spending accounts for roughly 70% of national economic activity, and thus plays a major role in determining the vigor of the economic rebound. 

Appetite for risk picking up 

Waddell & Reed’s (local mutual fund company) Chief Executive Hank Herrmann is respected and known for his blunt candor and investment acumen.  Mr. Herrmann recently stated in a Wall Street Journal interview that he saw evidence that there is improvement in investors’ risk appetite. 

Economic conditions and the stock market have both been gradually improving, interest rates are at record lows, and the Federal Reserve is considering additional steps to keep rates low in the near term.  As a result, it appears that investors are looking at other options for their funds.  The trend is not overwhelming, but barring some major adverse economic or market event, investors may continue to explore options outside of savings accounts and bonds.  This could result in stocks becoming more appealing, which would be quite profitable for all stock investors. Read more

By Toan Nguyen

                Being twenty eight years old, I can’t say that I’ve put much thought into how to find a suitable nursing home.  Prior to last year, I have never even been inside a nursing home.  I never knew how much research it takes or what was all involved in selecting a suitable home until I had to do it for my wife’s grandmother.  During this experience I learned that there is more to choosing a care facility than a nice building and well manicured landscaping.  I wanted to share my experience to help provide a starting point if you would ever find yourself in a similar situation. 

                After a fall left my wife’s 83 year old grandmother (let’s call her Anne) with a broken hip, we remodeled our basement to be handicap friendly for her to move into as she recovered.  The intention was for her to eventually move back into her own home.  Since my in-laws live out of state, we thought this would be a great solution to have her stay with us until she healed and save her some money at the same time.   We also thought it would be beneficial for her to be around family and have more personal interaction than what she would have received in a care facility.  Luckily, my wife wasn’t working while completing her graduate degree and would be able devote time to taking care of Anne.  

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By Toan Nguyen

What does your credit mean to you?

You probably use your credit every day and don’t even realize it.  Your credit history affects everything from your access to credit cards, home loans, car loans, student loans, and the interest rates you pay on them.  The better your credit rating, then the lower the interest rates you’ll be charged.  Also, insurance companies and potential employers may review your credit history, which can affect your insurance rates and potential job opportunities.  Account history and transactions can stay on your credit history for up to seven years.  That’s why it’s crucial to verify its accuracy. 

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By Tony Moeller

In late July of this year, I met with a retired couple for lunch for a portfolio review and update on what was occurring in their life.  I attended college with their daughter and have known the couple for over 25 years.  During our review, I asked a myriad of questions regarding their personal finances, health, kids, grandkids, etc.

Overall, this couple was financially secure and other than the aches and pains of aging, they were doing quite well.  However, when asked about the status of their estate plan, they mentioned that it was probably quite out of date and needed to be reviewed.  While probing further, the couple shared that they had concerns regarding what may occur with whatever funds may be left over at the final spouses’ time of passing. 

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By Tony Moeller

Recently, interest rates have been at historic lows, which is tough for retirees or investors who are trying to live off the interest income from their CDs or savings accounts.  However, it is just the opposite case for borrowers.  Over the last several months, I have mentioned to clients and others, that now may be a good time to review your mortgage and see if refinancing can save you money and makes sense.  The following is a link to my July 2, 2010 commentary on this issue:

http://iia-kc.com/blog/financial-commentaries/weekly-commentary-7210-4-15-year-or-a-4-25-30-year-mortgage-%e2%80%93-refinance-now/

As a result, I specifically had a conversation with a client who, her and her husband, were very successful entrepreneurs.  They sold their business and comfortably retired.  Since they had no outstanding mortgage, this was not an issue.  However, I stated that they should bring the subject up with their kids.  They may have a mortgage and are just too busy to see where they stand. 

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Jeremy Seigel is a professor of finance at the Wharton School, was the head of economics training at JP Morgan, and has been monitoring the stock market for over 40 years.  As such, when he has an opinion on the stock market and its prospects, it is worth hearing. 

Professor Seigel believes the stock market is undervalued currently when you look at companies’ earnings, price to earnings ratios (P/E ratios) relative to historically low interest rates.  In addition, dividend rates on high quality U.S. stocks meet or exceed what money markets, CDs, or U.S. government bonds are paying, with the chance for appreciation.  He noted that the last time we saw this type of “yield configuration,” where stocks offered better income potential than long-term U.S. government bonds and other fixed income options, was the 1950s. Read more

Jeremy Grantham, the chief investment strategist at GMO, a Boston investment firm, believes economic growth is precarious, unemployment is painfully high, debt levels are staggering and the stock market isn’t all that cheap.  That being said, he also believes the stock market may do well in the near term, and this is based upon us entering the sweet spot of the presidential election cycle. 

The presidential election cycle is based upon a review of data going back more than a century that shows the stock market has generally done much better in the second half of a president’s four-year term than in the first.  Since 1942, for example, the 200 days after a midterm election have produced “a remarkably consistent uptrend,” regardless of who wins, said Eric C. Bjorgen, a senior research analyst at the Leuthold Group.  In a recent report, he found that in all 17 instances, the Standard & Poor’s 500-stock index had gains averaging more than 18 percent. 

The explanation for this event is that politicians will take steps that help the economy and stock market so that when the next election comes around, they have a greater chance of being re-elected. Read more

Alcoa reported better than expected earnings after the market closed yesterday.  The company supplies a variety of manufacturers, including the auto and aerospace industries, noted that it saw global markets strengthen.  Since it is one of the first companies to report financial results for the quarter, economists use its results to get an early read on the health of the economy.  Thus, many large companies in the U.S. and other developed countries are pinning their hopes on emerging markets for future sales and profits. 

We have all heard about how bad the real estate market is.  Well the following headlines from articles in this week’s Wall Street Journal are reassuring; “Malls begin healing process – Vacancy rates in U.S. markets improved for first time since late 2006” and “Apartment market, rents on mend.”  I believe we have a long road ahead as it relates to real estate, but it appears that we are beginning to see some rays of hope amidst what have been some very ugly storms. Read more

The Dow Jones Industrials had its best September rally since 1939. 

Consumer spending rose by a moderate amount in August while incomes increased by the largest amount in eight months, a gain that was propelled by the resumption of extended unemployment benefits. 

The Institute for Supply Management released its monthly report, which the data is compiled from surveying purchasing and supply executives across the U.S.  For September, manufacturing remained sluggish, but construction spending rose.  Overall the report was not overly optimistic. Read more