Over the course of human history, some 5.3 billion ounces of gold have been mined. And gold has been many things over time. It is currency, jewelry, industrial metal, a store of value, an investment. Yet China doesn't seem to like it all that much. China's State Administration of Foreign Exchange announced recently that China won't be buying too much gold in the future. Considering that China is the world's second largest gold market, that matters.

Gold prices are too volatile, and the size of the market is too limited, so as far as SAFE is concerned, "it cannot become a main channel for investing our foreign exchange reserves" (which total $2.45 trillion). Besides, purchasing more gold wouldn't really diversify the country's reserves all that much. Doubling gold holdings (currently 1,054 tons) would increase gold's portfolio weight by 1% or 2%.   More 

A loony idea that is getting traction of late is that it's "Japan all over again." We wonder if anyone who says this was actually of adult mind at the time of the great Japanese fade. And if they were, what exactly were they drinking?

Comparing our own situation to the Japanese one is very much like comparing the surf at Coney Island to a 30-foot tidal wave. They are both made of water, aren't they?

There were two key features of the Japanese system that prevented a timely recovery from the collapse of the real estate bubble. One was uniquely Japanese, and the other wasn't, although the degree to which it was practiced was exceptional.   More 

On the bright side, the Moody's/REAL All Property Type Aggregate Index showed a 3.6% increase in commercial property prices in May. Even brighter is the fact that this is the second consecutive monthly increase. But prices are still down 38.9% from their peak in 2007, and Moody's is quick to warn, "We expect commercial real estate prices to remain choppy in the coming months. The positive news of increasing prices over the past two months is tempered by low transaction volumes, forecasts for slowing macroeconomic growth and the rising risk of a double dip recession."

Click to view larger image. Source: www.realindices.com   More 

Yesterday's performers may not be today's (or tomorrow's) growth opportunities, and so far, mixed results for earnings season is proving that point. 

There was some good news. Alcoa AA kicked off the second-quarter earnings season with a solid report, with earnings per share $0.01 above estimates at $0.13. Revenue of $5.2 billion was up 22.2% over one year ago.

Intel INTC impressed, having experienced "the best quarter in the company's 42-year history." according to CEO Paul Otellini. The company beat estimates by $0.08, with earnings per share of $0.51. Revenue of $10.7 billion was 34% higher than last year's.

But then the news soured. GE's GE earnings of $0.30 beat estimates by $0.03, but revenue fell 4.3% over a year ago, at $37.4 billion. Google GOOG was no better. While revenue of $5 billion met expectations, earnings per share of $6.45 fell short by $0.07.   More 

This week corporate earnings news overwhelmed the few economic indicators that were released. I was relieved that markets largely ignored the big weekly jump in initial unemployment claims that were the result of an artificially depressed number the previous week. Housing data last week, while down, looked better than I feared and failed to have much impact on the market.

After disappointing earnings reports the week before, last week's strong results from the manufacturing sector powered the market ahead dramatically on Thursday. While manufacturing results were generally robust across all geographies, heavy-duty results in developing markets were clearly an important driver of strong news out of the manufacturing sector. Outstanding earnings, combined with powerful forward-looking statements from many manufacturers, helped allay market concerns over other manufacturing indicators--including the ISM manufacturing indicators--that had begun to show some softness.    More 

More than a year ago, I stopped bookmarking websites in my Internet browser and I've never looked back. What caused the change in my Internet habits?

Early last year I downloaded Google's Chrome browser. (Joel P. Bruckenstein reviewed the first release of Google Chrome in this 2008 Morningstar Advisor column.) While Chrome certainly supports adding bookmarks for frequently visited websites, I haven't found a compelling reason to use them. Instead, I learned how to leverage the functionality of Chrome's address bar, the area where a website's URL is entered. Because the address bar does more than just process website URLs, Google refers to it as the Omnibox.   More 

A dilemma for our firm during travel has been to locate effective, efficient, low-cost Internet connection capability. This is even more important now, because of full implementation of a true SaaS operation within our firm. In other words, all of our planning systems are tied to the Internet. Because of this, I spend a minimum of eight hours a day on the Internet when not traveling.

Finding a solution to connecting to the Internet with sufficient broadband speed is really important while traveling. All told, this personally amounts to about five weeks on the road a year for vacations and CE meetings. How does one solve this problem?   More 

Occam's Razor is the mental shortcut which suggests that the simplest explanation of a problem is probably the correct one.  It warns us that complexity is not an indication of greater value and could even serve as a distraction from more effective, if less elaborate, courses of action.

This is not to imply there is a simple solution to the complex problem of investing. All investment strategies have their limitations. This creates the temptation to add more steps in order to deal with these shortcomings. But will any additional procedure result in an improvement worth the effort? Some sort of cost/benefit analysis needs to be applied to determine if committing the extra time, energy, and money will actually produce a meaningful reward.   More 

Consumers are deleveraging. Consumer credit contracted $9.1 billion in May, after April's $14.9 billion contraction. And the consumers ratio of debt obligations to disposable income fell to 17.1% in the last quarter (the lowest level in almost a decade), according to Bloomberg. To put it in perspective: in early 2008, the ratio hit 18.9%. But today, consumers have pared down their obligations and are not willing to assume more debt (credit-card use shrank by $7.4 billion). The last time revolving credit increased was September 2008.

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Initial unemployment claims dipped by 21,000 in a report last week, one of the best improvements of the year and at least partially offsetting a couple of negative weeks of data. I caution readers again that this series is quite volatile and often moves erratically around holidays. The claims are also still quite elevated at 454,000 versus what I estimate as mid-economic-cycle initial claims of 350,000. It's great to see some improvement from our high of 678,000 initial claims, but the economy has not made much improvement on that count this year.

Initial claims often stall out after a year of recovery, and that slow progress in not necessarily indicative of a declining economy. How can this be? I think the mergers and acquisitions that increase dramatically after a recession are at least part of the explanation. Firms that combine often lay off overlapping personnel after a merger closes.   More 

The Patient Protection and Affordable Care Act (aka health-care reform or Obamacare) is now law. A wise financial planner must grasp this legislation, as it will affect each and every client. From my perspective, it appears this vast bill is an outline for implementation over the next four years, with details to be filled in as we proceed. This is a major planning problem for all of us!

If you have the opportunity, attend my NAPFA colleague Carolyn McClanahan's presentation on this legislation at a CE meeting. Carolyn, with her M.D. background, has a keen grasp of the bill and how it might work in a hospital or doctor's office setting. Her presentation is much more involved than the limitations of this blog article.

However, there are three critical areas of the legislation to bring to your attention.   More 

Individual retailers reported same-store sales last week that seemed to indicate consumer spending was not collapsing as many had feared. So far in this recovery, the key drivers have been inventory restocking, the consumer, and exports. Government has made no contribution to GDP, while imports have soared, a detractor to GDP growth.

Consumer retail spending, in aggregate, has had a fairly normal recovery compared with the past 10 recessions. (On the other hand, incomes and employment have grown at rock-bottom rates. Industrial production, the other gold standard economic indicator, has recovered at a subpar rate so far but hasn't fared as poorly as incomes and employment.) Let's look at exactly where consumers have been spending their money this recovery.   More 

In December, I wrote 2010 The Year of the Fiduciary? I put forth three items on my "Fiduciary Wish List" for 2010.

1. Adoption of a clear fiduciary standard.
2. Transparency and full uniform disclosure of 401(k) fees and expenses.
3. Adoption of rules defining acceptable advice arrangements for 401(k) plan participants.

Last week, the House passed a financial reform bill, which empowers the Securities and Exchange Commission to impose the same fiduciary duty on broker-dealers and insurance agents currently met by investment advisers. This is in many ways a victory for those of us advocating a Fiduciary Standard for ALL financial advisors who advise the public, including those who sell financial products.   More 

Economic recoveries never move in a straight line. In all 10 U.S. economic recoveries since World War II, GDP growth rates declined close to 50% after the initial rush off the bottom. This slowdown occurred anywhere from two quarters to seven quarters into the recovery, with an average pause occurring at four and a half quarters. In my estimation, we are four quarters into the current recovery.

After these historical pauses, growth reaccelerated sharply. In fact, in four of these 10 recoveries, growth demonstrated more gusto after the pause than before it. In two other cases, growth came very close to the old high without exceeding it. In the remaining three cases, growth was lower than before. More importantly, only after the recovery from the 1980 recession did the economy sink back sharply into a so-called double dip. Even then, the dip, sharp recovery, and renewed declines were a result of on-again credit and interest-rate tightening that was designed to stop runaway inflation. In other words, it was a strong external force that threw the U.S. recovery back into a recession.   More 

I am very interested in hearing from other advisors about how they build their practices. More specifically, do they focus on a narrow niche or do they cast a wider net?

I have been doing the latter with some measure of success. Financial advisory has long been considered a very localized service. The Internet has changed that. Though I live in a Maryland suburb of Washington, D.C., I have clients as far away as the Dominican Republic and Anchorage, AK. They came to me by way of Google.   More 

Does this qualify as a Fourth of July post?  Several editors of 24/7 Wall St. recently computed the peak net worth, in 2010 dollars, of all 43 U.S. presidents. (The 43 number isn't a mistake, Grover Cleveland counts as two presidencies but only one president.) According to their calculations, the five richest presidents were:

1. George Washington, $525 million
2. Thomas Jefferson, $212 million
3. Theodore Roosevelt, $125 million
4. Andrew Jackson, $119 million
5. James Madison, $101 million   More 

Illinois: the Land of Lincoln. On Dec. 3, 1818, Illinois became the 21st state admitted into the union. Today, it is the state most likely to default on its debt. How bad is it? Illinois scores just above Dubai on likelihood of default, according to CMA. That's nothing for the Prairie State to be proud of.

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Many registered reps selling 401(k) plans in the small to midsized market would have plan sponsors believe that American Funds is the secret sauce.

To be clear, I have enormous respect and admiration for American Funds as a fund family. The firm offers a number of excellent funds and has a deep management/research group. I use several of its funds in 401(k) plan lineups and in the accounts of some of my individual clients (no-load share classes).

Contrary to what these registered reps may tell people, an all-American-Funds lineup is not a complete 401(k) solution. Here's why:

There are no domestic small- or mid-cap funds in the American Funds lineup. These areas are typically core asset classes in a well-balanced plan lineup.

For 401(k) plans, the R class of shares is typically used. For smaller plans, this might entail the R1 or R2 share classes, larger plans can use the much more reasonable R4 or R5 share classes. For example, look at the large-value Washington Mutual fund:

• R1 expense ratio is 1.43%, which includes a 12b-1 fee of 0.99%
• R2 expense ratio is 1.50%, which includes a 12b-1 fee of 0.75%
• R3 expense ratio is 0.97%, which includes a 12b-1 fee of 0.50%
• R4 expense ratio is 0.69%, which includes a 12b-1 fee of 0.25%
• R5 expense ratio is 0.39% with no 12b-1 fee

In the case of most registered reps and commissioned brokers, the 12b-1 will go to compensate them for their involvement with the plan.

Looking at this another way, the five-year average annual return for the R1 shares is 0.47%; for the R5 shares, it is 1.55%.

In the commissioned world, the American Funds represent one of the best fund families many of these reps can sell. As with other top-notch fund families such as T. Rowe Price and Vanguard, using a lineup consisting exclusively of any fund family is usually not a good idea and does not provide the best 401(k) lineup. This approach may be in a broker's best interests, but not the plan sponsor's or participant's.